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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.