Worker on Fixed-Term Contract Collects Payment in Full Following Early Termination

Written on behalf of Peter McSherry
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In the sports world, there are often discussions regarding how much of a player’s salary is “guaranteed.” For example, if a player gets hurt or is otherwise unable to play on their team, they would still be guaranteed to receive a portion, or all, of their salary. Therefore, an athlete’s contract with their team can be thought of as a type of fixed-term contract, which is not an uncommon form of employment agreement for those working in other professions. A recent decision from the Court of Appeal for Ontario shows that when an employment relationship is based on a fixed-term contract, breaking the contract’s terms can be costly.

Independent contractor hired on 72-month term

In the case of Monterosso v. Metro Freightliner Hamilton Inc., the appellant employer engaged the respondent’s services, who worked as an independent contractor, on March 7, 2017. The employer hired the independent contractor on a 72-month term.

The employer terminated the independent contractor’s services without cause on November 22, 2017, just over 8 months into the contract. In response, the independent contractor sued the employer for payment of the remaining 65 months in the contract.

At trial, the judge found that the fixed-term contract had no termination provision, meaning that no language in the contract would have allowed the employer to terminate the contractor’s position while only having to pay out a portion, or possibly none, of the remaining time on the contract. Instead, the trial judge found that the contract “clearly and unambiguously” set the term at 72 months. This finding resulted in the Court awarding damages to the independent contractor in the amount of $552,500 plus HST.

Employer claims trial judge failed to consider important evidence

The employer appealed this decision to the Court of Appeal for Ontario. The employer claimed that, among other things, the trial judge erred by failing to consider or address email correspondence between the employer and the independent contractor a week before he was hired, which points to a new provision being added to the contract.

The employer stated that this particular provision (Article 4.03 in the contract) was added to the contract to ensure that the contractor would only be paid up until his last day of service. The employer told the Court that including such language would be unnecessary if the 72-month contract term was guaranteed, regardless of whether his services were no longer required.

Correspondence between employer and contractor contains ambiguous language

The employer’s argument was flawed, as this particular provision was not included in the contract itself. The Court also found that the email correspondence provided by the employer was ambiguous, which contrasted the trial judge’s finding of “clear and unambiguous” language contained within the contract. Further, the Court found that the contract contained an “entire agreement clause,” which is intended to prevent disputes such as these in relation to terms not explicitly included in the contract.

The Court wrote that the trial judge was entitled to draw an adverse inference against the employer’s position on this matter because the employer failed to call the human resources manager, who prepared the contract, as a witness at trial.

Was the independent contractor responsible for mitigating his damages?

Another ground of the employer’s appeal was their claim that the trial judge erred in finding that the independent contractor was not required to mitigate his damages. The employer told the Court that the trial judge conflated the situation of employees with that of contractors and claimed that contractors have a greater right to attempt to mitigate the loss of employment.

The Court looked at the previous decision in Howard v. Benson Group Inc. (The Benson Group Inc.), which held that employees under fixed-term contracts are entitled to damages equal to the loss of the remainder of the work in the contract. Further, this decision held that employees under fixed-term contracts have no duty to mitigate. However, the Court did not indicate that the same was true for independent contractors. This issue was before the Court again in the case of Mohamed v. Information Systems Architects Inc., where the Court held that:

“A duty to mitigate arises when a contract is breached, including contracts with independent contractors. Of course, the terms of a contract may provide otherwise. However, nothing in this case takes it outside the normal circumstances in which mitigation is required. For example, the respondent was not in an exclusive, employee-like relationship with the appellants, nor was he dependent on the appellants; the terms of the contract permitted the respondent to perform services for other parties. The matter was not argued fully before us, but for purposes of this appeal, it suffices to say there was no basis for the trial judge to conclude that the respondent was not required to mitigate.”

Court of Appeal dismisses employer’s appeal

The Court found that, while the trial judge did not make any findings on the mitigation issue, the appeal provided an opportunity to determine the issue. The Court noted that the burden was on the employer to establish that the contractor failed in his duty to mitigate; however, in this case, the employer failed to meet this burden. The Court instead highlighted the fact that the independent contractor maintained a detailed list of his unsuccessful attempts to find new work.

While the employer acknowledged that the independent contractor attempted to secure new work, it argued that he was looking for work which was beyond his experience and qualifications. However, the employer did not provide the Court with evidence to support this argument. Therefore, while the trial judge did not address the independent contractor’s duty to mitigate, the Court was satisfied there was nothing related to mitigation that could lead to a successful appeal.

The Court dismissed the appeal and awarded the independent contractor costs of $17,500.

Contact the Employment Lawyers at Peter A. McSherry Employment Lawyer in Guelph for Advice on Worker Classification and Employment Contract Disputes

The experienced employment law team at Peter A. McSherry Employment Lawyer understands that employment disputes can be complex, particularly where worker classification is at issue. With an in-depth knowledge of employment law throughout the province, our team will provide you with the tools, resources and information to ensure that your rights are protected, and you are positioned to obtain the best possible resolution. If you have questions regarding your worker classification or feel as though you have been wrongfully terminated, contact us by phone at 519-821-5465 or online to schedule a confidential consultation.