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Does your Employer Owe you a Duty of Good Faith?

Does your Employer Owe you a Duty of Good Faith?

By October 4, 2019March 8th, 2022No Comments

In short: yes.

In 2014, in a landmark decision called Bhasin v. Hrynew, the Supreme Court of Canada recognized that acting in good faith is an “organizing principle” underlying all contract law. Acting in good faith may take various forms depending on the context, and will be fact-specific. In the employment context, the Supreme Court of Canada stated that “acting in good faith in relation to contractual dealings means being honest, reasonable, candid and forthright.” Below details Jonasson v. Nexen, a 2018 case where the employer did the exact opposite and was required to pay damages for breaching its duty of good faith in the amount of 22 months’ pay in lieu of reasonable notice and $20,000.00 in punitive damages.

The issue, in that case, was whether the employer had a duty to tell the employee about expected layoffs that were to take place during his leave of absence before the employee decided to proceed with the leave request.

The employee, a 55-year-old engineer employed for a 22-year period, requested a 6-month leave of absence. The employer agreed to grant the leave request so long as the employee entered into the following agreement:

“I agree that the Company is under no obligation to return me to my original position or one of equivalent level upon my return to active duty. If a suitable role is offered and I decline, or if a suitable role is not found, I understand and agree that I will be considered to have resigned as of the date my leave was scheduled to have ended.”

The employer knew that it would be laying off employees during the employee’s requested leave of absence but did not inform him of that fact. During the employee’s leave, the employer implemented the planned layoffs and enforced the agreement against the employee. No other suitable position was available for him and as set forth in the agreement, the employee was
deemed to have resigned at the end of his six-month leave.

The court found that the employer failed to act with candour and forthrightness when it neglected to notify the employee of the planned layoffs and significant cuts to managerial positions before he signed his leave of absence agreement. This information reasonably would have informed the employee’s decision. In withholding this important information and engaging in deliberate and ongoing secrecy, the employer breached its duty to act in good faith with respect to the employee. In awarding punitive damages, the judge stated that the employer “… offends this Court’s senses of reason and decency.”

The employer was responsible for informing the employee of the planned layoffs. There was no dispute that the employer had knowledge of and was obligated to disclose the material facts. In future cases, it may be difficult to apply this decision. It may not be readily apparent as to who has information and knowledge regarding planned layoffs. Does this case incentivize senior management to keep planned layoffs confidential so that Human Resources is in the dark when it receives leave of absence requests? This decision will have various ramifications on how upper- management interacts with its Human Resources department.

Ultimately, the employee was successful in holding his employer liable for bad faith conduct. This case should set an example for employers of how not to manage employee relationships and should inform them on how to execute their duty of good faith.

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