Employment Update

By Martin U. Wissmath and Cameron A. Axford

Aug 2023 Charity & NFP Law Update
Published on August 31, 2023



Fixed-term Independent Contractor Has Duty to Mitigate on Termination

When an independent contractor’s fixed-term contract is terminated early, the contractor may be entitled to damages for breach of contract, but may also be required to take steps to mitigate the damages suffered. Until recently, there was no clear direction from Ontario courts regarding an independent contractor’s duty, or lack of duty, to mitigate damages when a fixed term contract for their services is terminated.

Now, there is some direction on this important employment law issue found in a June 14, 2023 decision, Monterosso v. Metro Freightliner Hamilton Inc. (“Monterosso”). In this case, the Court of Appeal (the “Court”) found that independent contractors may have a duty to mitigate their damages when terminated, although an employer may still be found liable for damages when ending a fixed-term contract early if there is no early termination clause, or an inadequate termination provision. The court found the employer (the Appellant) in the Monterosso appeal failed to provide sufficient evidence to support an argument that the independent contractor (the Respondent) had failed to mitigate.

The parties entered a contract for the Respondent to provide services for a period of six years. Less than a year into the contract, the Appellant terminated the contract without cause. The Respondent brought an action against the Appellant, seeking payment for the 65 remaining months of the contract. The trial judge found that, as there was no termination provision, the Respondent was entitled to the full amount remaining, which totalled $552,500 plus HST.

On appeal, the Appellants argued there had been communications via an email that demonstrated the Respondent had seen and accepted an alleged new contract provision providing for the Respondent to be paid up until the Respondent ceased to provide active work service.

The Court found the email too ambiguous to rely on, while the contract clearly contained an “entire agreement clause”, which is normally included in contracts to prevent the kind of argument that the Appellant had tried to make: that the contract was altered by some other communication after the fact. Furthermore, the Appellant had failed to provide adequate evidence, and did not call the drafter of the contract, the company human resources manager, as a witness.

However, the court agreed with the Appellant that the trial judge was incorrect in stating the Respondent was not required to mitigate his damages. While employees under fixed term contracts in Ontario do not have a general duty to mitigate damages upon termination, the Court has never conclusively established if independent contractors are entitled to the same treatment.

Seeking to answer that question, the Court looked to the fundamentals of contract law. A duty to mitigate is required when a contract is breached. The Court saw no reason to stray from that principle in situations between employers and independent contractors. Such a relationship affords no special considerations, as the parties presumably enter into the agreement on relatively equal footing. The dependence, exclusivity and control that is indicative of an employment relationship with an employer and employee is not found with an independent contractor, so the parties do not have the same obligations to each other beyond the contractual provisions.

Despite this finding, the Appellant was unsuccessful in proving that the Respondent had failed in his duty to mitigate damages. The trial judge’s ruling was upheld on this basis. Monterosso is significant because it confirms the Court’s position regarding termination of fixed-term independent contractors. Charities and not-for-profits should be aware of this ruling as it could impact their obligations if they need to hire an independent contractor, or terminate a fixed-term contract. Legal advice should always be sought before drafting or entering contracts for work services, whether for employees or independent contractors.


Read the August 2023 Charity & NFP Law Update