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, even if the employer has stated the termination is not for cause.

This may be the death knell for the proposition that the employer need not state the reason for termination, in a context where the true reason is the suspicion of serious wrongdoing of the employee. In this circumstance, the employer cannot simply state the termination is “without cause” or even “with cause”, without conducting an investigation and obtaining the employee’s version of the events. This issue is reviewed in detail here.

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  referenced above also spoke to the issue of “honest performance” throughout the entirety of the relationship and that this duty of good faith is no longer limited to the “moment of termination”, as it arguably once was so confined. ¹

The Nova Scotia Court of Appeal in the November 2015 decision of Industrial Alliance v Brine also provided an interesting application of Bhasin principles in a case involving the interpretation of the good faith requirement of a disability insurer.

One of the issues in dispute between the parties was the conduct of the insurer in providing rehabilitation services and then reversing its decision. The policy did not mandate the provision of such services, but the company did provide such in view of the young age of the insured and the possibility that he may never work again.

Thirty months after the services had been provided, the insurer elected to terminate them, following receipt of its IME. The trial judge was critical of the manner of this decision being made, which was contrary to the view of its IME.

The issue presented on appeal was hence how could the insurer be determined to have acted in bad faith upon terminating a benefit which it was not contractually obliged to provide?

The Court of Appeal referenced the Supreme Court of Canada decision in Bhasin to determine that it was not necessary to find a specific contractual term which had been violated, but rather the court could look to the “independent implied contractual obligations”:

Bhasin’s broad organizing principle and its outgrowth duties do not just tack an extra sanction onto the breach of an explicit contractual term. Neither are the duties of honest dealing in Bhasin, or good faith in the insurance context, just executive summaries of the contract’s written terms. They are independent implied contractual obligations that derive from the existence of the contract. Whether National Life breached its duty of good faith is not predicated on the condition precedent that National Life breached an explicit provision of the Policy.

This is clearly a liberal reading of the Bhasin theme. The reluctance of the Court to rely specifically on the contractual term and instead consider the relationship in its broadest concept is reflective of a generous interpretation of the obligations of the contracting parties to one another. ²

The application of Bhasin v Hrynew to the entirety of the employment relationship is now clearly beyond dispute.

Yet lurking in the background is the influence to be given to the refrain of Bhasin in this context. Might the obligation to investigate, contractual, statutory or implied be subject to the “duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations”. The full extent of this duty has yet to unfold.

In Bhasin itself, Cromwell J. spoke to this issue, noting that there is no compendium of situations and relationships which may attract good faith obligations, stating “the application of the organizing principle of good faith to particular situations should be developed where the existing law is found to be wanting”.

This may have an impact on many issues in the investigative process. Must the investigator advise the alleged offender of the need, legal or otherwise, to obtain counsel; ³ or the consequences a statement made to the investigator may have upon criminal liability. Must the investigator comply with the same duty of the employer to be "honest, reasonable, candid, and forthright"? This would not be a shocking conclusion.

These remain very much live issues.