Co-authored by: Margaret Shodeinde,
Ever since the Supreme Court's landmark decision in Bhasin v. Hrynew ("Bhasin"),1 the
legal duty to act honestly in the performance of contractual
obligations has been a hot button issue in Canadian contract law
cases. The subsequent decision of Antunes v Limen Structures
Ltd.2 serves as a stark warning to employers that
employment contracts are by no means exempt from this principle,
and that the consequences of getting it wrong can be severe.
Mr. Antunes was hired by Limen Structures Ltd.
("Limen") in 2012. Mr. Antunes' employment contract
entitled him to an annual salary of $150,000 and 5% of the shares
of Limen. During contract negotiations, Limen's President had
represented to Mr. Antunes that the company was a thriving business
worth $10 million, such that his shares would be worth $500,000. In
reality, however, the company was worth much less than $10 million
– a fact that Mr. Antunes did not discover until
after the contract with Limen had already been signed.
Limen never issued the shares promised to Mr. Antunes upon the
commencement of his employment and, a mere six months later, it
dismissed him without cause. Mr. Antunes then brought an action for
wrongful dismissal against Limen seeking, among other things,
compensation in lieu of the unissued shares.
Honesty in Contractual Performance
The court started its analysis by acknowledging that parties to
a contract, including an employment contract, must not lie or
otherwise knowingly mislead each other about matters directly
linked to the performance of that contract. Citing Bhasin,
the court opined that:
[a] party to a contract must be able to rely on a minimum
standard of honesty from the contracting partner in relation to
performing the contract with the reassurance that if the contract
does not work out, they will have a fair opportunity to protect
With these principles in mind, the court found that Limen had
failed to deal with Mr. Antunes honestly during negotiations. In
particular, Mr. Antunes had relied on the untrue representations
made by Limen's President regarding the financial circumstances
of Limen before accepting his offer of employment.
Not surprisingly, the court held that Mr. Antunes was
contractually entitled to 5% of Limen's shares (as this
entitlement was clearly set out in his contract). However, the
court took a novel approach with respect to the valuation of those
shares. In the court's view, Mr. Antunes was told that he would
receive shares worth $500,000 in exchange for commencing employment
with Limen even though the contract itself was silent as to the
value of the shares. In order to put Mr. Antunes in a position
commensurate with his expectations, he would have to be compensated
in accordance with the President's representations. On this
basis, the court ordered Limen to pay damages to Mr. Antunes in the
amount of $500,000 (in addition to damages for pay in lieu of
notice of his dismissal).
What Employers Should Know
The court's decision in Antunes v Limen Structures
Ltd. confirms that employers cannot always rely on the strict
wording of a contract when it comes to quantifying employee
entitlements. The courts have the jurisdiction to look at the
totality of the circumstances, and may apply the duty of honesty in
contractual performance to find that employees are entitled to more
than what is written in a contract.
In order to avoid the same fate as Limen, employers should take
great care when negotiating the terms and conditions of employment
with potential employees. Playing it "fast and loose"
when it comes to making representations is a recipe for disaster.
Above all, employers should always consider whether their conduct
would be perceived as honest, fair and reasonable, having regard to
any oral promises which may have been made to the employee by the
1 2014 SCC 71.
2 2015 ONSC 2163.
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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