The Ontario Superior Court’s recent decision in Antunes v. Limen Structures Ltd.,  is an important caution to employers who embellish the attributes of their company or a particular position when courting future employees. This decision makes clear that the general duty of honesty in contractual performance can impact an employer’s liability for compensation in lieu of reasonable notice upon termination.

The plaintiff, John Antunes, started working as a Senior Vice President of Operations/Concrete Forming with the defendant, Limen Structures Ltd (“Limen”), on May 28, 2012. After just over five months, and without prior notice, Mr. Antunes was terminated without cause on November 9, 2012.

Mr. Antunes’ employment agreement provided for a starting salary of $150,000 per year, increasing to $200,000 after his first year, as well as 5% of Limen’s shares, with the potential for another 5% of the shares in Limen’s residential division within a year. The agreement also provided for up to 12 months’ pay in lieu of notice for termination. At the date of his termination, no shares had been issued to Mr. Antunes.

Prior to signing the agreement, Mr. Antunes discussed the terms of his employment with Mr. Lima during multiple phone calls and two in-person meetings. During these discussions, Mr. Lima advised Mr. Antunes that the company, in his opinion, was worth $10 million. Mr. Antunes relied on this representation, along with the promise of company shares, when he agreed to sign the employment agreement.

At trial, Mr. Antunes testified that shortly after starting at Limen, he realized the company was not worth $10 million. Limen did not call Mr. Lima or any other witness at trial. Given that Mr. Lima was a material witness with direct and relevant knowledge of the company’s value and the negotiations, Justice Brown drew an adverse inference from his failure to testify. Ultimately, Justice Brown awarded Mr. Antunes eight months’ reasonable notice.

In determining the reasonable notice period, Justice Brown applied the well-established Bardal v. Globe & Mail Ltd factors, considering the character of the employment (project manager in construction with supervisory responsibilities), length of service (five months and 11 days), age (50 years old), and availability of similar employment given Mr. Antunes’ experience, training, and qualifications. Justice Brown also considered Limen’s bad faith in terminating Mr. Antunes.

Of particular note is her consideration of the general duty of honesty in contractual performance. Relying on the Supreme Court’s decision in Bhasin v. Hrynew, Justice Brown emphasized that parties must be able to rely on a minimum standard of honesty from their contracting partner to ensure a fair opportunity to protect their interests if the contract does not work out. Justice Brown found that Limen failed to act honestly when:

  • Mr. Lima misrepresented the value of the company and the company’s shares, and

  • Mr. Lima made up the existence of a residential division and promised shares of this non-existent company.

These misrepresentations, which Mr. Antunes relied on in accepting the offer of employment, were central to Justice Brown’s determination of an eight-month reasonable notice period. She concluded that Mr. Antunes was entitled to eight months’ notice under both the employment agreement and common law, considering the contractual wording, Limen’s failure to act in good faith, the misrepresentations relied upon, and the adverse inference drawn against Limen.

In addition to notice, Mr. Antunes received $500,000 for Limen’s failure to issue shares, based on the uncontroverted evidence that Mr. Lima valued the shares at approximately $500,000. Justice Brown emphasized that Mr. Antunes “is to be put in a position commensurate with his expectations arising from the contract and from Mr. Lima’s representations to him.”

While it is well-established that employer conduct at termination can impact the reasonable notice period, this decision serves as a warning to employers who over-sell the benefits of their offer to potential employees. Where such embellishments are relied upon in accepting an employment offer, they may translate into greater employer liability post-termination.