Independent Contractors and the Duty to Mitigate

• Maddison
  Croden

  Maddison
  Croden

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In a recent decision, the Court of Appeal for Ontario considered whether an independent contractor has a duty to mitigate their damages when they are prematurely dismissed from a fixed-term contract.

In Monterosso v Metro Freightliner Hamilton Inc., 2023 ONCA 413 (“Monterosso”), the parties entered into an agreement, pursuant to which an independent contractor was to provide services to Metro Freightliner Hamilton Inc., and associated companies (the “Metro Companies”) for a 72-month term. Only seven months into the agreement, the Metro Companies terminated the contract. The independent contractor sued the Metro Companies for payments which would have been due during the remaining 65 months of the contract. The trial judge found that the contract clearly provided for a 72-month fixed term. The contract did not otherwise contemplate termination occurring prior to the end of that term. Therefore, the trial judge awarded $552,500 in damages, representing all payments owing during the remaining 65-month term.

On appeal, the Metro Companies argued that the trial judge should have considered the contractor’s failure to mitigate. The principle of mitigation requires the party claiming that they have suffered a loss to take reasonable steps to minimize the amount of damages suffered. The Metro Companies argued that the independent contractor had not mitigated his damages, because he failed to take reasonable steps to find alternative sources of work.  

The Court indicated that employees under fixed-term contracts are entitled to damages equal to the loss of remuneration for the balance of the fixed term, without a duty to mitigate. Circumstances are different in the case of an independent contractor. The Court determined that independent contractors do have a duty to mitigate when a breach of contract occurs.

However, the Court noted that the terms of a contract may provide otherwise. Circumstances which take an independent contractor outside of the normal circumstances in which mitigation is required could also impact a contractor’s duty to mitigate. Relevant factors may include the degree of exclusivity between the parties, and the extent to which the parties are in an employee-like relationship.

In this case, there were no unique circumstances which took the relationship outside of the normal circumstances in which mitigation was required. The independent contractor was not in an exclusive, employee-like relationship with the Metro Companies, nor was he dependent on the Metro Companies. The terms of the contract permitted the independent contractor to perform services for other parties. Therefore, the independent contractor was required to take reasonable steps to mitigate his damages.

Key Takeaways

If you are an independent contractor whose services have been terminated contrary to the terms of your contract, and prior to the expiration of that contract, it is important to take reasonable steps to search for replacement work. A failure to do so may reduce any entitlement to payment upon termination.

_{This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.}