As economic uncertainty continues across many industries, more employers are restructuring their workforces by shifting regular employees into casual roles. These changes often come with reduced hours, modified benefits, and new written contracts. Employees may feel pressured to sign quickly to protect their jobs, while employers look for flexibility to manage unpredictable business conditions.

A recent decision from the BC Court of Appeal, Ocean Pacific Hotels Ltd. v. Lee, 2025 BCCA 57, provides important guidance for both sides about what honesty in contract dealings legally requires—and what it does not.

In this case, employees agreed to transition from regular to casual employment. Their new contracts said extended benefits would continue, subject to the insurer’s approval. Shortly after the contracts were signed, the employer terminated those benefits.

Employees brought a class action alleging, among other things, that the employer had been deliberately misleading during negotiations about the future of their benefits. They argued this breached the “duty of honest performance”—a rule requiring parties to act honestly when carrying out their contractual obligations.

The Court of Appeal confirmed a significant boundary that the duty of honest performance applies only to how an existing contract is carried out—not to how a new one is negotiated.

This means that even if misleading statements influence someone to sign a contract, that conduct is not governed by the duty of honest performance. Instead, pre-contract dishonesty is addressed through other legal tools, like negligent or fraudulent misrepresentation.

The Court emphasized that expanding the duty into negotiation would blur the lines between contract and tort law and greatly increase contractual remedies in ways the law does not currently support.

What This Means for Employees

The decision does not leave employees unprotected. Misleading conduct during negotiations may still be legally actionable—it simply falls under different legal categories. The Court also recognized that employees often negotiate from a vulnerable position, especially during restructuring, and allowed the plaintiffs to revise their claim to argue that dishonesty violated the duty of honest performance in their existing employment contracts.

Practically, the ruling reinforces how crucial it is for employees to understand proposed contract changes and seek advice before signing.

What This Means for Employers

For employers, the ruling provides clarity on the limits of contractual good-faith duties and helps reduce uncertainty during workforce restructuring. It confirms that honest performance obligations begin once a contract exists—not before.

However, the decision is not a green light for aggressive or opaque negotiation tactics. Misleading employees can still create liability and may damage morale, trust, and retention. Employers who communicate transparently are more likely to avoid disputes and maintain positive workplace relationships.

decision strikes a balance: it maintains clear legal boundaries while recognizing real-world power dynamics in employment negotiations. As workplace restructuring becomes more common, both employers and employees benefit from clear advice, informed decision-making, and open communication.

Our services continue to support both sides in navigating contract changes with fairness, strategy, and legal clarity.

If in doubt about employment law matters, feel free to contact us for an initial consultation.

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