In Monterosso v. Metro Freightliner Hamilton Inc., 2023 ONCA 413, the Ontario Court of Appeal made the surprising decision that independent contractors who are terminated while performing a fixed term contract are subject to the duty to mitigate their damages.

Mitigation in Employment Law Cases 

Employees on indefinite term contracts who are terminated may be entitled to common law notice so long as their employment contract has no enforceable termination provision. However, this entitlement is contingent on them making reasonable efforts to mitigate their losses. Therefore, terminated employees must make reasonable efforts to look for work during the common law notice period. While employees are responsible to fulfil this obligation, the onus is on employers to prove that the employee has not made reasonable efforts to find comparable employment.

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Fixed Term Contracts and the Duty to Mitigate 

Despite the general rule that employees have a duty to mitigate their losses, the obligation to mitigate does not apply to all circumstances. Notably, employees terminated on a fixed term contract are not subject to a duty to mitigate. In Howard v. Benson Group Inc. 2016 ONCA 256 the Ontario Court of Appeal held that employees who are terminated while on fixed term contracts are entitled to the balance of the contract without any obligation to mitigate, so long as there are no enforceable termination provisions in their contract. While the law is clear on an employee’s duty to mitigate, the same is not true for independent contractors. In Mohamed v Information systems Architects Inc., 2018 ONCA the court left open the question of whether the duty to mitigate applies to fixed term contracts of independent contractors.

The Decision 

In Monterosso v. Metro Freightliner Hamilton Inc. the court distinguished between employees and independent contractors on fixed-term contracts for the purposes of mitigation. In this case the respondent independent contractor was subject to a fixed term contract of 72 months, whose services were terminated by the appellants after only 7 months. The court held that while the decision in Howard v. Benson Group Inc. did confirm that employees terminated on fixed term contracts with no enforceable termination provisions are not under an obligation to mitigate, it did not extend this principle to independent contractors. 

In coming to its decision, the court highlighted the fact that a duty to mitigate arises when a contract is breached, stating that “nothing in this case takes it outside the normal circumstances in which mitigation is required”. The court elaborated saying that because the respondent was not in “an exclusive, employee like relationship with the Appellants” and he was able to perform services for other parties, that he was subject to the duty to mitigate. The court agreed with the trial judge that there were no enforceable termination provisions in the contract, and therefore, the respondent was entitled to the balance of the contract. The court further held that while the independent contractor was subject to a duty to mitigate his damages, the other party had not met the onus to prove that he had not made reasonable efforts to do so.

Do I have an Obligation to Mitigate as an Independent contractor on a Fixed Term Contract? 

The short answer to this question is, yes. While it is surprising that the Ontario Court of Appeal made this distinction between employees and independent contractors, it is a distinction with significant consequences. 

Takeaway 

Despite the principle that employees on fixed term contracts (with no enforceable termination provisions) who are terminated have no obligation to mitigate, the Ontario Court of Appeal has made clear that independent contractors must reasonably mitigate their damages when terminated under the same circumstances. Therefore, it is crucial to be aware of your status as either an employee or independent contractor, as it has significant potential consequences for your responsibilities upon termination.