Bhasin v Hrynew 2014
The Supreme Court of Canada decision of Bhasin v Hrynew, by which it demanded a duty of honest performance between contracting parties to a commercial agreement suggests that this new duty demands that the employer must be honest with respect to the reason for termination.
This will raise the issue of whether the employer must state the reason for termination, as discussed elsewhere.
Furthermore, it is apparent that a severance term or other provision in a written contract cannot exclude such a duty of good faith.
In Bhasin, the defendant in fact followed the terms of the contract between the parties by providing the agreed upon notice not to renew the agreement. The Supreme Court nonetheless found an actionable breach of the duty of good faith as the defendant had misled the plaintiff as to its motivation for ending the agreement, which was intended to allow the plaintiff’s competitor access to the plaintiff’s agents and book of business.
The Supreme Court of Canada above also spoke to the issue of “honest performance” throughout the entirety of the relationship. This is not limited to “moment of termination”, as is the case with the Wallace/Honda duty of fairness.
The Supreme Court referenced this Bhasin duty in its 2015 decision, dealing with constructive dismissal issues. 1, noting that the plaintiff had been given no reasons for his administrative suspension. The significant issue is the acceptance of Bhasin setting an employment standard:
In the instant case, this basic requirement was not met. To begin with, Mr. Potter was given no reasons for the suspension. It seems to me that, in most circumstances, an administrative suspension cannot be found to be justified in the absence of a basic level of communication with the employee. At a minimum, acting in good faith in relation to contractual dealings means being honest, reasonable, candid, and forthright: Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, at para. 66. Failing to give an employee any reason whatsoever for his suspension is, in my opinion, not being forthright. Moreover, the limited evidence presented in support of the Board’s ostensible purpose of facilitating a buyout is undercut by the actions the Board took to have Mr. Potter terminated. As I mentioned above, the Board’s resolution of January 5, 2010, and the January 11, 2010 letter to the Minister in which the Board recommended that Mr. Potter be terminated ought to have been admitted at this stage of the analysis. With respect, this constituted a significant error on the trial judge’s part. Add to this the facts that Mr. Potter was replaced during the suspension period and that that period was indefinite, and there remains no doubt in my mind that the suspension was unauthorized. To reiterate, which factors must be considered will vary with the context and will depend on the nature and circumstances of the suspension.
Bhasin was not an employment case but it has been applied to the duties within an employment relationship. The Supreme Court, in this decision, noted that the employer’s duty of honest performance is one which extends throughout the duration of employment. 2
The Alberta King's Bench came to same conclusion in 2015, citing Bhasin as authority for the aggravated damage claim due to the employer’s conduct over a period of 18 months.3
Bhasin has also been used as an interpretative aid in considering the impact of the employment contract.
The application of Bhasin to employment relationships was also noted by the Supreme Court in its 2020 decision. 4 The court spoke to the duty of honest performance and confirmed that the duty of good faith is not confined to the exact moment of termination:
It is apparent too from the pleadings here that there is a measure of uncertainty as to the impact of Bhasin, not just in Mr. Matthews’ case but on employment law more generally. At a minimum, I believe this is an occasion to re-affirm two important principles stated in Potter. First, given the various submissions in this case, I would recall that the duty of honest performance — which Cromwell J. explained in Bhasin applies to all contracts, and means simply that parties “must not lie [to] or otherwise knowingly mislead” their counterparty “about matters directly linked to the performance of the contract” — is applicable to employment contracts (Bhasin, at para. 33, see also para. 73; Potter, at para. 99). Second, given the four-year period of alleged dishonesty leading up to Mr. Matthews’ dismissal, I would also reiterate that when an employee alleges a breach of the duty to exercise good faith in the manner of dismissal — a phrase introduced by this Court in Wallace, and reinforced in Keays — this means courts are able to examine a period of conduct that is not confined to the exact moment of termination itself. All this reflects, in my view, settled law.
To be actionable the duty of honesty must be connected to the performance of the contractual obligations. 5
As further noted by the Supreme Court stated in 2020 in Matthews v Ocean Nutrition:
Under rules recognized by this Court in Bhasin and Potter, an unhappy employee can allege dishonesty in the performance of the contract by the employer … independently of any failure to provide reasonable notice. This Court has also recognized in Wallace and Keays that an unhappy employee can allege mistreatment — i.e., conduct that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive” — in the manner of dismissal by the employer … A breach of the duty to exercise good faith in the manner of dismissal is also independent of any failure to provide reasonable notice….
The degree of misleading and dishonest conduct includes:
Dishonesty includes the full range of misleading and dishonest behaviour, “lies, half-truths, omissions, and even silence, depending on the circumstances”: C.M. Callow Inc. v Zollinger, 2020 SCC 45 at 91.
The duty, as defined to date, does not include pre-contractual honesty.
In concurring reasons in Callow, Brown, J. noted that the obligation is distinct from that of fraudulent misrepresentation, although Bhasin also applies to representations in the currency of the contract. Unlike a claim of fraudulent misrepresentation, which requires that the dishonest wrongdoer intend that the innocent party rely upon the statement, Bhasin needs only that the victim did rely upon the statement. The plaintiff must then show that, but for the misleading statement, it would not have suffered the damage claim.
The test is the presence of conduct does focus on honesty, yet also will examine conduct which shows the employer acted “reasonably and not capriciously or arbitrarily”: 6
The application of this principle of good faith is context specific and must consider “the reasonable interests of both contracting parties”. 7 The centre piece of the review looks to the conduct of the contracting party, with respect to the rights and obligations that arise from the contract. This issue is limited to the contract and not beyond it. 8