A recent Supreme Court of Canada (the "Court") decision reinforced the employer's duty of good faith and honesty in all contractual dealings with employees and contractors.
Facts:
In April 2012, the corporate Defendant entered into two separate two‑year agreements (the "Agreements") with the Plaintiff contractor to provide summer landscaping and winter snow removal services. The Agreements stipulated that the Defendant could terminate the contract, without cause, upon providing ten (10) days' notice.
In early 2013, the Defendant voted to terminate the winter service agreement earlier than its scheduled expiry in April 2014. However, the Defendant opted to wait to inform the Plaintiff of its decision, to ensure continued satisfactory performance throughout the course of the summer service agreement.
Throughout the summer of 2013, the Plaintiff engaged in various discussions with the Defendant to review the prospect of renewing of either or both agreements. During this time, the Defendant led the Plaintiff to believe that they were satisfied with his services and that he was likely to receive a two‑year renewal of the Agreements. To further seal the deal, the Plaintiff continually performed work above and beyond the summer maintenance contract at no charge, in hopes that his extra efforts would offer added motivation for the Defendant to renew the Agreements.
Nonetheless, on or about September 12, 2013, the Defendant finally informed the Plaintiff of its decision to terminate the winter maintenance agreement.
The Plaintiff's Position:
The Plaintiff subsequently filed a claim for breach of contract, alleging:
- The Defendant knew or ought to have known that he would not seek other winter maintenance contracts in reliance on the Defendant's misrepresentations; this resulted in him missing out on the opportunity to bid on alternate winter maintenance contracts for which the Defendant was now liable for; and
- The Defendant had acted in bad faith by accepting free services while concealing their true intentions; this consequently resulted in "unjust enrichment".
The Defendant's Position:
In response, the Defendant advanced two submissions:
- This was a matter of a "simple contractual interpretation", as the Agreements clearly and unambiguously state that they could terminate the contract for any reason by providing the Plaintiff with ten (10) days' notice in writing; and
- Despite no requirement to provide a cause for termination, they argued that it had not been satisfied with the Plaintiff's level of service which ultimately led to his dismissal.
Decision:
In siding with the Plaintiff, the Court reiterated the concept of "duty of honest performance" established in the 2014 Supreme Court case, Bhasin v. Hrynew. The Court indicated that this duty applies to all contracts and requires that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. The Court clarified that while this concept does not impose a "positive obligation of disclosure", it does preclude an obligation to correct a false impression created through that party's own actions.
Subsequently, the Court shot down the Defendant's "simple contractual interpretation" argument. The Court indicated that while the Defendant did in fact have an unfettered right to terminate the winter maintenance agreement at their discretion – the right had to be exercised in keeping with the duty to act honestly. The Court indicated that Defendant's deception was directly linked to this contract, because its exercise of the termination clause was dishonest. Adding that the Defendant had an obligation to refrain from misleading and making false representations to the Plaintiff in the exercise of that clause.
In finding a breach of contract and loss of opportunity the Court indicated: "if [the Defendant's] dishonesty had not deprived [the Plaintiff] of the opportunity to bid on other contracts, then [the Plaintiff] would have made an amount that was at least equal to the profit it lost under the winter maintenance agreement." As such, the Court awarded $64,306.96 representing lost profits, $14,835.14 representing the cost of leasing a piece of machinery for one year in addition to anticipated substantial cost awards.
Key Takeaways:
This case demonstrates the importance of engaging in honest and carefully considered communications with employees and contractors. While this matter pertains specifically to contract renewal, taking into consideration the Court has made a point of reinforcing the employer's duty of honesty performance in two recent cases – it is reasonable to believe that the courts will continue to apply this standard in scrutinizing representations made by employers regarding any aspect of employment.
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