Executive Summary: Key Legal and Evidentiary Issues

• Scope of the contractual duty of honest performance and whether it can capture alleged dishonesty that occurs during pre-contract negotiations aimed at inducing employees to sign new “casual” employment agreements.
• Characterization of employer communications about extended health benefits and severance rights—whether they are linked to performance of a contract, or are instead pre-contractual misrepresentations better addressed in tort.
• Adequacy of the plaintiffs’ pleadings under s. 4(1)(a) of the Class Proceedings Act, including whether the claim for breach of the duty of honest performance, as framed, was bound to fail at certification.
• Interaction between implied contractual terms (that the employer would take reasonable steps to obtain the insurer’s continued approval for benefits) and allegedly misleading statements about the continuation of benefits coverage.
• Tension between developing good-faith doctrines in contract and the well-established torts of negligent and fraudulent misrepresentation as alternative remedies for pre-contractual dishonesty.
• Procedural question of whether class action pleadings may be significantly amended, after multiple prior attempts, to re-anchor an honest-performance theory in pre-existing employment contracts and still meet commonality and certification requirements.

Factual background

Ocean Pacific Hotels Ltd. operates the Pan Pacific Hotel in Vancouver. Its operations were seriously disrupted by the COVID-19 pandemic, and it could not continue offering regular shifts to many hourly employees. In the summer of 2020, the employer responded by offering 156 hourly employees a shift from regular to casual employment status. Under the proposed casual employment agreements, employees would no longer be guaranteed work and would lose their right to severance pay if their employment was later terminated without cause. In exchange, the employer emphasized that employees would retain extended health benefits, despite casual employees ordinarily not being eligible for such benefits. The casual agreements stated that employees would receive extended benefits coverage “subject to and in accordance with the terms and conditions of the applicable plans and policies and the continued approval” of the hotel’s carrier, Manulife. Ninety-three employees accepted and signed identical casual agreements in July or August 2020. For most of them, extended benefits coverage ended on January 2, 2021, when Manulife’s temporary grace period expired. The employees say that when they agreed to give up regular status and severance rights, they did so believing that the continuation of extended benefits had enduring value and that the employer would seek to continue coverage, rather than merely relying on a short-term grace period.

Alleged misrepresentations and policy terms at issue

The case revolves around how the employer described health benefits and severance entitlements when presenting the casual agreements. The employees rely on statements that benefits “will remain the same” and that Ocean Pacific did “not anticipate any changes to [its] existing policies,” made in communications to staff about the proposed change in status. They allege these statements were incomplete or misleading because Ocean Pacific knew Manulife had only granted a temporary grace period for benefits and had not agreed to continued coverage beyond January 2, 2021. According to the plaintiffs, the employer intentionally failed to disclose that coverage was temporary and that it did not intend to keep asking Manulife for extensions. This non-disclosure was said to skew the perceived value of the bargain: employees would be more likely to accept the casual agreements and surrender their contractual severance rights in exchange for continued benefits that the employer knew were only short-lived. Contractually, two main aspects of the relationship were in play. First, the original employment contracts for regular employees, which included rights such as severance pay on termination without cause. Second, the casual agreements, which removed the right to severance but promised ongoing access to extended benefits, subject to the policy terms of the Manulife plan and the carrier’s continued approval. At certification, the plaintiffs also advanced an “implied term” theory—that the casual agreements contained an implied term requiring Ocean Pacific to take reasonable steps to obtain Manulife’s continued approval for extended benefits beyond the grace period.

Procedural history and certification battle

The respondents (three former employees representing a proposed class) commenced a class action in the Supreme Court of British Columbia against Ocean Pacific after signing the casual agreements and subsequently losing their benefits coverage. Their notice of civil claim went through several rounds of amendment as they refined their theories of liability. At the first certification hearing in 2022, the chambers judge declined to certify the action because the material facts were not adequately pleaded to support the alleged causes of action. The employees were granted leave to re-plead. At a renewed certification hearing, the plaintiffs filed an Amended Notice of Civil Claim (ANOCC) that introduced a new theory: that there was an implied term in the casual agreements requiring Ocean Pacific to take reasonable steps to secure Manulife’s continued approval for extended benefits beyond January 2, 2021. The chambers judge held that, at the certification stage, the implied-term theory was not bound to fail, so a breach-of-contract claim on that basis could proceed. The plaintiffs also pleaded that Ocean Pacific breached the “duty of honest performance,” a doctrine recognized by the Supreme Court of Canada in Bhasin v. Hrynew and C.M. Callow Inc. v. Zollinger. They alleged the employer intentionally and dishonestly withheld the fact that Manulife had only granted a temporary grace period and that Ocean Pacific did not intend to seek further extensions. The alleged dishonesty, they said, left employees with an inaccurate impression of the value of the casual agreements—especially in relation to the trade-off between continued benefits and the surrender of severance rights. The chambers judge concluded that, although novel, this claim for breach of the duty of honest performance was not bound to fail. She reasoned that the original employment agreements and the casual agreements together formed a continuing employment relationship, and that the employer’s alleged dishonesty occurred within that existing contractual relationship. On that basis, she certified three common issues tied to breach of the duty of honest performance, in addition to common issues on breach of contract (relating to the implied term) and punitive damages. A separate fraudulent misrepresentation claim, based specifically on one email that said “we do not anticipate any changes” to policies, was held to be bound to fail and was not certified. The employees did not appeal that refusal.

Core legal issue on appeal: the temporal reach of honest performance

Ocean Pacific appealed to the Court of Appeal, but only as to the three certified common issues involving the duty of honest performance. The hotel argued that, under Bhasin and Callow, the duty of honest performance is confined to the performance of an existing contract and the exercise of contractual rights, not to the negotiation of a new contract. In its submission, alleged dishonesty occurring while the parties were negotiating the casual agreements, and aimed at inducing employees to sign them, could not be “directly linked” to performance of those agreements, because the agreements did not yet exist. The employees responded that Callow did not definitively resolve whether dishonesty must occur after contract formation to be actionable as a breach of honest performance. They argued that the key requirement is a direct link to performance of a contract—temporal sequencing should not be decisive. They also urged the court to follow Basyal v. Mac’s Convenience Stores Inc., where a pre-contractual honest-performance claim had been allowed to proceed to a common issues trial. Importantly, in the ANOCC, the employees’ dishonest-performance theory was framed around the casual agreements: the idea was that Ocean Pacific’s alleged non-disclosure during negotiations dishonestly skewed employees’ evaluation of the value of those agreements, causing them to give up severance pay for illusory continued benefits. The Court of Appeal examined both foundational Supreme Court jurisprudence (Bhasin and Callow) and subsequent appellate and trial decisions (including Styles, Larizza, Wonderville, OEFC, and Okanagan Equestrian). It accepted the emerging view that Bhasin’s contractual duty of honest performance does not create a general duty to negotiate in good faith. Rather, the duty attaches to how parties perform their existing contractual obligations or exercise contractual rights. The Court emphasized that the plaintiffs’ own pleadings alleged that the employer’s dishonesty occurred during negotiations for the casual agreements and was meant to induce employees to enter into those new contracts. That type of conduct, the Court held, is classic pre-contractual inducement, not dishonest performance of an existing contract. The Court of Appeal further noted that tort doctrines—particularly negligent and fraudulent misrepresentation—already provide robust tools to address wrongful inducement into contracts. Extending the contractual duty of honest performance to cover all pre-contractual misstatements would blur the line between tort and contract and “expand remedies for breach of contract exponentially,” allowing almost any alleged misstatement in negotiations to be reframed as a contractual good-faith claim. On that reasoning, the Court concluded the ANOCC’s honest-performance claim, as presently pleaded, was bound to fail because it targeted pre-contractual dishonesty intended to influence employees to accept the casual agreements. It therefore did not meet the s. 4(1)(a) Class Proceedings Act threshold of disclosing a reasonable cause of action.

Amendments, existing contracts, and future trajectory of the class action

Although the Court of Appeal rejected the honest-performance theory as tied to the casual agreements, it recognized a different potential framing: that the alleged dishonesty might instead be linked to performance of the pre-existing employment contracts, which contained a right to severance on termination without cause. Under that alternative framing, statements and omissions made while urging employees to switch to casual status could be characterized as dishonestly exercising rights or performing obligations under the existing employment contracts—such as the employer’s conduct in relation to termination and severance. Properly pleaded, that could fall squarely within the logic of Callow, where misleading conduct about termination of a current contract was found to breach the duty of honest performance. The respondents asked for leave to amend their pleadings to reflect this alternative theory. Ocean Pacific resisted, arguing that repeated amendments should not be permitted and that the cause of action would be fundamentally changed. The Court of Appeal held that “breach of the duty of honest performance” is not a stand-alone cause of action; it is a doctrine of contract law that grounds a breach-of-contract claim when a party dishonestly performs an existing contract. It found that the ANOCC, even with the employees’ proposed insertion, did not yet properly plead a breach of the existing employment contracts—those contracts and their material terms (including severance) were only implicitly referenced, and the pleadings did not clearly allege that they had been breached. Nevertheless, the Court took a generous approach to amendment in the class action context. It noted that most of the important factual allegations—about what was said, what was withheld, and why employees valued continued benefits—were already in the ANOCC. What was missing was a clear contractual framework tying those facts to a claim that the employer dishonestly performed the existing employment contracts. In light of access-to-justice goals and the absence of specific prejudice to Ocean Pacific, the Court allowed the employees to amend their pleadings to: (1) clearly allege the existence and material terms of the pre-existing employment contracts (including termination and severance rights), and (2) expressly allege that Ocean Pacific breached those employment contracts by dishonest performance in connection with the shift to casual status. Recognizing that such amendments could affect the overall certification analysis, the Court remitted the matter to the chambers judge for further directions, including the possibility of a new certification hearing focused on the re-pleaded honest-performance claim tied to the original employment contracts.

Outcome and implications

The British Columbia Court of Appeal allowed Ocean Pacific’s appeal in part. It set aside the certification of the three common issues that relied on breach of the duty of honest performance as pleaded in relation to the casual agreements and held that the duty of honest performance does not extend to dishonest conduct undertaken during pre-contractual negotiations to induce contract formation. However, the Court declined to strike the honest-performance theory entirely. Instead, it granted the employees leave to amend their pleadings to re-cast the alleged dishonesty as a breach of the duty of honest performance in connection with the pre-existing employment contracts, and returned the matter to the chambers judge for any renewed certification proceedings on that re-framed basis. On the appeal itself, Ocean Pacific was the largely successful party because the certified honest-performance common issues were removed. No damages or compensation were awarded in this appellate decision, and under s. 37 of the Class Proceedings Act the Court made no order as to costs, so no monetary amount was ordered in favour of any party and the total monetary award or costs cannot be determined from this judgment.