In a recent decision, Monterosso v Metro Freightliner Hamilton Inc., 2023 ONCA 413, the Ontario Court of Appeal provided a stark reminder to the tune of half a million dollars to employers and contractors: beware of the fixed term contract and ensure your termination provisions are enforceable! The Court of Appeal upheld the lower court’s finding that an independent contractor, Monterosso, was entitled to over half a million dollars because the contract was a fixed term contract with no termination provision and the contractor, Metro, had not satisfied the court that Monterosso had failed to mitigate their damages.
Fixed Terms Contracts Should Have Termination Provisions
In this case, Monterosso was hired by Metro Freightliner as an independent contractor in March 2017. The contract was for a 72-month term. In November 2017, just seven months into the agreement, Metro terminated the contract without cause. When Monterosso sued, the trial court found that the contract was a fixed-term contract with no termination provision. Thus, Monterosso was entitled to the balance of the remaining 72-month contract as damages – a significant $552,500 plus HST.
This case is a perfect example of the importance of having enforceable and clear termination provisions if you have a fixed-term contract, even if the contractor is an independent contractor and not an employee.
Employers Should be Documenting Mitigation Efforts
Aside from the importance of having enforceable termination provisions (which is always a good idea, but especially in fixed-term contracts), the Court of Appeal also clarified that an independent contractor must mitigate their damages, even in a fixed-term contract. This is in contrast to an employee who does not have to mitigate their damages if they are wrongfully dismissed from a fixed-term contract. They are typically allowed to recover wages for the amount of time remaining in the fixed-term contract, if they were wrongfully dismissed.
While the duty to mitigate may seem like a win for Metro and any other business hiring people as an independent contractor for services, the court found that it is the business’s duty to satisfy the court that the independent contractor has not discharged their duty to mitigate. Thus, the burden of evidence is still on the business. In the case, the court found that Metro did not provide enough evidence to prove that Monterosso had failed to mitigate damages. Monterosso submitted lots of evidence detailing their unsuccessful job search, while Metro provided no evidence to support their claim that the job search was unreasonable. Metro provided no evidence showing there were jobs Monterosso could have taken that would have been comparably similar to the contract with Metro. Thus, the damages amount stayed the same.
This case highlights the need for due diligence of employers/ contractors. Fixed-term contracts have upsides, but there is also a huge amount of risk if the termination provisions are not enforceable, especially the longer the fixed-term is. Employers/ contractors should ensure contracts have adequate termination provisions limiting damages and that they thoroughly document ways the independent contractor/ employee could have mitigated but did not. While it may seem tedious, failing to do so could cost your business handsomely.