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  • Contractual principles of incorporation sit uneasily with many employment benefits. Instead, there is an increasing openness on the part of the courts to imply a term that real and practical benefits for employees based in policy will not be arbitrarily or capriciously withdrawn.
  • Whether there is a general obligation to act in good faith in the performance of employment contracts is still yet to be determined.

The employment relationship is based on contract. Normal principles of contract law apply, including that there must be a mutual intention to create legally enforceable relations and certainty of essential terms. The contractual terms are established upon the commencement of the relationship, and may be varied afterwards. In practice, however, the employment relationship is less structured. All the terms of the employment are often not clearly identified to the parties upon commencement. Then the employment relationship evolves. Changes are often gradual and discrete, and there can be genuine uncertainty about whether the changes are within the terms of the original contract, or alternatively whether the contract has been varied or replaced. The employment relationship is personal and reasonable minds frequently differ as to whether outcomes are reasonable or fair.

It is hardly surprising, therefore, that claims by executive employees regularly include allegations of breach of contract. Common disputes concern the manner in which an employer has applied its own policy or its discretion (particularly with respect to the payment of a bonus); claims for payment in lieu of reasonable notice or claims otherwise alleging the notice provision was not complied with (typically because the employee was dismissed without notice for serious misconduct).

Two recent cases illustrate the courts’ application of contractual principles to the employment relationship, and the preparedness to imply a requirement that the employer not act capriciously or arbitrarily contrary to the purposes of the contract.

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