The Duty of Good Faith in Contracts During an Employment Relationship
Update by Erin Brandt, Cofounder
BC courts have long recognized that work is one of the most fundamental aspects in a person’s life and an essential component of their sense of identity, self-worth and emotional well-being (see McKinley v BC Tel, 2001 SCC 38). We should expect employers and employees to treat each fairly throughout the employment relationship, including when it is ending.
Unfortunately, that’s often not how it goes, and our courts have spent considerable time assessing what it means to act in good faith during a contractual relationship. The case of British Columbia v Taylor, 2024 BCCA 44 is the most recent case in BC that explores good faith within the employment context.
Background
Ms. Taylor was employed by the Province of BC (the “Province”) for approximately 30 years. In 2017, the Province dismissed Ms. Taylor from her employment. Following her dismissal, Ms. Taylor filed a legal claim against the Province asserting that she was wrongfully dismissed and the Province breached their duty of good faith in her employment and in the termination of her employment.
The Province filed a preliminary application to strike out Ms. Taylor’s claims relating to allegations of bad faith on the basis that such claim was not a reasonable cause of action – meaning that it wasn’t something Ms. Taylor could sue in court for.
Ms. Taylor’s case addresses two distinct but interconnected legal principles:
Employers are expected to exercise good faith when dismissing an employee (see Wallace v. United Grain Growers Ltd., [1997] 3 SCR 701 (Wallace)).
There’s a general organizing principle of good faith with respect to how parties perform their contractual obligations (see Bhasin v Hrynew, 2014 SCC 71 (Bhasin)).
In Bhasin, as part of this general organizing principle of good faith, the Court recognized a new duty of honest performance that requires parties to be honest with each other in performing their contractual obligations.
The Court viewed the creation of this duty of honest performance flowing directly from the common law organizing principle of good faith as a modest, incremental step.
In creating this new duty, the Court cautioned that claims of good faith will not succeed if they do not fall within an existing doctrine (such as this new duty of honest performance, or an employer’s duty to exercise good faith when dismissing an employee). But the list is not closed.
The Court dismissed the Province’s application to strike out Ms. Taylor’s claims, which means Ms. Taylor’s case was permitted to proceed. In reaching this decision, the Court relied on Bhasin for the principle that the application of the organizing principle of good faith to particular situations should be developed where the existing law is found wanting, and that Ms. Taylor’s claims may be bad enough that a court might be persuaded to extend a good faith doctrine.
The Province filed an appeal.
Decision
On appeal, the Province argued:
The duty to exercise good faith in the manner of dismissal, when applied to a case involving a without cause dismissal, requires an examination of the employer’s actions at the time of termination only.
The judge conflated the organizing principle of good faith emanating from Bhasin with the obligation of good faith in the manner of dismissal recognized in Wallace.
The Court of Appeal rejected the Province’s first argument off-hand, finding that the “manner of dismissal” may, in some cases, span a period of years before, or years after, the moment of dismissal, and that this principle applies in a without cause termination. Further, in a developing area of the law, the Court of Appeal found it would be wrong at a preliminary application to make final decisions regarding the relevance of different aspects of a parties’ conduct preceding Ms. Taylor’s termination of employment.
On the second argument, the Court of Appeal found that Ms. Taylor’s pleading claimed damages for breach of the duty of good faith in her employment, in addition to in the course of termination. In any event, the Court of Appeal agreed with the reasoning in Bhasin and Matthews v Ocean Nutrition Canada Ltd., 2020 SCC 26 that the law should develop in an incremental fashion. Specifically, in deciding a preliminary application to strike pleadings, the court should err on the side of permitting novel claims to continue, and pleadings should be read generously to allow for novel claims to be pursued. Whether or not the existing law is found wanting is best determined at trial.
Key Take Away for Employees
Many employers behave badly towards their employees - during the employment relationship and/or at the time of an employee’s dismissal. It has been an open question for the last several years if and how this duty of good faith applies during an employment relationship, or independently from a claim for wrongful dismissal - for example, where a dismissed employee receives an appropriate amount of notice or severance but is otherwise treated badly by their employer.
Ms. Taylor’s case doesn’t settle the law on this question yet, but it does signal that where an employer behaves exceptionally badly, our courts are open to hearing novel claims and expanding an employer’s legal duty to act in good faith to more types of situations beyond just in the manner of dismissal.
Key Take Away for Employers
This case is a good reminder that in certain types of contracts or situations, the law expects honest, candid, forthright or reasonable contractual performance. For employers that prioritize honesty and treating employees fairly, this isn’t novel. But for those that don’t, this case signals that lies, omissions or other misleading conduct both during an employment relationship and at the time of dismissal may have consequences.
Most employers do strive for honesty and good faith with respect to hiring, managing and dismissing employes, both because it is legally required, and because it is the right way to conduct business. For those employers, this case reinforces the importance of continually working to improve HR practices and policies.
