There are various benefits to hiring an independent contractor for a business, as they can assist with short-term engagements, such as projects with defined start and end dates, and they are typically responsible for their own taxes and benefits, which can reduce administrative burdens for the hiring company. In essence, independent contractors provide flexibility by providing specialized skills on short notice, which can align with the long-term needs of the business. However, care must be taken when drafting the agreement, as the specific language in the contract could have the unintended consequence of negating the advantages of hiring a contractor.

Fixed Term Contracts: What Are They?

Fixed-term contracts for independent contractors are agreements between a contractor and a client or company for a specific duration with a predetermined end date. These contracts outline important information, such as:

• the scope of work;
• project details;
• deliverables;
• payment terms; and
• other relevant terms and conditions for the contractor’s services.

Unlike permanent employment contracts, which are ongoing, fixed-term contracts for contractors are time-bound and automatically expire upon the end date or completion of the project. Fixed-term contracts are commonly used by contractors who tend to work on temporary projects, such as in the case described below.

Contractor Hired on 72-Month Fixed Term Contract

In Monterosso v. Metro Freightliner Hamilton Inc., an individual was a truck driver providing services to Truck Leasing Canada (the respondent). He was engaged as an independent contractor by a series of corporations involved in the trucking industry, Metro Freightliner Hamilton Inc., Metro Truck Niagara Inc. and Metro Collision Services Inc (the appellants). The term of the contract was fixed at 72 months.

Not long after the contract began, the appellants terminated the contract with 65 months of term remaining. No cause was given. The respondent sued for the payment of the outstanding contract term.

Trial Judge Awards Damages for Remaining Payments; Decision Appealed

In the first instance, the trial judge accepted the respondent’s argument for the quantum of damages and awarded him $552,500 plus HST, calculated based on the remaining 65 months in the contract.

The appellants appealed the judgement, arguing that the trial judge made several errors. They argued that she failed to consider internal email correspondence that they claimed demonstrates that a particular provision was added that would be “superfluous” if the 72-month contract was for a guaranteed sum.

Appeal Dismissed, but for the Duty to Mitigate

The Court found that the above argument must be rejected as the contract’s language was “clear and unambiguous” as opposed to any email correspondence forwarded by the appellants. The Court noted that the contract contained an entire agreement clause, so the additional correspondence could not be relied on. The trial judge also did not find any circumstances in which the contract could be rescinded, such as fraud, undue influence, waiver, or misrepresentation. Based on the contract’s terms, or its lack thereof, the respondent was entitled to damages for breach.

However, the Court also found that independent contractors also have a duty to mitigate their damages by searching for other work. The Court noted that the trial judge erred in conflating this situation with that of an employee working under a fixed-term contract, such as in Howard v. Benson Group Inc., where employees are not required to mitigate if terminated, and they are entitled to damages equal to the balance of the remainder of the fixed term. This situation was different and did not fall within the situations where mitigation was required, such as in an exclusive, employee-like relationship or depending on the appellants.

Nevertheless, the appellants had the burden to establish the respondent failed to mitigate, which the Court found they did not do. In fact, the respondent provided evidence of his extensive search efforts to find other work. The appellants argued that his efforts were focused on jobs beyond his experience’s scope but forwarded no evidence on this point. Therefore, the appellants could not establish that the respondent failed to mitigate his damages.

The Court dismissed the appeal.

Contact the Lawyers at Bader Law for Advice on Managing Independent Contractors

Contracts with independent contractors must be precise in their terms, such that termination clauses are included and clear. Otherwise, a business could be liable to pay remuneration for any remainder of the fixed term upon such termination. The trusted employment lawyers at Bader Law help demystify employment law for businesses and employers. Our team helps simplify the law in an effort to help clients understand their options and make informed decisions with respect to hiring independent contractors and drafting agreements that protect businesses from the consequences of termination. Our employment lawyers also regularly advise clients on discrimination, accommodation of disability and illness, harassment, wrongful dismissal, severance packages, and more. To schedule a consultation with a member of our experienced employment law team, call us at 289-652-9092 or contact us online.

Employment contracts are a common source of disputes between employers and employees. Securing employment can be difficult, so it is natural for workers to be excited about new opportunities and eagerly agree to terms without giving them adequate consideration. However, reading and understanding an employment contract is crucial for both parties to ensure that they are aware of their responsibilities and rights throughout the employment relationship, as well as the procedures under the termination process.

However, as time goes on, the nature of an employee’s work may change, and the employment contract may not be updated to adequately reflect updated terms relating to a new role or responsibility. This issue was raised in a recent decision before the Court of Appeal for Ontario, in which the Court was asked to determine whether an employee’s termination was valid or whether the nature of the employee’s work had changed enough to render the employment contract void.

Company co-founder steps down to chief technology officer

In Celestini v. Shoplogix Inc., the employee co-founded the employer’s business in 2002 and originally served as the Chief Executive Officer. In 2005, the employer was purchased by a venture capital firm, and the employee stepped down from his role and took on the position of Chief Technology Officer. He signed a written employment contract reflecting this in May 2005 (the “2005 contract”).

The 2005 contract stated that the employee could be terminated without cause with one month’s written notice, though he would continue to receive his base salary and group health coverage for 12 months following the termination date. The 2005 contract also stipulated that the employee would be entitled to payment equal to the bonus he received the previous year on a pro-rated basis.

Employment agreement remains unchanged after employee signs new compensation agreement

In 2008, the employee and employer entered into an Incentive Compensation Agreement (“ICA”), a bonus plan for management-level employees. The 2005 contract was not ratified when this new agreement was put into place. 2008 also brought a new Chief Executive Officer into the company and required the employee to take on additional responsibilities, including sales management, marketing management, and soliciting investment funds.

In 2017, the employer’s ownership changed hands once again, and the employee was dismissed on March 2, 2017, without cause. The employer terminated the employee in accordance with the terms of the 2005 contract and provided the employee with 12 months’ salary, one year of group health benefits coverage, and a prorated bonus.

However, the employee commenced an action against the employer for wrongful dismissal. He relied on the changed substratum doctrine and claimed that there had been fundamental changes to his employment duties after signing the 2005 contract, rendering it unenforceable. The employee sought damages for the employer’s failure to provide reasonable notice of termination, while the employer defended the action claiming that the employee’s only rights upon termination were those in the 2005 contract.

Motion judge rules in favour of employee

The motion judge found that the employee’s duties had, in fact, changed substantially throughout his employment and that the responsibilities he had at the time of his termination were “substantial and far exceeded any predictable or incremental changes to his role.” The motion judge also found that the ICA substantially changed the employee’s compensation plan from the 2005 contract. Under the changed substratum doctrine, an employer cannot limit an employee’s entitlement to notice to the terms of a contract if the employee’s duties and responsibilities have substantially or fundamentally changed.

After finding that the 2005 contract was no longer enforceable, the motion judge granted summary judgment in favour of the employee. The motion judge imposed a notice period of 18 months, which was in line with common law. In total, the employee was awarded damages of just over $420,000.

Employer appeals motion judge’s decision

The employer appealed the decision to the Court of Appeal for Ontario, arguing that the motion judge erred in their application of the changed substratum doctrine. The employer argued that the doctrine requires there to have been fundamental changes to an employee’s duties through promotion. In this case, the employer took the position that the doctrine did not apply because the employee did not ever change job titles.

The employer also argued that the changes referenced by the motion judge occurred in increments rather than all at once, meaning that there was never a substantial enough change for the doctrine to be applicable.

Court of Appeal finds in favour of employee

The Court of Appeal did not accept the employer’s arguments and held that a promotion was not required for the doctrine to be applicable. The Court also found that the motion judge exercised their deference in determining that there had been substantial changes and that the Court was not in a position to review or change that finding.

The Court awarded the employee higher damages than he was originally awarded, increasing the amount by $37,188.61. Further, the Court agreed with the employee’s cross-appeal that the motion judge improperly deducted $50,554 from his damages because of the bonus paid by the employer. However, the bonus was paid out for a period before the employee was terminated and therefore did not apply to the notice period.

The Employment Lawyers at Bader Law Provide Advice on Wrongful Dismissal Claims

At Bader Law, our knowledgeable employment lawyers understand the impacts a termination can have on an employee. If you believe you have been wrongfully dismissed or have been offered an unfair severance package, we will assess your circumstances and advise you on your rights and options in order to develop a strategic plan to move forward. To speak with a member of our employment law team, contact us online or call us at (289) 652-9092.

Navigating employment law disputes, particularly claims of wrongful dismissal, can be daunting, especially for start-up businesses. In Ontario, employees who have been wrongfully terminated may seek compensation for various losses. Among the potential avenues for recovery, moral damages play a significant role in recognizing and compensating individuals for the psychological impact caused by their wrongful dismissal. In a recent case before Ontario’s Superior Court of Justice, moral damages were awarded for an employer’s bad faith conduct, shedding light on the circumstances for which this type of damages is awarded.

Moral Damages in Ontario Case Law

The leading test of whether to award damages was developed by the Supreme Court of Canada in Honda Canada Inc. v. Keays. In the case, the Supreme Court reasoned that if an employee makes an allegation of bad faith, the employee is entitled to moral damages “only if they result from the circumstances described in Wallace, namely where the employer engages in contact during dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.” The Supreme Court also stated that if the employee can prove that the manner of dismissal caused mental distress, damages will be awarded not through an extension of the notice period, but “through an award that reflects the actual damages.” In other words, employees are entitled to moral damages where the bad faith conduct caused mental distress, and the amount of damages awarded will reflect the actual damages suffered by the employee.

An allegation of bad faith by an employer during the dismissal process was recently contemplated by the Superior Court of Justice in Teljeur v. Aurora Hotel Group.

Employee Terminated without Cause

This case involved an employee who had worked as a general manager for a resort owned by the two defendants. He was employed from October 2018 until he was dismissed from the company in December 2021. No cause was given, although the employer admitted that they had hired an outside management company to fulfill his duties.

Soon after his dismissal, the employee filed a claim for wrongful dismissal and moved to have the Court grant summary judgment.

Employee Seeks Wrongful Dismissal and Moral Damages

The defendants agreed that this matter was suitable for summary judgment, and the Court agreed. The employee argued that he was entitled to reasonable notice of 10 months in addition to 10% of the damages for reasonable notice. The defendants’ position was that the employee was entitled to approximately 3.5 to 5 months’ notice instead and sought a reduction based on the employee’s failure to mitigate his damages. The employee also sought $20,000 for bad faith conduct of the employer, whereas the defendants did not believe he was entitled to any moral damages.

Court Awards Seven Months as Reasonable Notice

The Court first assessed the amount of notice the employee was entitled to. The Court applied the Bardal factors to the analysis, namely:

• the length of employment;
• the character of employment;
• the employee’s age; and
• the availability of similar employment regarding the employee’s experience, training, and qualifications.

The Court noted that the employee was employed for just over three years, had advanced management responsibilities at the resort (which included training and coordinating employees), was 56 years old at the time of termination, and had a challenging time finding a similar position, “likely due in part, to the COVID pandemic and possibly due to his age.” The Court found that these factors closely matched those in Merida Lake v. La Presse (2018) Inc., where eight months of reasonable notice was awarded for a similarly aged employee in a similar position, industry, and circumstance. Therefore, the Court decided that seven months was a reasonable notice period for the employee in this case.

Insufficient Evidence to Support Employer’s Mitigation Argument

The Court also relied on the same case when dealing with the mitigation argument. It was noted that the decision in Merida Lake v. La Presse (2018) Inc. was appealed based on mitigation. In that case, the employer could not meet the mitigation test because there was no evidence to support the inference that if reasonable steps had been taken, they would have resulted in comparable employment.

There was a similar lack of evidence to support this inference in this case. As a result, the defendants were not entitled to a discount.

Moral Damages Awarded for $15,000

Lastly, the Court considered whether the employee was entitled to moral damages. The Court was presented recorded evidence of the termination meeting by the employee. The conduct of the employer at the meeting included the following:

• The employee asked for a written termination notice, which the employer agreed to provide. No such notice was ever delivered;
• The employer did not provide the employee’s entitlement to pay within seven days, as required under legislation. Although a cheque was later received, the employee went through the holiday season “without the benefit of any financial support from his employer.”;
• Despite agreeing to the reimbursement of expenses incurred as a result of termination, the employer had yet to reimburse the employee;
• The employer promised to pay eight-week severance in the meeting, then reduced it to the minimum amount required under legislation; and
• The employee was encouraged to resign.

In the Court’s view, these actions amounted to bad faith conduct. The Court then considered the level of damages, to which the Court accepted the employee’s evidence that he had dealt with significant stress due to the delay in receiving employment insurance and the stress of being terminated. Despite a lack of medical evidence, the Court awarded $15,000 for moral damages.

Contact the Employment Lawyers at Bader Law in Toronto for Advice on Wrongful Terminations and Severance Packages

The trusted employment lawyers at Bader Law help clients understand their employment law rights. In instances of an employment dispute, our team helps clients explore potential legal avenues for resolution while ensuring that their interests remain protected. Our lawyers help clients understand the law that applies to their situation, whether it involves workplace harassment, wrongful dismissal, or severance packages. To schedule a consultation with a member of our experienced employment law team, call us at 289-652-9092 or contact us online.

Wilful misconduct can occur when an employee engages in unlawful, wrongful, or improper conduct while in the workplace. In the recent case of Park v Costco Wholesale Canada Ltd. (“Costco”), the Ontario Superior Court of Justice was asked to determine whether Costco’s decision to terminate an employee’s employment without notice, for cause, should be upheld. In determining whether the termination should be upheld, the Court was required to assess whether the employee’s behaviour met the legal test for dismissing an employee for dishonest conduct.

Employee was Subject to Costco’s Standard of Ethics for Managers and Supervisors

The employee was hired by Costco in 1995. He was employed for over 20 years, during which time he worked at many warehouse locations and was then transferred, at his own request, to Costco’s head office in Ottawa, Ontario. When his employment was terminated, he was an assistant buyer in the lawn and garden department, earning approximately $74,600 per year. In this role, the employee monitored inventory and sales, set prices, negotiated with vendors, and resolved accounting discrepancies.

The parties agreed that in this role, the employee was in a management-level position and, therefore, that Costco’s “Standard of Ethics – Managers/Supervisors” applied to him.

In addition, the employee’s employment was governed by an Employee Agreement, which included expectations for managers as well as causes for termination of employment.

Section 11.2 of the Employee Agreement provided that termination of employment would be caused by “wilful damage or destruction of Company property, equipment, merchandise or property of others on Company premises” as well as “any act of insubordination including but not limited to: a. refusal to comply with the direct instructions or directions of a manager; b. contemptuous behaviour or remarks to a manager.” Section 11.6 provides expectations for managers, providing that:

“In accepting a position of management, you must be committed to and demonstrate a role of honesty and forthrightness. Anytime there is the slightest doubt about an activity that could be questioned regarding honesty, integrity or intent, you must discuss it with your Manager or Regional Vice President to remove any doubt. Managers above all else lead by example.”

Employee Develops Website; Seeks Approval of Management

The employee’s termination arose from his deletion of a Google Cloud-based website that he had created for the toys department at Costco. The website was intended to allow users within the toy department to share files with each other. This website was developed during work hours and was Costco’s property.

It was suggested to the employee that he bring his website to management’s attention to see if it could have a wider application within the company. The employee was told management would look into the website, however, no feedback was ever provided.

Employee Deleted Website Which was Property of Costco

Almost three months later, management discovered that they could no longer access the website. They emailed the employee to request access to the website and change the ownership from the employee to other management team members. The employee stated that he deleted the website right after receiving the email from management, as he was angry that he had never received feedback on the website. In his response email, the employee stated that he was under the impression that no one was interested in it.

Costco was able to restore the website and did so. Before Costco informed the employee that it had been restored, the employee deleted it again and also removed it from his computer’s recycling bin. The employee’s evidence was that he did not know it had been restored by Costco, but thought that he had not deleted it properly the first time.

Deleted Website Results in Employee’s Termination

Costco launched an internal investigation into the deletion of the website. Their IT support reported that:

“The Site was firstly deleted by robert.park@costco.com on 4/14 4:35am PST. After, at the same date, it was restored on 4/14 8:04am PST by tclarkg@costco.com. Subsequently, the site was deleted and then permanently deleted by robert.park@costco.com on 4/14 at 10:12am PST.”

The employee’s termination was approved by upper management (as required for termination for an employee of longer than five years by Costco’s policies), and management then met with the employee to advise of the termination. Costco noted that the employee was being terminated for cause, due to the deletion of the website.

The Legal Test for Termination for Dishonesty

In McKinley v. BC Tel, the Supreme Court of Canada set out the test to determine if an employee’s conduct justifies termination for dishonesty, stating that:

“the test is whether the employee’s dishonesty gave rise to a breakdown in the employment relationship. This test can be expressed in different ways. One could say, for example, that just cause for dismissal exists where the dishonesty violates an essential condition of the employment contract, breaches the faith inherent to the work relationship, or is fundamentally or directly inconsistent with the employee’s obligations to his or her employer.”

Courts must take three steps to apply this standard, namely:

1. determining the nature and extent of the misconduct;

2. considering the surrounding circumstances (this includes age, employment

history, seniority, role, responsibilities in relation to the employee and the type of business, policies, and position of the employee for the employer); and

3. deciding whether dismissal is warranted (i.e. whether dismissal is a proportional

response, which will include an assessment of whether the misconduct can be reconciled with sustaining the employment relationship).

The Nature of the Employee’s Misconduct was Deliberate and Dishonest

The Court found that the employee had engaged in four acts of misconduct.

The first was the employee’s deliberate deletion of the website was damage or destruction of Costco property contrary to the Employee Agreement.

The second act occurred when the employee sent an email to management stating that he thought no one was interested in the website, but did not indicate that he had deleted it in response to management’s request for access. Instead, the employee made it seem as though it was deleted at some point in the past due to not being used, which was not the case.

The third act occurred when the employee sent a further email to management in which he used disrespectful and insubordinate language, including asking: “exactly how many times should I be asking for an update, can I not trust in my managers to be able to get back to me in a timely manner and not ignore my requests?” He then suggested that the recipients “need to review with your managers how to manage their workloads…I shouldn’t have to babysit.” The Court found that these statements were acts of insubordination under the Employee Agreement and did not set a proper example for a manager.

The fourth act of misconduct occurred when the employee deleted the website for the second time. This was contrary to the terms of the Employee Agreement (again) and also in defiance of an earlier email from management telling the employee to inform management before removing anything from the system that other employees would use. The Court added that this was further dishonest conduct as the employee did not inform anyone that he had permanently deleted the website.

The Surrounding Circumstances Support Termination

The Court considered both the employee’s surrounding circumstances and Costco’s circumstances. The Court acknowledged that the employee had been a long-time employee with overall positive performance reviews. The employee held a position of trust and authority and Costco trusted him with significant security access to Costco’s systems, as well as expected him to comply with the Employee Agreement.

The Court also found that Costco’s Employee Agreement specifically provided for wilful damage of company property and insubordination as causes for termination, which occurred here.

The Misconduct was Serious Enough to Support Termination

In determining whether termination was a proportionate response to the employee’s conduct, the Court considered three measures:

1. Did the misconduct violate an essential term of the employment contract?

2. Did it breach the faith inherent to the work relationship?

3. Was it fundamentally inconsistent with the employee’s obligations to Costco?

The Court found that termination was a proportionate response to all three of these measures. The employee’s misconduct was serious, and it was “indispensable to the parties’ employment relationship” that the employee “exercised the duties of his position with integrity and honesty.”

Given the employee’s conduct, he could no longer be trusted with the autonomy of a manager in his position.

Contact the Employment Lawyers at Bader Law in Toronto for Advice on Wrongful Terminations

The trusted employment lawyers at Bader Law help demystify employment law and human rights laws for businesses and employers. Our team helps clients understand the law that applies to their situation and their options for dispute resolution. Our employment lawyers regularly advise clients on discrimination, accommodation of disability and illness, harassment, wrongful dismissal, severance packages, and more. To schedule a consultation with a member of our experienced employment law team, call us at 289-652-9092 or contact us online.