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In 2014, the Supreme Court of Canada (“SCC”) released the landmark case Bhasin v Hrynew confirming that the principle of “good faith” is implied in all contract dealings. Throughout the years, many cases across different legal practice areas have cited Bhasin to enforce honest dealings and good faith performances within contracts. Recently, the SCC revisited the good faith principle in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District and C.M. Callow Inc. v. Zollinger.
Wastech focused on how good faith can constrain discretionary powers provided for within a contract. This means that even if a contract offers the employer broad discretion, that discretion must still be used reasonably. Callow indicates that honest performance means that parties to a contract cannot intentionally mislead each other. For more details on Wastech and Callow, see our Supreme Court of Canada Update.
Since Wastech and Callow were released, courts have applied these good faith principles in the employment context. In this article, we review what kind of employer behaviour is considered “bad faith” in employment contracts.
a) (Don’t) Sign on the dotted line: An employer threatening termination if employee fails to sign new employment agreement amounts to bad faith.
· Koutsikaloudis v Maple Leaf Academy Ltd.
· Visaggio v Joynt-Dent Inc.
In both these cases, the employers attempted to force their employees to sign new employment agreements with more stringent language which would have limited their existing legal entitlements. The employers threatened to terminate the employees if they refused to sign. In both cases, the employees refused to sign and filed suit. Adjudicators in both cases determined that the employers had breached their good faith contractual duty towards their employees.
b) Led Astray: Misrepresenting information about the employee prior to termination and misrepresenting the financial situation of the employer’s company amounts to a finding of bad faith.
· Haack v Secure Energy (Drilling Services) Inc.
In Haack, the employer relied on misleading and untrue information regarding the employee to justify terminating him. Callow does not require employers to act altruistically but to simply not make false or misleading states due to carelessness. For his wrongful termination and the employer’s breach of good faith the plaintiff employee was awarded $115,846.21.
· Antunes v. Limen Structures Ltd.
While negotiating a contract with the plaintiff employee the employer misrepresented the financial situation of the company. The employer promised $500,000 worth of shares to the employee despite the company being in a precarious financial situation. The employee never received the shares and was terminated a little over five months after commencing employment. This was seen to be a violation of the employer’s good faith obligations and the plaintiff employee was awarded $500,000 in damages as well as eight months’ salary.
· Baier v Kitchener-Waterloo Skating Club
The club attempted to remove the plaintiff employee while simultaneously making an effort to retain her students. The club was dishonest when it accepted the registrations of her students while knowing it would not allow her to coach. Further, the club also told parents that the plaintiff employee was worse than she actually was. Therefore, the club acted in bad faith by misleading the plaintiff into thinking she was scheduling time with her students when the club had decided to prevent her from coaching.
c) Boss Bullies: Employers who try to bully and sabotage employees into resigning or being terminated are acting in bad faith
· Karmel v Calgary Jewish Academy
The plaintiff employee was terminated from his principal position in 2013 and commenced a wrongful dismissal action. The court determined that the principal was not terminated for cause and was thus eligible for damages. The school was determined to have acted in bad faith: the Chair of the Board pitted the Board against the principal, the Chair was transparent about sabotaging the principal, and there were rumours about the principal’s termination. All of this amounted to a finding that the school breached its good faith obligation. The principal was awarded $200,000 in aggravated damages.
· Matthews v. Ocean Nutrition Canada Ltd.
We reported on this decision in a Supreme Court of Canada Update and also in a publication about calculating bonuses in wrongful dismissals. The plaintiff employee worked in different management positions for the employer since 1997. The employer hired new management who marginalized the plaintiff and made false statements about his job security. The remedy Mr. Matthews was seeking did not require a finding of bad faith, but the Supreme Court did comment on Bhasin and the obligation of good faith in contracts in its decision, confirming the application to employment contracts. In obiter comments, the Supreme Court of Canada made the following key point regarding good faith in contracts:
- The contractual breach of good faith rests on a wholly distinct basis from that related to the failure to provide reasonable notice. In other words, the employee can seek damages for the breach of good faith and honesty to provide compensation beyond entitlements to notice or bonuses.
It should also be noted that the Court declined to consider whether the law regarding good faith in employment contracts should be expanded to provide a cause of action where an employee is subjected to bad faith conduct but chooses not to leave their job. That may be something we see in future employment cases.
d) Second Chances: Not providing an employee with the opportunity to reconsider their actions or respond to complaints against them is bad faith.
· Evans v. Avalon Ford Sales (1996) Ltd.
The plaintiff was a manager for over 12 years for the employer. The plaintiff made an error and was reprimanded which caused him to feel severe stress. In his emotional state he left his phone and keys on a desk. Three days after this incident the parties met again, and the plaintiff sought accommodation and reduced duties. The employer stated that it was too late since the plaintiff had already resigned. The plaintiff brought forward an action for wrongful dismissal. The court determined that the employer failed in its duty of good faith and fair dealings when it failed to provide the plaintiff with an opportunity to reconsider. The plaintiff was awarded 12 months’ notice and an incentive damage award of $27,661.10. There was no award for punitive or moral damages.
· Bray v. Canadian College of Massage and Hydrotherapy
The plaintiff employee went on maternity leave from her position as a massage instructor for the employer. Upon her return she was no longer the lead instructor, received less hours and her pay was reduced. She brought an action for wrongful dismissal. There were complaints against the plaintiff that the employer did not disclose or provide to the employee, affording her no opportunity to respond. The court determined this was a violation of good faith performance. Thus, the plaintiff was awarded $5,000 in punitive damages. This was limited to small claims jurisdiction, so the plaintiff was only awarded a total of $25,000 inclusive of reasonable notice, discrimination, and punitive damages.
· Jonasson v Nexon
The plaintiff negotiated a Leave of Absence (LOA) agreement with his employer. The agreement did not guarantee him a job upon his return, but that the employer would make reasonable efforts to provide him with one. At the time the LOA agreement was negotiated, the employer knew that it would be unlikely a role would be available. When the plaintiff started his leave, management had him on the shortlist for a layoff and during his leave, they decided to terminate him and purported to rely on a “deemed resignation” clause in the LOA agreement to deny him termination compensation. The trial judge made the following findings regarding the employer’s failure to meet the standard of good faith:
[56] Nexen failed to act with candour and forthrightness. It permitted Mr. Jonasson to enter into a LOA Agreement at a time when it knew that a significant percentage of management positions would be cut. When he started his leave, the percentage was even higher, and Mr. Jonasson had been identified as a target. As I have found, at first Nexen did not piece together its reduction program and Mr. Jonasson’s leave, but when it did, it still took no steps to comply with the LOA Agreement or to inform Mr. Jonasson of his true position. Nexen’s deliberate and ongoing secrecy about the intended cuts prevented Mr. Jonasson from protecting his own interests.
Mr. Jonasson was awarded 23 months of wrongful dismissal damages. The Court found that “the wrongful dismissal and the bad faith arise largely from the same action and inaction by Nexens” so he did not award a separate remedy for the bad faith conduct. The trial judge did award $20,000 in punitive damages related to the bad faith conduct:
[80] As explained above, Nexen intentionally kept both signatories in the dark about its planned workforce reduction, resulting in Mr. Birdgeneau making a promise that Nexen had no true intention of keeping. At the time, Nexen’s desire for secrecy was understandable. But past a certain point that secrecy was no longer required. Nexen could then have informed Mr Jonasson of his true jeopardy. At any time, it could have invited him back from his leave, scheduled his termination for a day after his return from leave, or taken any number of other steps to try to mitigate the wrong that its false promise had created. Instead, it exploited the LOA Agreement’s deemed resignation clause. Though not malicious or vindictive, this degree of high-handed bad faith offends this Court’s senses of reason and decency.
However, the punitive damage award was reversed on appeal as the Court of Appeal noted the trial judge’ finding that the employer’s behaviour demonstrated an “outrageous degree of negligence towards him”, but was not malicious.
Conclusion
The courts are continuously clarifying what it means to act in good faith in the employment context. The above cases have provided a snapshot of ways employers have been seen to have acted in bad faith. It is important to note that a finding where an employer breached its good faith duty does not necessarily mean that the plaintiff employee is entitled to moral damages (for more information check out our article on when moral damages may be awarded).
To date we have seen that courts have determined a breach of good faith to occur when:
- An employer uses its discretion to refuse to renew an employment contract for reasons unrelated to the objective of the contract;
- The employer relies on misleading information to terminate an employee;
- Pitting board members against an employee;
- Clearly intentionally sabotaging an employee;
- Not providing an employee with the opportunity to reconsider their employment status;
- Forcing long-term employees to sign a new employment contract in an attempt to skirt legal entitlements;
- Misleading information about the financial success of the company or the employee’s job security;
- Not providing an employee with the opportunity to respond to complaints against them.
There has been a wealth of cases that have attempted to clarify what it means for parties to perform honest dealings and act in good faith according to Bhasin. However, there is still some ambiguity and confusion about what that means. For example, how does good faith apply to unfettered termination clauses? Neither Wastech nor Callow addressed this issue. Therefore, the relationship between good faith and unfettered termination clauses has not been definitively determined by the SCC. In fact, the SCC mentioned in Callow that the case law is not settled on the extent to which the good faith obligation applies to unfettered termination. Was this a breadcrumb from the SCC hinting that after identifying this gap in the case law they will provide some insight soon? It will be interesting to see how future courts grapple with this issue.