Correctly classifying a worker as an employee or an independent contractor can dramatically impact the employer’s responsibilities and the worker’s rights and entitlements, particularly in the event of a termination. Further, employers must consider the consequences of using fixed-term contracts with an employee or an independent contractor, as they may lead to substantial cost consequences. 

These issues were recently addressed in a decision from the Ontario Court of Appeal, which clarified the law regarding independent contractors and their mitigation obligations following the termination of their services under a fixed-term contract.

Trial judge awards contractor full payment under contract

In Monterosso v. Metro Freightliner Hamilton Inc., the defendants (appellants) hired the plaintiff (respondent) as an independent contractor. The parties signed a 72-month term contract on March 7, 2017. The plaintiff’s services were terminated by the appellants, without cause, on November 22, 2017. As a result, the plaintiff commenced a claim against the respondent, seeking to recover payment for the remaining 65 months under the contract. 

The trial judge found that the contract did not contain a termination provision and unambiguously provided for a fixed term of 72 months. Based on the remaining monthly payments owed under the contract, the trial judge awarded the plaintiff $552,500 plus HST.

Contract between parties contained an “entire agreement clause”

The appellants appealed the decision and argued that the trial judge erred by failing to consider and address email correspondence dated March 1, 2017. They claimed that this communication showed that an additional provision was added to the contract to ensure the respondent would be paid until the last day of active service. They also argued that the respondent saw the email correspondence, and it would therefore be inequitable to allow him to rely on payment for the full 72-month term. 

The Court of Appeal rejected these arguments, finding that the email correspondence relied on by the appellants was ambiguous compared to the unambiguous language within the contract. The Court highlighted that the contract also contained an “entire agreement clause,” designed to avoid reliance on discussions that are not explicitly included in the contract. The Court also noted that the trial judge found no evidence of undue influence, mistake, waiver, fraud, or misrepresentation, and therefore, this matter did not require rectification. 

The Court also found no reason to interfere with the trial judge’s decision based on the additional arguments put forward by the appellants. The appellants failed to call the human resource manager, who prepared the contract, as a witness at trial and as such, the trial judge was entitled to draw an adverse inference against them. 

Appellants argue that the respondent failed to mitigate damages

The appellants also based their appeal on the claim that the trial judge erred in finding that the respondent was not required to mitigate his damages. The Court accepted this argument after finding that the trial judge conflated the duties and obligations of independent contractors with those of employees working under fixed-term contracts. 

The Court referred to its previous decision in Howard v. Benson Group Inc., which held that “employees under fixed-term contracts are entitled to damages equal to the loss of remuneration for the balance of the fixed term, without a duty to mitigate, this court has never held that independent contractors do not have a duty to mitigate following breach of a fixed-term contract.” The Court also referenced the decision in Mohamed v. Information Systems Architects Inc., which held that “no duty to mitigate in the specific circumstances of that case because the parties intended compensation for the fixed term to be the consequence for failing to terminate the contract in good faith.”

When does a duty to mitigate arise?

The Court used this case to provide clarity on the issue and held that independent contractors providing services under fixed-term contracts do, in fact, have a duty to mitigate their damages in the event of a contract breach unless the contract terms provide otherwise. 

The Court explained that a duty to mitigate arises due to a contract breach, which includes contracts with independent contractors subject to the specific terms of the contract. In this case, the respondent was not in an “exclusive, employee-like relationship with the appellants.” Further, he was not dependent on the appellants as he was permitted to provide services for other parties. Ultimately, the Court found that there was no basis for the trial judge to find that the respondent was not required to mitigate his damages. 

Appellants fail to meet burden of proof; appeal dismissed

Although the trial did not make any findings on the issue of mitigation, the Court indicated that the appellants failed to satisfy their burden of establishing that the respondent failed to mitigate damages. On the other hand, the respondent provided “extensive evidence” illustrating his unsuccessful job search efforts. 

While the appellants acknowledged the respondent’s evidence, they claimed that he was searching for jobs beyond his experience and qualifications. However, the Court disagreed. Despite the trial judge’s failure to find that the respondent was required to mitigate damages, the appellants did not meet their burden of proof to prove that the respondent failed to mitigate.

The Court dismissed the appeal and awarded costs to the respondent. 

Contact Haynes Law Firm in Toronto for Advice on Employee Classification and Fixed-Term Contracts

At Haynes Law Firm, our trusted employment law team, led by Paulette Haynes, regularly advises both employers and employees on their rights and obligations with respect to various employment law concerns, including wrongful termination claims, fixed-term employment contracts, employment classification issues, and more. We help employers draft contractual agreements that accurately reflect the circumstances and needs of the parties in an effort to avoid future disputes. We also help employees understand their rights in the event of a termination in order to ensure that they recover the compensation that they are entitled to. To schedule a confidential consultation with our firm, contact us online or by phone at 416.593.2731.