Understanding the Requirements of Honest Contractual Performance in Ontario Employment Law
In Ontario employment law, the duty of honest performance has emerged as a critical principle governing how all parties to a contract must behave. Naturally, this applies to employers and employees must act throughout the life of an employment contract. This duty, rooted in the broader and well-known “duty of good faith and fair dealing,”requires that parties to a contract not mislead or lie to one another about matters directly related to the performance of that agreement. However, a persistent legal question remains: Does the duty of honesty apply before a contract begins or after it ends?
Two recent appellate decisions – Ocean Pacific Hotels Ltd. v. Lee, 2025 BCCA 57 provides important guidance on this issue. While not specifically related to Ontario employment law, their reasoning has persuasive value in Ontario courts and offers crucial insights for both employees and employers navigating issues like employment contract review, severance package negotiation, and wrongful dismissal.
The Duty of Honest Contractual Performance: A Refresher
The Supreme Court of Canada’s decision in Bhasin v. Hrynew, 2014 SCC 71, established a foundational principle: “parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract”. This duty was clarified in C.M. Callow Inc. v. Zollinger, 2020 SCC 45, which held the alleged dishonesty must be directly connected to how a contract is carried out when someone acts dishonestly while exercising a right or fulfilling an obligation under the contract.
In the employment context, this principle has major implications. For example, during a wrongful dismissal claim or severance package review or negotiation, an experienced Toronto employment lawyer may invoke the duty of honest performance when an employer misleads an employee about the reasons for termination of employment (especially if just cause for dismissal is alleged). Likewise, constructive dismissal lawyers may reference this duty in cases where the employer’s conduct erodes trust and undermines the employment relationship without overt termination, such as by significantly reducing an employee’s compensation or refusing to provide a bonus pay due to an employee by falsely alleging the employee’s individual performance or the company’s financial results did not meet KPI’s (performance metrics).
But what if dishonesty occurs before the employment contract begins or after it ends? Let’s examine how recent case law addresses these temporal boundaries.
Ocean Pacific Hotels Ltd. v. Lee, 2025 BCCA 57: No Duty of Honesty During Pre-Employment Negotiations
Background
In this case, a few employees signed casual employment agreements during the COVID-19 pandemic, replacing their regular employment contracts. Several employees signed and continued their employment on the understanding that their health benefits coverage would continue in their new casual roles. However, after their benefits ended and the employer refused to replace them, the employees claimed the employer had misrepresented health benefits during the negotiation process – misrepresentations that allegedly induced them to accept less favourable terms. As such, they argued that the employer breached its duty of honest performance in the pre-contractual negotiations of the employment contracts, since it did not previously advise them that it had only arranged temporary extension – not ongoing coverage – to induce them to enter into the casual employment agreements.
While the claim initially succeeded at the certification stage, the British Columbia Court of Appeal overturned the decision, ruling that the duty of honest performance does not extend to pre-contractual negotiations.
Ontario Employment Law Perspective
For employees in Ontario, this decision may have real-world consequences. Suppose a job candidate alleges that an employer made misleading statements during hiring negotiations – perhaps about salary, remote work options, or promotion opportunities. If a dispute eventually arises, such as a wrongful dismissal or major changes to an employee’s job, an employment lawyer reviewing an employment contract may advise that while such misrepresentations could support a claim of misrepresentation, they do not constitute a breach of the duty of honest performance, unless the conduct occurred after the employment relationship began.
For employees seeking recourse in these situations, employment contract review lawyers can help assess whether there’s a viable claim under a different legal doctrine, such as negligent misrepresentation or a valid claim of breach of the employer’s duty of honest contractual performance.
Key Exception: Negotiations Under an Existing Contract
The court in Ocean Pacific did allow one significant exception: if parties are negotiating a new contract while an existing contract is still in force, the duty of honest performance can apply. This nuance is especially relevant in employment settings.
For instance, if an employer misleads an employee during discussions about renewing a fixed-term contract – while the original contract is still active – an employment lawyer to negotiate severance packages or constructive dismissal lawyer could argue that such dishonesty breaches the employer’s duty under the existing employment contract. In other words, the employer breached the duty of honest performance of the existing employment contracts, rather than the new casual agreements.
This principle provides a crucial safeguard for Ontario workers, particularly when transitioning from full-time to casual work or renegotiating roles after a merger or restructuring.
Practical Takeaways for Ontario Employees and Employers
1. During Contract Negotiation (Before Contract Exists)
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The duty of honest performance does not apply.
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Misleading conduct may still give rise to misrepresentation claims.
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Consult an employment contract review lawyer to assess your options.
2. During the Life of the Contract
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The duty is in full force.
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Employers must act in good faith when exercising rights like termination.
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Employees can work with a wrongful dismissal lawyer or constructive dismissal lawyer if they believe they were misled or treated unfairly.
3. After the Contract Ends
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An employment lawyer helping an employee negotiate severance packages can review termination terms to determine whether an employer obligations under an existing employment contract remain.
Final Thoughts
As Ontario’s employment landscape becomes more complex, both employers and employees must understand the nature of their legal obligations.
If you are navigating the terms of a new job, facing termination, or disputing a severance package, an experienced Toronto employment lawyer can help you evaluate your rights. Whether you are reviewing a contract, negotiating your exit, or challenging a dismissal, the timing of dishonest conduct can be the deciding factor in your claim.
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It is important for an employee (or an employee) to obtain a legal consultation before taking any action that could affect the situation at workplace. Sezar has experience advocating for both employers and employees, which allows him to anticipate the other side’s arguments and develop an effective strategy, including termination of employment.
If you are looking for a wrongful dismissal lawyer in Toronto, call us today at 647-822-5492 for a case evaluation with an experienced employment lawyer.
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