Knowingly Misleading An Employee Can Result in Special Damages

by | Jan 5, 2021 | For Employers

A recent Supreme Court of Canada case, C.M. Callow Inc. vs. Zollinger, imposes an obligation on an employer not to knowingly mislead an employee about how it intends to exercise its contractual rights. 

The Facts 

In this case, a number of condo corporations entered into a two year contract with Mr. Callow to perform winter maintenance including snow removal. 

The condo corporations decided not to renew the contract based on the recommendation of a board member but thereafter Mr. Callow had various exchanges with two condominium corporations’ board members, including the one who had recommended that the contract not be renewed. Following these conversations, the trial judge concluded: “Mr. Callow thought that he was likely to get a two-year renewal of his winter maintenance services contract and they were satisfied with his services” As a result, Mr. Callow did not look for another winter contract. Shortly before Mr. Callow’s contract was up for renewal, the board member who had led him to believe the contract would be renewed wrote, in part: ‘…Btw, I was talking to him last week as well and he is under the impression we’re keeping him for winter again. I didn’t say a word to him cuz I don’t wanna get involved but I did tell [Ms. Zollinger] that [Mr. Callow] thinks we’re keeping him for winter” Two months later “…Callow (was notified) by way of email “that (a condo corporation) will not be requiring your services for the winter contract for the 2013/2014 season, as per section 9 of the contract, (the condo corporation) needs to provide the contractor with 10 days’ notice.

The Issue

One issue that was considered in this case was whether the (condo corporation’s) conduct amounted to dishonesty within the meaning of the duty of honest performance. In short, “  The question … is whether Baycrest lied to or knowingly misled Callow”.

When considering this question the court stated: “One can mislead through action, for example, by saying something directly to its counterparty, or through inaction, by failing to correct a misapprehension caused by one’s own misleading conduct.” and “…whether or not a party has “knowingly misled” its counterparty is a highly fact-specific determination, and can include lies, half-truths, omissions, and even silence, depending on the circumstances.”

The Decision

The court concluded: “I agree that Baycrest intentionally withheld information in anticipation of exercising (termination) clause 9, knowing that such silence, when combined with its active communications, had deceived Callow. By failing to correct Mr. Callow’s misapprehension thereafter, Baycrest breached its contractual duty of honest performance.”

The Damages

Damages awarded were much greater than the 10 days revenue Callow would have earned under the contract had he been provided with 10 days notice of termination of the contract. The court awarded lost profits and the cost of renting equipment that Callow did not need because the contract was not renewed. In particular, “if Baycrest’s dishonesty had not deprived Callow of the opportunity to bid on other contracts, then Callow would have made an amount that was at least equal to the ($64,306.96) profit it lost under the winter maintenance agreement. …{the court) also awarded Callow $14,835.14, representing the cost of leasing a piece of machinery for one year.” 

Lessons to be Learned

  1. Although there does not appear to be a duty to disclose information that is against a contracting party’s interest, silence (in some circumstances) can constitute a breach of an employer’s contractual duty of honest performance.
  2. Employers who use fixed term contracts should be careful when discussing the potential renewal of the agreement with the employees.
  3. Employers should be careful about making representations to employees such as representations as to job security that lead employees to believe they will not enforce contractual rights as employees may be awarded damages that are not contemplated in the applicable employment contract.

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

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