Duty of Honesty in Employment Contracts

Authors: Jordan Reiner & Kimberley Sebag

If you are in the process of negotiating an employment contract for a new job, then this is an important article to read!  This also applies to consultants and independent contractors. In 2014, during a landmark case, Bhasin vs. Hrynew 2014 SCC 71, the Supreme Court of Canada took a close look at the implied duty of honesty in contracts. The ruling made the expectation of fair play very clear. During contract negotiations, neither party can sabotage the terms or give the other party a wrong impression about the stipulations. For employees, this was pivotal because with employment contracts, employers generally hold the balance of power. This case recognized good faith as a basic organizing principal and provided employees more protection under the law.

Bhasin vs. Hrynew: Duty of Honesty

Harish Bhasin and Larry Hrynew both operated competitive businesses that sold education savings plans for the Can-Am Financial Corporation. Hrynew tried to gain advantage over his competitor, and eventually wiped him out, by influencing Can-Am. He convinced them not to renew Bhasin’s business contract. Consequently, Can-Am began dealing dishonestly with Bhasin, misleading him on several occasions, causing his business to lose value. Subsequently, they terminated his contract.

Bhasin sued for breach of the implied Duty of Honesty in his contract. This case went all the way up to the Supreme Court of Canada, who agreed with him. The Duty of Honesty became a new common law applicable to all contracts. It requires the parties to be honest with each other in relation to the performance of their contractual obligations. They must not lie or otherwise knowingly mislead each other.

Justice Cromwell provided further elaboration about this unstated and straightforward expectation of good faith during contract negotiations. It can manifest itself in different ways for different types of contracts and contractual relationships. In many cases, it requires more than just honesty.

Consultants and Contract Workers

Recently, we applied this principle to consulting and service contracts on behalf our client, Daniel Fernandez against S.I Systems Partnership. They hired Mr. Fernandez as an independent contractor for a 6-month term to work on a project for their client, Shoppers Drug Mart. The contract included two termination provisions. It permitted S.I. Systems to terminate the agreement early with 10 days notice. And it also allowed them to do so without notice if Shoppers Drug Mart terminated their client agreement with S.I. Systems.

As it turned out, S.I. Systems terminated Mr. Fernandez’s contract prematurely, letting him go without notice. Allegedly, Shoppers Drug Mart had complained of Mr. Fernandez’s poor performance and cancelled their agreement with S.I. Systems.  At trial, we argued that Mr. Fernandez was wrongly characterized as an independent consultant because he performed duties just like an employee. And furthermore, we argued that S.I. Systems acted in bad faith when terminating him without notice.

Interestingly, the court found that an employment relationship did not exist, that Mr. Fernandez was an independent contractor. However, they recognized that S.I. Systems had breached the duty of honesty and good faith when they fired him. There was no evidence that supported poor performance by Mr. Fernandez. He was never offered a chance to answer those allegations. In fact, the defense offered no proof that Shoppers Drug Mart had even terminated their contract. For breaching their duty of honesty and good faith, the court awarded Mr. Fernandez damages that covered his wages to the end of his contract term.

Good Faith Treatment

Accordingly, employees, consultants and contractor workers alike should expect fair play during discussions and negotiations of their contracts. This includes the terms of your salary and bonus payments, a promotion or an even an internal company investigation. Our courts will frown at employers who act less than forthright, and in bad faith, at any point during your employment relationship. In a wrongful dismissal case, it is not uncommon for judges to award employees additional compensation for bad faith treatment when employers treat them poorly during terminations.

This duty of honesty and good faith, however, comes with limitations. It does not go far enough to engage your loyalty or put your interests first. Courts remain hesitant to interfere too much with free trade and the meeting of the minds that occurs when two parties negotiate and agree into a contract.

Hiring an Employment Lawyer

Employment, service and consultant contracts are important documents that govern a working relationship. Similarly, termination agreements and clauses set out your compensation terms when the relationship ends. You must clearly understand the terms before you sign on the dotted line. An employment lawyer can help you gain important perspective about your rights. The least you can do is ensure your contract is properly vetted.

Sometimes, employers make offers but set unreasonably tight deadlines for you to accept them. Now, common law affords you fair play. You can therefore push back and request reasonable timeline extensions to seek legal help.

Another scenario we often see involves multinational corporations, especially those with head offices in the U.S. They erroneously assume our employments laws are the same. Employment contracts must pass a stress test of more than eight stringent technical requirements to ensure compliance with our laws. The courts will consider them null and void when they are ambiguously worded or fail to provide adequate considerations. An employment lawyer can identify these gaps for you. Sometimes this opens avenues for further negotiation in your favour.

Lecker & Associates are employment and disability benefits lawyers. To properly understand your contract, book a 1-hr consultation with one of our experienced employment lawyers. We have exclusively represented the interests of employees of Ontario for over 35 years. This is an area of law we understand very well.

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