In a landmark decision, the Supreme Court of Canada recognized a new general principle of contract law: the common law duty of honest performance. This duty was established in the case of Bhasin v. Hrynew, and it now applies to all contractual relationships in Canada, including employment contracts.
The ruling has significant implications for how employers manage contractual obligations and conduct themselves during the life of the employment relationship.
The Case: Bhasin v. Hrynew
Mr. Bhasin worked as an enrollment director for Canadian American Financial Corp. for over 10 years. His employment contract automatically renewed each year unless one of two conditions occurred:
- Either party gave six months’ written notice of non-renewal; or
- The employment was terminated for cause or misconduct.
Mr. Bhasin had a strained working relationship with a colleague, Mr. Hrynew, who was eventually assigned to conduct an audit of Mr. Bhasin’s business operations. Suspecting ulterior motives—namely, that Mr. Hrynew was attempting to take over his business—Mr. Bhasin refused to comply with the audit.
His employer responded by invoking the non-renewal clause and terminating the contract, citing misconduct.
The Court’s Findings: Dishonest Dealings
The Court found that Mr. Bhasin’s employer had acted dishonestly in several key respects:
- It misrepresented the nature of the audit and falsely assured Mr. Bhasin that information gathered by Mr. Hrynew would remain confidential;
- It withheld critical information about its intentions to restructure and merge Bhasin’s business with Hrynew’s;
- It used the non-renewal clause as a pretext to dismiss Mr. Bhasin for strategic business reasons, rather than legitimate performance-related concerns.
The New Legal Principle: Duty of Honest Performance
As a result, the Supreme Court recognized a new common law duty that applies to all parties in a contractual relationship:
Parties must not lie to or mislead one another about matters directly linked to the performance of the contract.
This duty is now considered a minimum standard of honest conduct, and parties cannot contract out of it.
In Bhasin, the employer’s dishonest use of the non-renewal clause and failure to communicate truthfully about its intentions constituted a breach of this new legal duty. Mr. Bhasin was awarded damages as a result.
Implications for Employers
The Bhasin decision is a powerful reminder that:
- Employers must act honestly and in good faith when exercising contractual rights;
- Termination clauses—even when facially valid—cannot be used dishonestly or in bad faith;
- Courts are prepared to scrutinize the employer’s conduct, not just the written terms of the agreement.
Employers should review internal practices and ensure that managers and decision-makers understand their obligation to act truthfully and transparently when dealing with employees—especially in matters involving contract performance or termination.
We Can Help
At Singh Lamarche LLP, we regularly advise employers and employees on employment contract interpretation, termination rights, and fair dealing obligations. If you’re navigating a complex contractual issue or concerned about a recent dismissal, our team can provide strategic and trusted advice.
Contact us today to learn more about your obligations—and your rights—under the law of honest performance.
