Independent contractors on fixed term contracts must mitigate damages, Appeal Court rules
Employers should take care when offering fixed-term contracts after the Court of Appeal upheld a $550,000 damages award to an independent contractor fired just seven months into a 72-month contract, says Toronto civil litigator Stephany Mandin.
In the case of Monterosso v. Metro Freightliner Hamilton Inc., the unanimous appeal court panel dismissed a truck company’s appeal of a Superior Court judgement ordering it to pay out the remaining 65 months on the plaintiff’s contract after terminating his services without cause.
Still, there was some good news for employers, as the three-judge panel confirmed that independent contractors working on fixed-term contracts – unlike regular employees working under the same type of agreement – are required to mitigate their damages in the event of an early termination.
“The difference is that independent contractors are not in an exclusive relationship with the business. They are typically allowed to perform work for other parties, whereas employees are more tied to the employer and have less agency during the fixed period of time they have contracted for, which makes them less able to find alternative work,” explains Mandin, principal of Mandin Law.
Whether they are hiring employees or independent contractors, the decision should serve as a warning to businesses to review their practices when signing up workers on fixed-term contracts, Mandin adds.
“Paying out a contract for 65 months is going to be quite onerous for any employer. You may want to revisit timeframes or consider adding options to review or re-evaluate the contract at various stages, so that you are not as exposed for such a long period,” she says.
In a typical wrongful termination dispute involving an open-ended employment relationship, Mandin explains that arguments tend to revolve around the amount of notice (if any) due to the fired employee.
However, plaintiffs are not automatically entitled to damages equal to the earnings they would have received during the notice period, she adds. Under the common law, plaintiffs have a duty to mitigate their damages whenever a contract is breached – usually in the employment law context by finding another job.
“You can’t just sit on your hands and collect your wage for the full notice period. You have to take steps to become gainfully employed,” Mandin says, explaining that the damages award may be reduced if the employer can prove that the worker’s mitigation efforts were not good enough.
When it comes to employees on fixed-term contracts, the situation is quite different, thanks to a landmark 2016 decision in a case known as Howard v. Benson Group Inc., when Ontario’s Court of Appeal ruled that employees are entitled to damages equal to the loss of remuneration for the balance of the fixed term, without a duty to mitigate.
Until its recent decision in Monterosso, the appeal court had left open the question of mitigation for independent contractors. According to the appeal court ruling, the parties in the case reached their original agreement in the spring of 2017.
At trial, a judge found that the contract was clearly for a fixed-term and contained no termination provisions, ordering the employer to pay damages of $552,000 plus HST, basing the calculation on the amount the plaintiff would have received had he served out the remaining 65 months of the contract.
At the appeal court, the three-judge panel sided with the trucking company on the issue of mitigation, finding that the trial judge had conflated the situation of independent contractors with that of employees working under fixed-term contracts.
“A duty to mitigate arises when a contract is breached, including contracts with independent contractors,” the decision reads.
Despite the trial judge’s error, the appeal court panel ended up at the same result, finding that the trucking business had fallen short of meeting their burden to prove that the independent contractor had failed to mitigate his damages.
“The respondent filed extensive evidence detailing his unsuccessful job search efforts. The appellants acknowledge this evidence but assert that the respondent was looking for work that was beyond the scope of his experience and qualifications. There is no basis in the evidence on which to accept this assertion. The appellants led no evidence to establish that there were jobs the respondent could have taken,” they wrote.