In a just released decision, Monterosso v. Metro Freightliner Hamilton Inc., the Ontario Court of Appeal considered whether an independent contractor has a duty to mitigate when a fixed term contract for services is terminated.
The appellants hired the respondent as an independent contractor for a fixed term of 72 months. Seven months into the contract, the appellants terminated the respondent’s services without cause. The contractor sued the appellants, seeking payment for the remaining 65 months of the contract.
The Trial Judge’s Decision
The trial judge sided with the contractor finding that the contract did not have a termination provision and clearly and unambiguously provided for a 72-month fixed term. The judge awarded the contractor more than half a million dollars calculated on the basis of the remaining monthly payments remaining under the contract.
She also ruled that the contractor was not required to mitigate his damages i.e., look for replacement work.
The appellants first ground of attack was to argue that the trial judge’s finding that the language of the contract was clear and unambiguous. The Court of Appeal rejected this submission.
Next, they argued that the trial judge erred in holding that the independent contractor was not required to mitigate his damages. The Court of Appeal agreed with this submission.
Critically the Court held that “the trial judge erred by conflating the situation of independent contractors with that of employees working under fixed term contracts”. It distinguished its 2016 landmark decision in Howard v. Benson Group Inc in which it found that employees under fixed term contracts are entitled to damages equal to the loss of renumeration for the balance of the fixed term, without a duty of mitigate and explained that it had never held that independent contractors do not have a duty to mitigate but had instead left the question open.
In explaining its decision, the Court reverted to first principles of contract law. That is, a duty to mitigate arises when a contract is breached, unless the terms of the contract say otherwise. This rule applies to independent contractors who are free to perform services for others, unlike dependent contractors who are in “exclusive, employee like” relationships.
On the facts of the case, the Court found that the appellants had not met their burden of proving a failure to mitigate and the trial judge’s award remained intact.
More than ever, the distinction between dependent and independent contractors will be a crucial consideration in determining rights and entitlements on the termination of a contract. A contract for services will be scrutinized to determine in which camp a contractor will fall. Independent contractors will have duty to mitigate whereas dependent contractors will not. All parties should ensure that their agreements are carefully drafted to accurately reflect their intentions so there are no surprises if an early termination arises.