Marco P. Falco discusses the duty of honest contractual performance for HR professionals as part of the Torkin Manes LegalPoint Video Series.

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You may have heard of a recent decision of the Supreme Court of Canada which has made major changes to the law of contracts.  The case is called Bhasin v. Hrynew, and it will have significant implications for all contracts in Canada, including employment agreements.  HR professionals in Canada need to understand its basic requirements.

In the Bhasin decision, the Supreme Court of Canada created a new duty on the parties to a contract.  The Court named it “the duty of honest contractual performance”.  This new duty can be simplified in a few principles:

PRINCIPLE ONE: Parties to a contract must be honest with each other in the performance of the contract.

While Canadian law has long held that parties to an employment contract, for example, must act in good faith, the duty of honest contractual performance imposes a specific requirement:  parties to a contract cannot lie to each other or otherwise knowingly mislead each other about matters directly linked to the contract. 

PRINCIPLE TWO: The duty of honest contractual performance is imposed on all contracts in Canada.

The duty of honest contractual performance is a duty imposed by Canadian Courts of law on all contracts in Canada.  It means that in the case of employment agreements, there is a simple requirement not to lie or mislead the other party during the course of the contract itself.

PRINCIPLE THREE: Parties cannot contract out of the duty of honest contractual performance.

Parties to an employment agreement cannot avoid the duty to perform the contract honestly by including language in the agreement that says the duty of honest contractual performance simply does not apply.  However, in certain circumstances, which have yet to be determined, the contracting parties may be able to relax the requirements of honest performance, so long as any relaxation of that duty is made in express and specific language in the contract.

You can see that the Court’s decision in Bhasin will have a major effect on the way employers and employees act with one another over the course of the employment relationship.  While the duty of honest contractual performance may well be a simple requirement not to lie or mislead the other party to a contract, the case raises many complex issues.  HR Professionals in Canada need to understand the Bhasin decision and its basic requirements.