November 27, 2014
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Nelligan O'Brien Payne gratefully acknowledges the contribution of Andrew Reinholdt, Student-at-Law in writing this article.

Last week the Supreme Court of Canada in Bhasin v Hrynew, made an unprecedented pronouncement: thou shalt not lie…well, at least when performing under a contract. This raises the question of what impact, if any, this case will have on employment relationships.

In Bhasin the facts were relatively straightforward. Bhasin had a dealership contract with Can-Am, where Bhasin ran a business selling Can-Am education savings plans (ESPs). He had the largest salesforce in Canada, and had won numerous awards. Hrynew, a competitor who also sold Can-Am ESPs, wanted to take over Bhasin’s business, and exerted pressure on Can-Am to merge Hrynew and Bhasin’s salesforce. At the same time, the Alberta Securities Commission (the ASC) was investigating Can-Am for non-compliance with provincial securities regulations. In response, Can-Am appointed Hrynew as an auditor, which allowed him to look at all of Bhasin’s confidential business information. Ultimately, Can-Am elected to not renew Bhasin’s dealership contract, and merged his business with Hrynew’s. Bhasin ultimately left to work for a competitor after losing his salesforce.

During these events, Can-Am lied or misled Bhasin about three important details of his business. First, Can-Am incorrectly told him that as auditor, Hrynew was subject to a duty of confidentiality. Second, Can-An informed him that the ASC rejected the appointment of an outside auditor, which required them to appoint Hrynew (which was also untrue). Finally, despite Bhasin’s inquiry, Can-Am told him that it had not made final plans to merge agencies, when they had in fact already made a final decision that Hrynew’s agency would absorb Bhasin’s.

The Supreme Court concluded that Can-Am had breached its duty of honesty. In coming to this conclusion, the Court stated it was making two incremental steps to advance the common law:

  1. It recognized that good faith performance is a generalized organizing principle of the common law, which underpins and informs various situations, which require obligations of good faith contractual performance. These situations include:

a. Employment contracts;

b. Franchise contracts;

c. Insurance contracts;

d. Landlord-lessee contracts; and

e. Bidding and tendering contracts.

Good faith performance also informs certain doctrines of contract law, including how courts interpret contracts, imply terms into a contract, and determine whether a contract is unconscionable.

  1. The Court also recognized a duty of honesty which applies to all contracts. The duty requires that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not create a duty of loyalty or disclosure on contracting parties -simply that parties must not lie or mislead the other about one’s contractual performance.

While Courts have long recognized a duty of good faith in the context of employment contracts, Bhasin raises some potential issues for both employees and employers, for example:

  • If an employee lies to his or her employer, is this a breach of a fundamental term of the employment contract, such that the employer can dismiss him or her for just cause without notice? The courts have taken a more contextual approach to date.
  • If an employer lies or misleads an employee, has the employer breach a fundamental term of the employment contract, such that the employee can claim constructive dismissal?
  • Similarly, if an employee overhears rumours that their employer is in financial jeopardy, or looking to sell the business, and the employee asks his or her employer whether this is true, is the employer required to disclose this information? What if the employer considers this information to be confidential or sensitive business information?

An experienced employment lawyer can help you identify potential implications and develop effective policies in advance of the many legal issues this decision is likely to create in the workplace.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Employment Law