The Ontario Court of Appeal recently endorsed that the duty of good faith doctrine applies to termination decisions.

The Ontario Court of Appeal recently endorsed that the duty of good faith doctrine applies to termination decisions.

In Mohamed v. Information Systems Architects Inc., the Ontario Court of Appeal held that the company breached its duty of good faith when it terminated its relationship with an independent contractor due to the contractor’s previous criminal record, even though this was disclosed by the contractor at prior occasions. While noting that the independent contractor agreement contained a termination clause which provided the company with a facially unfettered right to terminate the contract, the Court held that the company should have exercised its right to terminate contracts in good faith. Further, the court observed that the independent contractor agreement was in essence a fixed term contract. As a result, the independent contractor was awarded over $81,000 in damages, representing the amount he would have earned had the contract been carried out.

The takeaway is that the principle of good faith must be an operative principle in the performance of contracts, including employment contracts. Companies must be fair in their decision to terminate an employee’s employment or end an independent-contractor relationship.