Duty of Honest Performance in Contract Law

In December 2020, the Supreme Court of Canada (SCC) expanded the duty of honest performance in contract law in its decision of CM Callow Inc v Zollinger.

Facts of the case

This case involved two parties, a group of condominium companies (Baycrest) and a maintenance company (Callow), who entered into a two year contract regarding the provision of services for winter maintenance of condominiums. Before the contract expired, Baycrest wanted to terminate the contract. The contract included a ten-day notice of termination provision. Baycrest did provide Callow with ten days’ notice in accordance with the contractual provision, however, Baycrest made the decision to terminate the contract much earlier.

The issue was that Baycrest did not properly communicate its intention to terminate the contract. In fact, the court found that it deliberately kept its intention to terminate the contract secret for a number of months. Despite knowing it would later terminate Callow’s services, Baycrest complimented Callow on its work and made no suggestion that it was planning on terminating the contract. When Baycrest finally gave Callow notice of termination of the contract, Callow sued for breach of contract.

The trial judge found that Baycrest had actively deceived Callow by deliberately withholding its intention to terminate the contract for many months. On appeal, the decision was reversed.

The case was argued before the SCC. The SCC agreed with the trial judge that Baycrest breached the duty of good faith and honest performance in contractual dealings. The SCC found Baycrest’s conduct to have been misleading and dishonest. It found that Baycrest had actively misled Callow into thinking the winter maintenance contract was secure.

The majority of the SCC determined that the appropriate approach for a breach of the duty of honesty is to award expectations damages. Expectation damages are intended to put the wronged person in the position they would have been in had the duty of good faith been performed.

What does this mean for your employment?

Your employment relationship is governed by a contract of employment. All employees are subject to an employment contract.  If you do not have a written contract, your contract is a verbal or oral contract of employment.

The SCC confirmed that contractual rights must be exercised honestly and with good faith, and this obligation includes when the employer exercises its right to terminate your employment. Dishonestly includes conduct that knowingly misleads another party or which fails to correct a false impression created by the conduct of the parties. The SCC confirmed that dishonestly does not only includes lies, but also half-truths, omissions and even silence.

This means that the employer has a positive obligation to actively correct a misunderstanding you may have about your employment. It cannot “knowingly mislead” you or create a false impression about the terms and conditions of your employment. If you have a mistaken belief about your employment contract, your employer may have a duty to correct such a misapprehension.

Labour Rights Law will be keeping a close eye on how the lower courts interpret this decision. In the meantime, if you have been wrongfully dismissed and believe that the employer has not acted with honesty or good faith, we would be pleased to speak with you.

CM Callow Inc v Zollinger,  2020 SCC 45

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