An employer’s duty of good faith in the manner of dismissing an employee is a well-established principle of Canadian employment law. When initially established in Wallace v. United Grain Growers Ltd., breach of the duty – that is, bad faith conduct by an employer – became another factor that Courts would consider when determining the reasonable notice period for a terminated employee. Bad faith damages were typically referred to as Wallace damages and allowed Courts to extend the reasonable notice period where bad faith conduct by an employer was found.
In Honda Canada Inc. v. Keays, the Supreme Court of Canada changed the way that bad faith conduct impacts what an employer owes an employee in wrongful dismissal cases. Now, bad faith conduct does not affect the length of the reasonable notice period. Instead, damages for bad faith conduct are recoverable as a separate issue, so long as the employee can prove real and measurable harm as a result of the conduct.
More recently, the Supreme Court has applied the duty of good faith to all contract law. In Bhasin v. Hrynew, the Court affirmed the duty of good faith as an “organizing principle” and held that “parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of a contract.” The decision in Bhasin has effectively broadened the application of good faith to all matters of contract law, including as it relates to employment in general, rather than just
The case of Avalon Ford Sales (1996) Limited v. Evans, is an excellent example of the application of good faith as set out in Bhasin v. Hrynew in the context of employment. In Avalon, the Newfoundland and Labrador Court of Appeal considered the reasonableness and consequences of the employer concluding that the employee had resigned, given the specific circumstances.
Evans was the commercial fleet manager for the largest Ford dealership in Atlantic Canada. Evans had made a mistake regarding inventory that resulted in a vehicle being delivered to a customer before the dealership had received payment for the vehicle.
After a contentious meeting with his supervisor, Evans suffered a medically diagnosed acute stress reaction and left the office. Evans was visibly agitated upon his return to work that evening. He handed in his keys and cellphone and stated “I’m done” to his immediate supervisor. Evans’ supervisor advised the Owner that Evans had resigned. A few days later, the employee returned to work to meet with the Owner of the dealership. The Owner was upset that Evans had left and harshly criticized his actions. Evans provided a medical note from a doctor for a short-term disability application. The Owner tore up the medical note and refused to sign the employer portion of the application. Evans was told to leave the premises.
The Court determined that Avalon had breached its duty of good faith in failing to give the Plaintiff an opportunity to cool off and reconsider his drastic action. In failing to make further inquiries regarding the resignation and showing a complete disregard for Evans’ health issues, Avalon’s treatment of Evans was found to have breached the duty of good faith. The Court in Avalon is yet another example of how Courts will consider the duty of good faith for the entire duration of an employment relationship.