The Supreme Court of Canada some five years ago defined a duty of good faith and fair dealing which was owed between contracting parties.[1] The decision was not a pure employment law case yet its impact clearly relates to employment relationships. It is an important issue as the duty of good faith is likely no longer limited to the time of termination.[2]

The Case in Issue

The immediate decision to which leave to appeal to the Supreme Court of Canada[3]has been granted comes from the Nova Scotia Court of Appeal.[4]

The trial decision awarded 15 months’ notice based on a finding of constructive dismissal. The real issue for subsequent proceedings involved an interpretation of the LTIP[5]. The passing of time by the notice period would normally have triggered a payment of roughly $1 million as the company was sold 13 months after the plaintiff’s last day of active employment.

Regrettably for the plaintiff, the LTIP was well drafted as it contained a term which mandated active employment on the date of the sale. It stated no LTIP sums would be made, should the employee no longer be employed due to termination or resignation prior to this event.

The trial judge found nonetheless in the employee’s favour, a decision reversed by the Court of Appeal in a 2-1 decision. The majority saw itself constrained by the wording of the LTIP plan and denied the $1 million award for this sum.

The critical reasons, however, were found in the dissent of Scanlan, J.A. He found, as did the trial judge and the majority that the plaintiff had been lied to and ill-treated by his immediate manager which led to his “resignation”, found to be a constructive dismissal.

His view was that a literal interpretation of the LTIP would deny the plaintiff recovery. This being said, he also concluded that the contract was to be interpreted based on the Bhasin principles of good faith and fair dealing and that “no amount of lies or deception by [his immediate boss] should serve to deny Matthews of that [LTIP] benefit”….and further…. “The court must not condone the avoidance of contractual obligations that are founded on such a lack of integrity”.

His decision would have allowed the LTIP sum.

This dissent is an interesting and liberal view of this duty of good faith, even to override a contractual term to the contrary.

Lesson for Both Sides

This case will be sure to be a watershed decision to define the nature of the good faith obligations owed by each party to the employment relationship to one another. Stay tuned to this station.

Get Advice and Know Your Rights

For advice on this issue and all employment law matters, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416 364 9599 to schedule a consultation.


[1] Bhasin v Hrynew

[2] As in Honda v Keays 2008 SCC

[3] Leave decision

[4] Ocean Nutrition v Matthews NSCA; trial decision and supplementary trial reasons

[5] Long Term Incentive Plan