Canadian HR Reporter

CANADIAN HR REPORTER February 22, 2016 FEATURES 19 EMPLOYMENT LAW The ever-expanding duty of good faith Recent changes to the law make a difference when terminating employment By Ian Campbell and Steven Rosenhek I t is well-established that em- ployers owe a duty of good faith towards employees, especially when it comes ter- minating an employment rela- tionship. e scope of this duty continues to expand. In order to avoid being accused of negotiat- ing or dealing with employees in bad faith, employers need to be aware of recent changes in the law. Impact of Bhasin v. Hrynew In December 2014, the Supreme Court of Canada released a groundbreaking decision in the case of Bhasin v. Hrynew. Until this decision, a party to a contract was generally able to exercise its contractual rights without hav- ing to be concerned about non- contractual promises or commit- ments made to the other party or demonstrating it had treated the other party fairly — provided the party complied with the strict terms of an agreement. In Bhasin, the Supreme Court of Canada recognized for the first time a general obligation requir- ing parties to perform their con- tractual obligations honestly and in good faith. Put simply, parties to a contract cannot take steps in- tended to unfairly undermine the other party's legitimate interests. The case involved a dispute over a renewal clause contained in an agreement between Can- Am, a company that marketed education savings plans to inves- tors, and one of its agents, Harish Bhasin. e contract between the parties provided Can-Am with the legal right to end the relation- ship after three years. While the evidence demon- strated Can-Am had terminated the agreement in accordance with the strict terms of the con- tract, the issue was whether it had acted dishonestly towards Bhasin and whether, as a result, it bore responsibility for the damages suffered by the agent when he subsequently lost his business to a competitor. By way of background, Can Am had engaged a number of agents to sell its products. Bhasin had developed a niche market that had caught the attention of other agents. One fellow agent, Larry Hrynew, had made numerous at- tempts to either purchase Bhasin's business or merge his business with that of Bhasin. When Bhasin refused these overtures, Hrynew encouraged Can-Am to force a merger. Without notifying Bhasin, Can- Am developed plans to restruc- ture its distribution network in a manner that would have resulted in Bhasin working for Hrynew. Can-Am did not inform Bhasin of its plans, even when he specifi- cally asked Can-Am if it intended to force a merger. While this was going on, Can Am pressured Bhasin to allow for his business records to be reviewed by Hrynew, ostensibly as part of an ongoing compliance review. It assured Bhasin that Hrynew was subject to strict confidentiality re- quirements when, in fact, no such requirements existed. After Bhasin refused to allow Hrynew access to his records and made it clear he objected to any merger, Can-Am made the decision not to renew Bhasin's agreement. Following the termination of the agreement, Hrynew ended up taking over Bhasin's former region and hiring away most of his staff. e result was Bhasin effectively lost his business to Hrynew. e Supreme Court found that while Can-Am had exercised its right to terminate its contract with Bhasin in accordance with the contractual terms, that was not sufficient. e court determined Can-Am had breached its duty of good faith towards Bhasin when it misled him about its intention with respect to the renewal and tried to have him agree to have his business undergo a compliance audit by Hrynew. As a result of this breach, Bhasin was awarded damages totalling $87,000. In reaching this conclusion, the Supreme Court ruled contractual rights must be exercised in a man- ner that is "honest, candid and forthright" and with "appropriate regard to the legitimate contrac- tual interests of the contracting partner." e court went on to state that the scope of the duty is dependent on the type and context of the contractual relationship. For ex- ample, a higher standard would be demanded in situations involving long-term relationships requiring mutual co-operation or depen- dence, as compared to short-term, transactional exchanges. The court went on to make it clear that "entire agreement" USE > pg. 20

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