Mitigation Duties for Fixed-Term Independent Contractors: A Landmark Decision
*Written by Zura Nakiwoga, Articling Student at Lee Workplace Law
The Ontario Court of Appeal delivered a significant decision in the recent case of Monterosso v. Metro Freightliner Hamilton Inc., 2023 ONCA 413. This case sheds light on the mitigation obligations of fixed-term independent contractors, specifically clarifying the distinction between fixed-term independent contractors and employees concerning the duty to mitigate damages when their contracts are terminated prematurely.
Background
In March 2017, Monterosso was engaged by Metro Freightliner Hamilton Inc. ("Metro") as an independent contractor for a 72-month term. Metro terminated his services without cause in November 2017. Monterosso sued, seeking compensation for the remaining 65 months of the contract.
Trial Decision
The trial judge sided with Monterosso, determining that the contract lacked an early termination provision and unmistakably specified a fixed 72-month term. Consequently, Monterosso was awarded $552,500 plus HST, reflecting the outstanding payments for the remaining duration of the contract.
Court of Appeal Analysis
Metro appealed on two bases.
Term:
Metro argued that the trial judge overlooked internal email correspondence which indicated the parties had discussed amending the contract to include a clause which limited payment to the last day of active service. Thus, Metro argued it was not the intention of the parties that the 72-month term was guaranteed.
The Court of Appeal dismissed this argument, emphasizing the "entire agreement clause" in the contract prevented reliance on extraneous discussions not explicitly in the written agreement.
Mitigation:
Metro also argued that the trial judge erroneously held that Monterosso was not obligated to mitigate damages. Metro argued that Monterosso, unlike an employee under a fixed-term contract, had a duty to mitigate damages.
The Court of Appeal sided with Metro on this issue. It confirmed that independent contractors under fixed-term agreements do indeed have a duty to mitigate damages unless expressly relieved of this duty by their contract. The term "expressly" here is crucial, highlighting the importance of explicit language in the contract. This is in contrast to fixed-term employees, who have no obligation to mitigate their damages unless expressly required by the contract.
Court of Appeal Outcome
Despite Metro's success on the mitigation issue, ultimately the Court of Appeal upheld the trial judge's award and dismissed the appeal.
The Court of Appeal found that the Metro failed to prove that Monterosso did not take adequate steps to mitigate his damages. Monterosso provided extensive evidence of unsuccessful job searches, demonstrating his efforts to mitigate the loss. As a result, his award was not reduced due to a failure to mitigate.
Key Takeaways
Caution when using fixed-term contracts:
Employers should exercise caution with fixed-term contracts to avoid potential pitfalls, such as early termination liabilities, inadvertent permanent employee status, and non-compliance with employment standards.
Clarity on Mitigation Duties:
The ruling clarifies that fixed-term independent contractors have a duty to mitigate damages unless stated otherwise in their contracts. In contrast, fixed-term employees are the opposite. They do not have a duty to mitigate unless otherwise stated in their contract.
Importance of Contractual Language:
Employers and workers should pay close attention to the precise language used in independent contractor agreements. Clear and unambiguous terms can prevent misunderstandings and legal disputes in case of early termination. In this specific case, the employer's failure to (a) incorporate the term regarding payment only being due on the last day of active service, and (b) include an early termination provision, exposed them to significant damages.
Conclusion
The Monterosso v. Metro Freightliner Hamilton Inc. decision has clarified the obligations of fixed-term independent contractors, providing valuable guidance for employers and workers alike. Understanding the nuances of mitigation duties under fixed-term contracts is crucial. Employers and workers alike should seek legal guidance when preparing or executing a fixed-term agreement.
