The duty of good faith imposed on employers is a well-established principle of Canadian employment law.
Following the decision in Wallace v. United Grain Growers Ltd., bad faith conduct by an employer
became yet another factor Courts will consider when determining the period of reasonable notice for an
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.
The Supreme Court of Canada changed the calculation for bad faith conduct in their decision in Honda
Canada Inc. v. Keays. Now, damages for bad faith conduct are only recoverable if the employee can
prove real and measurable harm as a result of the bad faith conduct. In other words, bad faith
damages are no longer available simply as a result of being dismissed.
More recently, the Supreme Court has expanded the duty of good faith to apply to all contract law as an
‘organizing principal’. In Bhasin v. Hrynew, the Court affirmed good faith as an “organizing principal” and
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.
The case of Avalon Ford Sales (1996) Limited v Evans, is an excellent example of the application of good
faith in the context of employment. In Avalon, the Newfoundland and Labrador Court of Appeal
considered whether it was reasonable for an employer to conclude that an employee had tendered a
valid resignation. In this case, 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. He returned to work in the evening. Evans was visibly agitated upon his
return, 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 the employee had left and harshly
criticized his actions. The employee 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 enquiries 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.