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Legal Notes: Termination clauses versus mitigation obligations for independent contractors

John Bleasby
Legal Notes: Termination clauses versus mitigation obligations for independent contractors

Independent contract workers in all industry sectors, including construction, are finding fixed-term, independent employment in today’s “gig economy.”

A recent Ontario Court of Appeal case illustrates the importance of clarity when it comes to understanding contract mitigation obligations should the contract be terminated.

Antonio Monterosso was hired as an independent contractor by Metro Freightliner Hamilton on a 72-month contract. Only seven months into the agreement, Metro terminated the contract without cause. Monterosso filed a claim seeking full payment for the contract. The trial judge ruled the contract was clearly for a 72-month period and did not include a termination clause. The court awarded Monterosso $552,500 plus HST, that being the balance of the contract owing.

Metro appealed, saying the trial judge disregarded emails that contained a provision limiting payment to the last day of service. It also claimed Monterosso failed to mitigate his damages by not actively seeking new work in place of the terminated contract.

However, the court of appeal disagreed. It ruled, “the contract contains an ‘entire agreement clause,’ a clause plainly designed to avoid the sort of argument raised here. Moreover, the trial judge found no evidence of fraud, misrepresentation, undue influence, mistake, or waiver, and found that this was not a case for rectification.”

In terms of any obligation on Monterosso to mitigate damage, the court of appeal ruled, “a duty to mitigate arises when a contract is breached, including contracts with independent contractors. Of course, the terms of a contract may provide otherwise. However, nothing in this case takes it outside the normal circumstances in which mitigation is required. The burden was on the appellants (Metro) to establish that the respondent (Monterosso) failed in his duty to mitigate, and they did not meet that burden.”

In fact, and to the contrary, Monterosso provided extensive evidence of unsuccessful job searches made. The appeal was dismissed and Monterosso was awarded $17,500 in additional costs.

Several legal experts have weighed in on lessons to be learned from this case concerning contract breaches.

As John Mastoras, senior partner with Norton Rose Fulbright Canada LLP, and law student Juliano Baggieri point out, “Until recently, there has been confusion in Ontario law as to whether the duty to mitigate applies to fixed-term contract damages.”

Andrew Monkhouse, managing partner of Monkhouse Law writes, “This case establishes the principle that independent contractors working under fixed-term contracts are still obliged to mitigate damages when facing contract breaches, unless their specific contract stipulates otherwise.”

Tracy Lyle, partner with Nelligan O’Brien Payne LLP, writes how the case highlights the important and differing obligations of dependent contractors, those in “exclusive, employee like relationships,” versus independent contractors who can seek work from others. 

“A contract for services will be scrutinized to determine in which camp a contractor will fall. Independent contractors will have duty to mitigate whereas dependent contractors will not.”

“A business that intends to rely on a mitigation defence to a claim for early termination damages should be prepared to lead evidence of failed mitigation efforts and work opportunities reasonably available to the contractor,” write Mastoras and Baggieri.

Others question the value of fixed-term contracts themselves.

Brittany Taylor of Rudner Law told lawtimesnews, “Fixed-term contracts rarely provide a benefit worth the risk to the company or employer.”

Mastoras and Baggieri write parties under contract may agree to customized termination provisions in their contracts or agreements.

“If parties want to agree that mitigation will not apply or to an alternative calculation of early termination damages, they are free to do so. The inclusion of an early termination provision in agreements may prevent disputes like the one that arose here.”

Of course, the need for precise contract language should never be overlooked.

As Taylor points out, whether a contract is short-term or long-term, contract provisions should be drafted and reviewed by legal advisers. Referencing this appeal case specifically, she concludes, “a properly drafted (fixed-term) contract could have saved them a lot of money.”

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to

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