Canada: Duty of Good Faith During Employment?

In a June 2001 decision, the British Columbia Supreme Court took a step towards recognizing a contractual duty on employers to treat their employees fairly during the course of their employment.

Mr. Marlowe worked as a sales representative for Ashland Canada from 1994 until he was fired in 1998. Mr. Marlowe always exceeded his individual sales goals. In fact over the course of his employment he increased sales in his region by 500%. Mr. Marlowe also met the minimum requirements in all other areas of his employment. Overall, the Court found that Mr. Marlowe was an "extremely productive salesman for the company".

Notwithstanding Mr. Marlowe’s positive performance, his new supervisor gave him a poor performance review approximately three months before he was terminated. The review contained allegations of misconduct that were found to be exaggerated and unsupported. Mr. Marlowe was given the lowest possible rating even though the Court found that there was "no basis" for it. The Court found that if Mr. Marlowe had been fairly assessed he would have received a mid to high rating. The only conclusion that the Court could reach was that the supervisor gave the undeserved review to deprive Mr. Marlowe of a bonus for the current fiscal year.

The review had other consequences. Ashland’s management used it to recommend Mr. Marlowe’s dismissal in December 1998. Ashland also discussed the review’s contents with a prospective employer after Mr. Marlowe’s termination. The prospective employer decided not to hire Mr. Marlowe.

The Court found that the supervisor’s actions and the content of the review were "harsh, vindictive, malicious and reprehensible". The supervisor’s conduct was "offensive and reprehensible", and a "substantial departure from the conduct and practices reasonably to be expected of an employer" such as Ashland.

The Court awarded Mr. Marlowe wrongful dismissal damages equivalent to four and one- half months of his salary, or almost $19,000.00. The Court also awarded an additional $20,000.00 for punitive damages. The Court held that employers were "bound to deal with matters of employment fairly and in good faith" and that the unsubstantiated review violated this principle. Ashland had to "be reminded by means of a financial penalty of its obligation to deal with employees in good faith".

This decision is open to criticism. The Supreme Court of Canada in Wallace rejected any independent duty of good faith towards employees other than an employer’s duty to terminate employees in a fair manner. The B.C. Supreme Court’s decision arguably extends the law beyond the Supreme Court of Canada’s restrictions. As such, it may be overturned on appeal. However, employers should take note of this decision which may signal a trend toward extending an employer’s duties to its employees. The case also reminds employers that there may be severe and unexpected consequences where they fail to ensure that all employee performance reviews are done fairly and truthfully, and that negative aspects are supported by verifiable facts.