In a recent Ontario Court of Appeal decision, the Court addressed mitigation obligations that apply to independent contractors when their fixed-term contracts are terminated prior to the end of the term. The reasoning in this decision will be of particular interest to both employers and independent contractors moving forward.
In Monterosso v. Metro Freightliner Hamilton Inc., the Appellants, Metro Freightliner Hamilton Inc. ("Metro"), had engaged Monterosso as an independent contractor in March 2017, to provide services for a fixed term of 72 months. Metro terminated Monterosso's contact – without just cause – approximately seven months into the term. Monterosso sued Metro for the 65-month period that remained in the fixed-term contract.
At trial, the judge determined that the contract did not include an early termination provision and clearly contemplated that Monterosso would be providing services for a 72-month fixed term. The trial judge, therefore, awarded Monterosso $552,000, plus HST, an amount that would have been owing during the remainder of the term of the contract. Although there were two bases for Metro's appeal, the most significant ground was one relating to that part of the lower court's finding, which held that Monterosso was not required to mitigate his damages during the remaining 65-month period in the term.
The Court of Appeal found that the trial judge had erred by "conflating the situation of independent contractors with that of employees working under fixed-term contracts". The Court found that there is a distinction between independent contractors and employees when it comes to dealing with fixed-term contract interruptions. Employees who are on fixed-term contracts may be entitled to damages equal to the loss of remuneration for the balance of the fixed term without any duty to mitigate.
In this instance, the Court of Appeal held that a breach of an independent contractor's contract activates a duty to mitigate in the same way when there has been a breach of any other commercial agreement. While the parties to an independent contract arrangement are free to negotiate express terms that would remove the duty to mitigate, the fixed-term contract in this case did not include such a term.
The Court determined that Monterosso was neither in "an exclusive, employee-like relationship" with Metro, nor was he dependent on Metro (i.e., he was not a dependent contractor). The terms of Monterosso's contract with Metro argued that Monterosso could perform services for other parties concurrently. As such, the Court found that there was no basis upon which the trial judge should have concluded that Monterosso was not required to mitigate his damages.
Although Metro was successful in asserting that Monterosso had a duty to mitigate his damages, Metro was unsuccessful in its appeal, as the Court found that Metro had not satisfied its evidentiary burden in establishing that Monterosso had failed in his duty to mitigate. Monterosso filed extensive evidence with the Court detailing his unsuccessful efforts to secure other jobs, and Metro argued that all of Monterosso's efforts to secure alternative jobs were beyond his experience and qualifications. The Court did not accept this argument based upon the evidence that was presented by Metro.
This Court of Appeal decision is significant, as it cautions employers of the consequences that could arise when entering into fixed-term arrangements with employees who would have a basis upon which to pursue full damages for the balance of a fixed-term contract that is interrupted by their employer, without the need to mitigate. Conversely, it is clear from this decision that the courts will deal with independent contractors differently than employees in the event that a fixed-term contract for services is interrupted in mid-term as illustrated in a case (Howard v. Benson Group Inc.), which established that employees under a fixed-term contract have no duty to mitigate.
Regardless of whether clients are dealing with independent contractors or employees, it is critical that fixed-term contractual arrangements be clearly drafted, while also delineating any exceptions for early termination that would apply to paying damages based upon the full term of the contract, in the event of an early termination.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
