In Monterosso v. Metro Freightliner Hamilton Inc., 2023 ONCA 413, the Ontario Court of Appeal upheld a $552,500 damages award to a terminated independent contractor.
Below, we’ll discuss this case (along with a brief background on the difference between employees and independent contractors). We’ll also explain what this case means for independent contractors and employers.
Employees vs. Independent Contractors
Before our summary of Monterosso v. Metro Freightliner Hamilton Inc., 2023 ONCA 413, it’s important to understand that the principles, in this case, apply to a fixed-term contract between an employer and an independent contractor—not an employer and an employee.
In Ontario, employees and independent contractors are treated differently for employment purposes. So, what’s the difference?
Employees are workers who are hired by one client or company. At the same time, independent contractors work for themselves and may provide services to several clients or companies (for example, freelance workers or contractors).
Employees automatically receive several protections under the Employment Standards Act, RSO 1990, c E.14 that independent contractors do not receive. For example, employers must pay employees minimum wages, overtime, paid vacations, paid public holidays, and minimum notice periods for termination (or pay in lieu of notice). Employees may be entitled to further benefits or pay based on their employment contract’s terms.
Determining whether a worker is an employee or an independent contractor can be challenging in some circumstances and typically requires the court to consider several factors to classify the relationship and the parties’ respective rights.
The Employer Terminated the Independent Contractor’s Contract Without Cause
The defendant, Metro Freightliner Hamilton Inc., hired the plaintiff as an independent contractor. They entered into a contract in March of 2017 for a 72-month term (or six years). Several months later, the defendant terminated the contract without cause.
The plaintiff subsequently filed a claim for the money owed under the remaining 65 months of the contract.
The Trial Judge Awarded Damages to the Independent Contractor
At trial, the judge determined that the contract between the plaintiff and defendant did not include a termination clause. Therefore, the defendant did not have the right to end the agreement early and owed the plaintiff the remaining monthly payments. This amounted to $552,500 plus HST.
Subsequently, the defendant appealed the trial judge’s decision.
The Employer Appealed the Trial Judge’s Decision
At the Court of Appeal, the employer argued that the trial judge made several errors when coming to their decision.
The Trial Judge Failed to Consider Email Correspondence
The employer argued that the trial judge failed to consider email correspondence that discussed adding a provision to the contract stating that the employer would pay the independent contractor until their last day of “active service.” Further, the employer claimed that the independent contractor had seen the email correspondence, and it was inequitable for him to rely on the 72-month term.
The Court of Appeal rejected the employer’s argument, noting that the emails relied upon were ambiguous. At the same time, the contract’s language was clear and contained an “entire agreement clause,” meaning that the contract in question constituted the entire agreement between the parties.
The Trial Judge Resolved Ambiguity in Favour of the Independent Contractor
The employer argued in the alternative that the trial judge had erred by “resolving ambiguity in favour of the [independent contractor].” However, this argument was at odds with the trial judge’s finding that the contract was clear and unambiguous.
The Trial Judge Determined that the Independent Contractor was not Required to Mitigate his Damages
The employer went on to argue that the trial judge erred in determining that the independent contractor did not have to mitigate his damages, which the Court of Appeal agreed with.
The court noted that the trial judge had confused independent contractors and employees working under fixed-term contracts when coming to this conclusion. Namely, employees under fixed-term contracts who are terminated early are entitled to damages for the loss of payment for the remainder of the term and are not required to mitigate those damages. For independent contractors, the court has never come to this conclusion.
The court then determined that it had the information necessary to determine this issue. They noted that the independent contractor had filed significant evidence establishing his difficulty finding a job following his termination. While the employer had the burden of establishing that the independent contractor had failed to meet his duty to mitigate, they did not provide evidence proving this point.
The Court of Appeal Upheld the Trial Judge’s Decision
Even though the trial judge erred in improperly conflating independent contractors and employees working under fixed-term contracts, the Court of Appeal determined that the same result applied. The employer had failed to establish that the independent contractor had not mitigated his losses. As a result, the trial judge’s decision stood, and the independent contractor was entitled to damages for the income lost due to the termination of the contract ($552,500 plus HST) and $17,500 in costs.
What This Case Means for Independent Contractors and Employers
As with many things in life, having a solid contract in place can make all the difference—in this case, that difference amounts to approximately $552,500! And, for contracts between independent contractors and employers, it’s particularly important to ensure you are taking steps to protect your rights. For example, including a clause allowing for early termination of the relationships in these circumstances could have allowed the employer to terminate the contract with minimal financial repercussions.
Additionally, while fixed-term contracts can be useful in some circumstances, it’s worth considering whether an extended fixed-term contract is worthwhile. For instance, rather than entering into an extended fixed-term contract, it may be advantageous to implement shorter contracts (for example, contracts that are renewed annually).
Of course, every situation is different, so employers and independent contractors should consult an experienced employment law lawyer when entering into new contracts. They will be in the best position to advise you on your rights, suggest changes, and help draft contracts that protect the parties’ respective interests.
Contact Ottawa Employment Lawyers at Tierney Stauffer LLP
Whether you’re an employee or an employer, the experienced employment lawyers at Tierney Stauffer LLP can advise on various employment concerns, including contracts, terminations, and much more. To discuss your employment law concerns, call us at 1-888-799-8057 or contact us online to schedule a consultation with a team member.