The Ontario Court of Appeal considered the impact of the Bhasin duty of honest performance in its May 2018 decision. ¹ The plaintiff had applied for a consulting position and disclosed the fact of a past criminal conviction. He had been hired for a six month consulting contract.

This company, in turn, was a contractor to Canadian Tire. As part of its contract with Canadian Tire, the company had agreed that it would not provide a person to service the Canadian Tire account who had a criminal record, save with the express consent of Canadian Tire.

Soon after the relationship had begun, Canadian Tire refused to allow the plaintiff to work on its account. The principal then advised the plaintiff that he was terminated and relied upon the contract which stated:

This agreement and its Term shall terminate upon the earlier occurrence of:

1. ISA, at their sole discretion, determines the Consultant’s work quality to be substandard.
2. ISA’s project with Customer gets cancelled, experiences reduced or altered scope and/or timeline.
3. ISA determines it is in ISA’s best interest to replace the Consultant for any reason
4. Immediately, upon written notice from ISA, for any breach of this Agreement by the Consultant. ²

The motions judge made the following review, in deciding in favour of the plaintiff:

1) the appellant breached the duty of good faith performance of contracts by failing to use the termination clause in good faith; 2) in the alternative, the termination clause was void for vagueness; 3) the respondent was an independent contractor; and 4) the ICA was a fixed term contract, and based on this court’s decision in Howard v. Benson Group Inc. (The Benson Group Inc.), the respondent was entitled to damages based on the balance of the fixed term contract with no duty to mitigate.

The Court of Appeal determined that the motions judge was considering the question of whether the company used the termination clause in good faith, given that it had been made aware of the issue of the criminal conviction before entering into the contract.

The Court of Appeal agreed with the reasons of the motions judge that the company could not, in good faith, use this clause of unfettered discretion in this manner and upheld the decision. ³ The plaintiff was awarded the balance of the contract, without mitigation.

Parenthetically, the mitigation issue with a consulting contract was later determined by the Court of Appeal to be fact specific in this instance and later determined that such an agreement did require mitigation.⁴

A contrary view was reached by the Alberta Court of Appeal in January of 2017. ⁵ The trial judge had found, in dealing with a claim for the loss of the Long Term Incentive Plan benefits, that the employer should have regard to the plaintiff's contractual interests when exercising "its discretion" to terminate without cause.

The Court of Appeal took direct issue with this concept and concluded that there was no such obligation in law to consider the plaintiff's contractual expectations in this context:

This conclusion assumes that when an employer proposes to terminate employment without cause, it must have a reason that includes “an appropriate regard” for the employee’s expectations, beyond what the contract actually provides for.

It continued:

An “unreasonable” termination changes an ordinary “termination without cause” from the exercise of an implied term of the contract into a breach of the contract, entitling the respondent to damages. This is inconsistent with the right to terminate without cause on payment in lieu of notice, without providing any reason. The rule is not that there can be termination without cause so long as there is payment in lieu of notice, plus compensation for “legitimate contractual expectations”.

  Such a decision to terminate without cause, the Court of Appeal, stated, cannot raise the question of discretion.

 It is a further error to suggest that such a decision can be reviewed by the court for reasonableness. This approach treats termination without cause as a breach of contract. An employer can terminate the contract of employment on reasonable notice - no explanation need be given. The employee is entitled to notice or pay in lieu of notice and any other compensation provided for in the written employment contract. In this case the respondent was not entitled to any unvested bonuses on termination. There is no common law principle that he would nevertheless be entitled to bonuses unless a reasonable basis for the termination was shown.

The bonus in this case was not due for years to come.

This decision was relied upon by the Nova Scotia Court of Appeal in Matthews v Ocean Nutrition.

This Court of Appeal decision, was, however, in turn set aside by the Supreme Court of Canada. The Supreme Court commented adversely on Styles and noted that Styles did not raise an issue with respect to damages relating to the notice period.

The Supreme Court did note in passing that one issue to be considered in assessing a restrictive clause in an employment contract was whether this term was "adequately brought to the employee's attention":

Finally, at this stage of the analysis, it may also be appropriate in certain cases to examine whether the clauses purporting to limit or take away an employee’s common law right were adequately brought to the employee’s attention (Paquette, at para. 18; Taggart, at paras. 20-23; Poole v. Whirlpool Corp., 2011 ONCA 808, 97 C.C.E.L. (3d) 20, at paras. 5-6). This issue, however, does not arise on these facts.

The reference to Poole in this decision was a statement made by the Court of Appeal as follows:

 The bonus eligibility precondition relied on by the appellants was not incorporated in the respondent’s 2007 letter of employment; nor was there any evidence that the precondition was otherwise drawn to the respondent’s attention at any time, whether orally, in writing, or by means of the appellants’ internal intranet communications system, or that he ever agreed to it. The appellants elected not to cross-examine the respondent on his affidavit materials, in which he swore that he never agreed to the precondition and was unaware of any reference to it on the appellants’ intranet system. ⁶

In Paquette, the Court of Appeal made a similar reference, in obiter: ⁷

Where a bonus plan exists, its terms will often be important in determining the bonus component of a wrongful dismissal damages award. The plan may contain eligibility criteria and establish a formula for the calculation of the bonus. And, as here, the plan may contain limitations on or conditions for the payment of the bonus. To the extent that there are limitations, the question may arise as to whether they were brought to the attention of the affected employees, and formed part of their contract of employment. The latter issue does not arise here, however, as the appellant did not dispute that he was aware of the plan’s terms.

The clear impact of these words from the Supreme Court, not a statement of law, yet a firm signal, that such restrictive terms should be clearly brought to the attention of the employee. This issue was also discussed in Matthews, as reviewed here.

In a 2020 decision, the Supreme Court of Canada also applied the Bhasin principle to a maintenance contract which had stipulated a 10 day termination clause. ⁸ The trial judge had found that the contractor was actively deceived by the condominium corporation. It was found to be liable even though it had used the otherwise valid termination clause. The Ontario Court of Appeal had disagreed with the trial judge. The Supreme Court restored the trial decision:

I respectfully disagree with the Court of Appeal on whether the manner in which the termination clause was exercised ran afoul of the minimum standard of honesty. The duty to act honestly in the performance of the contract precludes active deception. Baycrest breached its duty by knowingly misleading Callow into believing the winter maintenance agreement would not be terminated. By exercising the termination clause dishonestly, it breached the duty of honesty on a matter directly linked to the performance of the contract, even if the 10-day notice period was satisfied and irrespective of their motive for termination. For the reasons that follow, I would allow the appeal and restore the judgment of the Ontario Superior Court of Justice.