Does Your Employer Owe You a Duty of Good Faith?

As an employee, you owe a duty of good faith to your employer.  You’re required to do a good job, not lie to or purposely harm your employer, and not compete with your employer during your employment.  But does your employer owe you a similar duty?

"Organizing principle" of good faith

The law recognizes an “organizing principle” of good faith performance of contracts.  The employment relationship is based on a contract, and so this organizing principle of good faith applies to employment.  However, the organizing principle of good faith was only established by the Supreme Court of Canada in 2014.  Courts haven’t explained it much since then except to form a duty of honest performance: parties to a contract must not be dishonest with one another.

Good faith in course of termination

Your employer does owe you a duty of good faith in the course of dismissal.  Courts recognize that employment is a fundamental aspect of each person’s life, and that termination of employment often causes upset.  The duty to act in good faith in the course of dismissal exists to protect employees against insensitive treatment at this vulnerable time.  This means that in the course of dismissing you, your employer cannot be misleading, or treat you callously, or act in a way that is likely to increase the distress of being dismissed.  If it does, you may be entitled to aggravated damages.

Honest performance of contract terms

Courts have stopped short of imposing an ongoing duty of good faith on employers during the course of the employment.  The closest we come is the duty of honest performance mentioned above: the employer must not be dishonest in the course of performing its part of the employment contract.  If you think that’s unclear, you’re not alone.  It’s also unclear what the remedy is if your employer breaches its duty of honest performance.  A recent case gives some insight into the way judges are attempting to deal with the question.

Upcoming case on damages for dishonest performance

In coming months the Supreme Court of Canada will clarify whether the employer owes an ongoing duty of good faith.  In Matthews v. Ocean Nutrition Canada Ltd., the employee claimed constructive dismissal after his employer squeezed him out of his Vice President role within the company.  If he'd remained employed, he would have received a large incentive payment upon the sale of his employer.  The employer company was sold, and the employee was denied his bonus because he was no longer employed there.

In trial, the employee was awarded $1.087 million for loss of his proceeds of the sale of the employer.  He was also awarded 15 months of reasonable notice.  The employer appealed, and the loss of proceeds (but not the reasonable notice award) was overturned.  The majority judges found that the terms of the employment prevented the employee from recovering his proceeds.  The dissenting judge found that there were no express terms permitting the employer to perform its duties dishonestly.  He said the dishonest performance entitled the employee to the incentive he would have received if not for the dishonesty.

The case is now being considered by Canada’s highest court for final determination. Employers and employees should be interested to learn how our law compensates employees who are treated dishonestly by their employers.

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