The Latest in Employment Law: A Stewart McKelvey Newsletter – Good faith expected of employers!

Brian G. Johnston, QC

While the concept of good faith is not new to employment law, its limits and implications remain uncertain. In a recent decision, Avalon Ford v Evans 2017 NLCA 9, the Newfoundland and Labrador Court of Appeal has clarified the expectation that employers act in good faith.

Evans had been employed by Avalon for more than 12 years when he was reprimanded for a shipment error. As a result, he suffered a severe stress reaction and told his boss that he was “done”, handed over his work cellphone and keys and left the dealership. Avalon was not pleased. When Evans returned to submit a disability insurance claim with a stress diagnosis, Avalon refused to accept the medical diagnosis or accommodate his return to modified work duties. In fact, the employer tore up the medical note tendered by Evans. Evans sued, alleging that he had either been constructively dismissed or held to a resignation he did not mean. The trial judge appeared to conflate these arguments and found that Evans had been constructively dismissed because the employer breached its good faith duty.

Importantly, though it dismissed the appeal, the Court of Appeal said there was no freestanding duty of good faith, and that bad faith did not give rise to a cause of action separate from an action for wrongful dismissal.

However, the Court did find that good faith could be used as an “organizing principle” and be relied upon to imply specific duties and to evaluate how the parties’ actions fit into existing doctrines.

For example, an employer accepting a genuine resignation would not entitle the employee to damages; however, the mutual obligation of good faith might reasonably lead the employer to offer the employee some time to reconsider the resignation.

In Avalon, the Court applied the duty of good faith when it considered whether it was reasonable for the employer to have concluded that Evans had resigned. Looking at the context of the relationship, the Court decided that it was not reasonable for Avalon to conclude from Evans’ emotional outburst that a resignation had occurred.

The concept of good faith and employment has been around for a while. In 1997 the Supreme Court of Canada said in Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701, that employers have a duty of good faith when dismissing employees. Without giving a precise definition, the Court explained that good faith meant at least being candid, reasonable, honest and forthright and not being untruthful, misleading or unduly insensitive.

A decade later, in Honda Canada Inc. v. Keays, 2008 SCC 39, the Supreme Court of Canada gave examples of bad faith behaviours, e.g. attacking an employee’s reputation by making declarations at the time of dismissal, misrepresenting the reason for dismissal or dismissing employees so as to deprive them of pension benefits or other rights.

More recently, the Supreme Court of Canada considered the role of good faith broadly in the context of all contract law (Bhasin v. Hrynew, 2014 SCC 71), where good faith was recognized as an “organizing principle” of contract law whereby “parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily. Parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of a contract.”

The Supreme Court of Canada applied Bhasin directly to employment law in Potter v New Brunswick Legal Aid Commission, 2015 SCC 10, where it found that putting an employee on an indefinite paid suspension without reasons was not good faith because it lacked forthrightness.

Since then, the expectation of good faith has even been applied to pre-employment negotiations (Antunes v Limen Structures, 2015 ONSC 2163).

Finally, in Joshi v National Bank of Canada, 2016 ONSC 3510, the Court suggested the possibility of an implied contractual obligation to afford employees who are the subject of a misconduct investigation an opportunity to respond or refute the allegations.

While good faith, or lack thereof, has been a theme of employment law cases for decades, the Supreme Court’s decision in Bhasin has broadened its application. Looking at Avalon, we can expect that courts will be looking at the employment relationship through a prism of good faith from start to finish.

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