Written by Claire Mumme, University of Windsor
Matthews v Ocean, argued before the Supreme Court last October, has once again brought the question of good faith in employment to the Court. On the surface, the question of employer good faith may seem like a small doctrinal issue. But it actually raises quite fundamental questions about the common law’s distribution of power in the employment relationship.
Employees have long owed their employers a duty of good faith, of loyalty, fidelity, honesty, and other duties. But at common law, that duty is not reciprocated; employers do not hold a general duty of good faith towards their employees. What employers do owe is a duty not to dismiss in a bad faith manner (Wallace v United Grain Growers), which is remedied by mental distress damages where a loss can be demonstrated (Honda v Keays).
More recently, in the 2014 case of Bhasin v Hrynew, the Court imposed a general duty not to lie or knowingly mislead in the performance of contractual obligations, and held that contract law is animated by an organizing principle of good faith (which is not a standalone duty). But employers do not otherwise hold any duty of good faith towards their employees during the life of the employment contract, as they make day-to-day decisions about how to run the workplace. Although such duties do exist in other countries and in Quebec, Canadian common law courts have been markedly resistant to imposing limitations on the managerial prerogative. In a slightly different context (on whether employers owed a general duty of care in negligence to their employees), the Ontario Court of Appeal in Pisesferreira v Ayotte explained that involving the court in assessing employer decision-making beyond the manner of dismissal would be “a considerable intrusion by the courts into the workplace, [and] it has the real potential to constrain efforts to achieve increased efficiencies …”. Amongst other issues, whether or not employers owe a general duty of good faith that would impact on the managerial prerogative is now back before the Supreme Court in Matthews v Ocean.
In addition to questions of good faith, at play in Matthews is also the interpretation and enforcement of exclusion clauses in employer incentive agreements. Because it is possible to analyze this case without addressing the good faith question, it is not clear whether the Court will go as far as the parties and intervenors asked it to on the good faith issue. But, should they decide to wade into the debate, here is a summary of the arguments they heard.
David Matthews was a chemist who worked for Ocean Nutrition Canada (ONC) and its predecessor for 11 years. He resigned in 2011 and brought a claim for constructive dismissal, arguing that he was the victim of a concerted effort by his supervisor to reduce his position in the organization. Justice Leblanc, for the Nova Scotia Supreme Court, held that Matthews was constructively dismissed and was entitled to 15months’ reasonable notice. Interestingly, Matthews did not request damages for bad faith in the manner of dismissal, presumably because he couldn’t show a mental distress loss. Justice Leblanc held that, as part of his compensation over the reasonable notice period, Matthews was entitled to a payout under a Long-Term Incentive Plan (LTIP) contract between the parties. The LTIP contract in question was intended both to reward for past contributions to the company and to incentivize retention and loyalty. It specified, however, that to receive a payout one had to be an ‘active employee’ at the time of the realizing event, and that the agreement would be of no force or effect if the employee resigned or was fired, with or without cause. Justice Leblanc held that this wording was not sufficiently clear to disentitle a wrongfully dismissed employee from the payout, and as such damages for its loss was to be included in determining Matthews’ compensation over the reasonable notice period.
ONC appealed to the Nova Scotia Court of Appeal (NSCA). The three-member panel agreed that Matthews had been constructively dismissed and was entitled to 15 months reasonable notice. However, Justice Farrar for the majority held that the LTIP exclusion was clearly worded and precluded Matthews’ entitlement to a payout. In dissent, Justice Scanlan reached a different conclusion about the LTIP. He relied on Bhasin, and Emond’s dishonesty, to find that ONC violated the duty of honest contractual performance, entitling Matthews to damages assessed in the amount of the payout (the relationship between the dishonesty and the LTIP payout is not entirely clear in the dissent).
Matthews was granted leave to appeal to the Supreme Court. Although both the issues of contractual interpretation of LTIPs and good faith in employment were before the Court, based on their questions, the justices seemed much more interested in the contractual interpretation of the LTIP. A number of the justices suggested to Matthews’ counsel that no more than this issue was needed to analyze the case. The LTIP question before them was whether the exclusion clause here was sufficiently clear in wording to disentitle Matthews to the LTIP payout. In particular the question was whether the wording of the contract should be understood to disentitle the payout if the employee was dismissed not only without cause, but without reasonable notice, a scenario not addressed in the contract. If the employee did not fulfill the purpose of the agreement (retention and loyalty) through no fault of their own, but was prevented from doing so by the wrong acts of their employer, how could the employer then benefit from its own wrong actions?
A few justices also asked counsel what result would follow if the realizing event, in this case the sale of the business, had occurred 17 months after Matthews was constructively dismissed. Would Matthews then be entitled? This question effectively asks whether Matthews’ potential entitlement to a payout comes as a remedy for breach of the duty of good faith, or as part of the compensation he would have earned over the reasonable notice period. And underlying this question is whether the Bhasinduty of honest contractual performance creates a standalone employment law duty, requiring an independent remedy to compensate for its breach, or whether, as the ONC argued, the duty of honesty is simply manifest through other existing employment law principles, such as constructive dismissal and the existing duty to dismiss in a good faith manner. One might think this a non-issue, given Bhasin’s clear description of the duty of honesty as a standalone duty that ground a cause of action, but if direction is needed on this issue, to my mind PCLS’s submissions clearly explain the difference between a breach of the duty of good faith, the breach of the duty to provide reasonable notice of dismissal without cause, the breach of the duty to dismiss in a good faith manner, and how they are each remedied.
The second good faith question put to the Court is the more radical. Justice Scanlan’s dissent at the Court of Appealrelied on what he called Bhasin’s ‘duty of trust, honesty and good faith’ (para 167). This language was similar to a number of other post-Bhasin cases where there has been some conceptual slippage such that the duty of honest contractual performance is used as if interchangeable with a duty of good faith, or such that two duties re combined into a single concept, a ‘duty of honesty and good faith’ (see, for instance, Styles v Alberta Investment Management Corp 2015 ABQB 621; Alberta Computers.com Inc v Thibert, 2019 ABQB 964). Two intervenors, Parkdale Community Legal Services (PCLS) and Canadian Association for Non-Organized Employees (CANOE) picked up on Justice Scanlan’s Court of Appeal’s dissent to argue that the Court should now recognize a general employer duty of good faith during the life of the employment contract.
The Court’s decision in this case has not yet been released. Stay tuned to where it chooses to go on these quite important issues to the common law of employment.
For further information, see: Leave to Appeal Application and Response; Factum on Appeal; Webcast of Arguments
For more on the arguments raised in this case, see the following academic articles:
C. Mumme, “Bhasin v. Hrynew: A New Era For Good Faith in Canadian Employment Law, or Just Tinkering at the Margins?” (2016) . International Journal of Comparative Labour and Industrial Relations.
C. Mumme, “A Comparative Reflection from Canada – a Good Faith Perspective”, chapter 14 of The Contract of Employment, Mark Freedland General Editor (Oxford: Oxford University Press, June 2016)
Gordon Anderson, Douglas Brodie and Joellen Riley, The Common Law Employment Relationship: A Comparative Study (Edward Elgar Publishing Limited, 2007) Chapter 7; Joellen Riley, “Siblings but not Twins: Making Sense of ‘Mutual Trust’ and ‘Good Faith’ in Employment Contracts” (2012) 36(1) Melb Uni LRev; K. Banks, “Progress and Paradox: The Remarkable Yet Limited Advance of Employer Good Faith Duties in Canadian Common Law”, (2011) 32 Comparative Labour Law and Policy Journal 547-592 (paywalled)
Claire Mumme, “Employer Good Faith at the Supreme Court, Once Again” Canadian Law of Work Forum (March 16 2020): https://lawofwork.ca/?p=11973