The Supreme Court of Canada in 2014 outlined the “organizing principle” of good faith which is required between contracting parties. One aspect of this duty is that parties must not mislead one another. An affirmative act of dishonesty would breach this obligation but, as was stated in this case, the failure to disclose a material fact may not.

The principles of Bhasin in employment law are significant as these rules relate to the obligation of good faith throughout the entire performance of the contract, as opposed to the time of termination, as was previously defined in Honda v. Keays.

The Case in Issue

The plaintiff at age 55, with in excess of twenty years of service, was contemplating retirement or a leave of absence. He decided to request a leave which was granted subject to his agreement to this new contractual term:

I agree that the Company is under no obligation to return me to my original position or one of equivalent level upon my return to active duty. If a suitable role is offered and I decline, or if a suitable role is not found, I understand and agree that I will be considered to have resigned as of the date my leave was scheduled to have ended.

The company, however, knew at the time of this agreement, that it intended to lay-off employees at the same level, a fact which it failed to disclose to the plaintiff.

In the course of his leave, the company proceeded with the lay-offs and then advised the plaintiff that given the lack of comparable positions, that it would treat him as having resigned his employment, as set out in the agreement.

The issue, hence, in the resulting litigation was whether the employer had a duty to be open and honest and tell the plaintiff of its intended plan to lay-off employees at a comparable level.

The answer was “yes”. The duty of good faith required the employer to be candid and forthright. The result was that the court refused to uphold the resignation clause and treated the resignation assertion as a termination. The plaintiff was awarded 22 months severance.

A further sum was awarded for punitive damages of $20,000. This was granted even though the conduct was not malicious or vindictive, the usual test, but rather because it offended the standards of decency. It remains to be seen as to whether this will be the new grade to be met for future similar awards. It marks a remarkable departure from prior case law.

This case is illustrative of the dynamic nature of the common law. Prior to Bhasin, such a standard of good faith between contracting parties would require a fiduciary status. The law is a living being. This is a dramatic reminder of the need to stay current.

Employers’ View

There should be no admonition for being honest and forthright. This case reflects the court’s disapproval of a standard less than this.

Employees’ Take Away

This case reflects the need for clear legal advice. The law on this subject is not intuitive and indeed fluid. Legal advice is paramount.

Get Advice and Know Your Rights

If you have questions about this issue or any employment question, 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.