In a recent contract case, Callow v Zollinger, 2020 SCC 45, the Supreme Court confirmed that damages can flow from a contractual breach of good faith when one party knowingly misleads the other. Good faith between parties is an unwritten obligation found in contracts. The exact nature of that obligation may vary some, depending on the type of contract.
Now, the Court has clarified the legal obligation to perform a contract in good faith includes a responsibility to avoid misleading the other party. This may have a significant effect on employment contracts, as employees are entitled to rely on what an employer says it will do, including representations made beyond the precise wording of the contract.
Contractual Obligations Must be Performed in Good Faith
Callow v Zollinger involved a contract between a group of condominiums, represented by property manager Mr. Zollinger, and a lawn and winter maintenance company, represented by Mr. Callow. The contract was terminated with ten days’ notice, allowed by the contract’s wording. However, Mr. Zollinger knew the condominiums had decided to terminate the winter maintenance contract months prior, and yet he did not inform Mr. Callow and allowed him to perform extra work during the summer months.
The Court found Mr. Zollinger breached the good faith obligation by failing to disclose that the contract would end before the winter. Mr. Zollinger knew Mr. Callow was completing the extra work because Mr. Callow thought the contract would continue through the winter, as it had in years past. Additionally, because Mr. Callow did not know the contract was ending, he, therefore, could not seek out other winter maintenance work until the last minute which was detrimental to his business. The condominiums benefitted from Mr. Callow’s extra work during the summer months knowing that the work was done on the basis the contract would continue.
There are two main takeaways: (1) misleading actions can attract monetary damages in court and (2) the contract’s specific wording does not end the parties’ obligations—breaches can occur when one party’s actions are misleading, even if allowed within the wording of the contract.
What Does the Duty of Good Faith Mean for Employment Cases?
Courts have consistently recognized that employers have unique power and control over their employees, particularly compared to other contractual relationships. The employer’s higher degree of control over employees requires a higher degree of honesty.
Courts have already imposed good faith obligations specifically on employers, such as the requirement to act in good faith when dismissing employees. When terminating an employee, employers must avoid “being untruthful, misleading or unduly insensitive” and instead be “candid, reasonable, honest, and forthright.”
Given the reasoning in Callow, the Court seems to expand this responsibility by holding there is a contractual responsibility to correct the other party’s mistaken impressions and avoid knowingly misleading statements or lying by omission.
In the employment context, an employer’s misleading statements or promises could be detrimental to employees in a wide variety of situations including pay increases, promotions, scheduling changes, the choice of whether and how to provide work, and term contract renewal. Additionally, independent contractors can expect greater protections after Callow, even though they do not have employee status, since the duty of honest performance applies to all contracts.
If your employer misled you or lied to you about your employment conditions, even if they followed their obligations as written under the contract, an employment lawyer can advise you about whether your employer breached their contractual obligation of good faith, giving rise to a claim for damages.