Independent Contractors Take Another Step Closer to Employees

July 24, 2018 | Eric Ito

A recent decision by the Ontario Court of Appeal has brought the worlds of independent contractors and employees closer together.

In Mohamed v. Information Systems Architects Inc., the defendant Information Systems Architects Inc. (“ISA”) hired Mr. Mohamed as an independent contractor for a fixed term of six months. His role was to provide consulting services to Canadian Tire on ISA’s behalf.

One month after he started, Canadian Tire asked ISA to replace Mr. Mohamed after a background check revealed he had a criminal record. Instead of finding another job for Mr. Mohamed, ISA terminated him. The termination likely came as a surprise to Mr. Mohamed since he had already disclosed he had an old criminal record to ISA before he signed with them.

Mr. Mohamed sued ISA after the termination. In a motion for summary judgment, the lower court held the termination clause on which ISA relied was unenforceable. As a result, he was entitled to be paid for the remainder of his six-month contract.

A side note: employees who work on fixed term contracts are entitled to payment for the remainder of the contract if they are terminated without cause (unless the agreement states otherwise). But what about the duty to mitigate? Do these employees, like employees in permanent positions, have a duty to mitigate their losses by seeking and accepting alternative employment?

Courts in Canada are divided on this point. In Ontario, cases such as Bowes v. Goss Power Products Ltd. and Howard v. Benson Group Inc. have held that unless the parties agree otherwise, employees on fixed term contracts do not have a duty to mitigate. On the other hand, in British Columbia, the Court of Appeal in Nielson v. Vancouver Hockey Club Ltd. (1988), 51 D.L.R. (4th) 40 and more recently Mosher v. Epic Energy Inc has held that they do.

Returning to Mr. Mohamed’s case, the lower court took the Ontario approach one step further and held that even though he was an independent contractor, he – like an employee – was not under a duty to mitigate.

The Ontario Court of Appeal upheld the lower court’s decision. Stopping short of applying to all employees, the Court held that – at least in Mr. Mohamed’s case – he was not under a duty to mitigate. The Court cited two rationales in support. The first was that based on the wording of the agreement, the context in which it was signed, and the manner of his termination, it was reasonable to infer that the parties intended Mr. Mohamed would be paid out the balance of his contract with no duty to mitigate. The second rationale, only briefly stated, was that the outcome would help to “ensure fairness and certainty for workers.”

Certainly the second rationale is interesting and further explanation from the Court would have been welcome. Independent contractors have fewer legal protections in the workplace in part because they are – in theory – able to negotiate the terms of the working relationship as best suit themselves. If this is so, then the need to provide “fairness and certainty for workers” does not easily fit within this context; in other commercial contract arrangements, the duty to mitigate is a basic, accepted principle.

Recent legal developments including the advent of the “dependent contractor” category suggest Courts have become increasingly interested in the balance of power between the parties when determining their legal duties. Mohamed fits well within this progression. For now, given that the outcome in Mohamed could have been avoided (though not anticipated) by including a duty to mitigate in the contract, employers and their counsel may consider this when hiring independent contractors.

Disclaimer

This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.

Miller Thomson LLP uses your contact information to send you information electronically on legal topics, seminars, and firm events that may be of interest to you. If you have any questions about our information practices or obligations under Canada's anti-spam laws, please contact us at privacy@millerthomson.com.

© 2018 Miller Thomson LLP. This publication may be reproduced and distributed in its entirety provided no alterations are made to the form or content. Any other form of reproduction or distribution requires the prior written consent of Miller Thomson LLP which may be requested by contacting newsletters@millerthomson.com.