The duty to mitigate requires parties who suffer harm to take reasonable steps to limit the extent of their damages caused by defendants.
A recent Court of Appeal case clarified that independent contractors are required to mitigate their damages when facing breaches in fixed-term contracts. Previously, leading case law on this topic focused on the duty to mitigate for employees under fixed-term contracts or expressly left the question open as to whether the duty to mitigate applies to fixed-term contracts of independent contractors. In Monterosso v. Metro Freightliner Hamilton Inc., the Ontario Court of Appeal affirmed that independent contractors do have an obligation to mitigate their damages, unless the contract provides otherwise.
In this case, the Defendant, Metro Freightliner Hamilton Inc. (“Metro”), hired the Plaintiff, Antonio Monterosso (“Monterosso”), as an independent contractor and signed a contract on March 7, 2017, for a 72-month term. A few months after signing, on November 22, 2017, Metro terminated the contract with Monterosso without providing a reason as to the termination. As a result, Monterosso sued Metro for the remaining term.
The trial judge found in favour of Monterosso, noting that the contract did not provide for a termination clause, and that it clearly and unambiguously contained a 72-month term. The trial judge awarded Monterosso $552,500 plus HST in damages, based on the remaining term of the contract, and found Monterosso was not required to mitigate his damages.
Metro appealed the trial decision claiming that the trial judge failed to consider an email that provided for a provision to ensure that Monterosso would only be paid up until his last day of active service. The Court of Appeal found that Metro could not rely on this email as the language in the email was ambiguous, while the language in the contract was clear and unambiguous. Moreover, the contract contacted an entire agreement clause, which provides that parties cannot rely on previous discussions, negotiations, and/or representations made outside of the agreement.
Metro also argued that the trial judge erred in finding that Monterosso was not required to mitigate his damages. The Court of Appeal agreed with Metro on this point finding that the trial judge erred in mixing the situation of independent contractors with employees working under fixed-term contracts. In Howard v. Benson Group Inc., 2016 ONCA 256, the court decided that employees under fixed-term contracts are entitled to damages without a duty to mitigate, and in Mohamed v. Information Systems Architects Inc., 2018 ONCA 428, the court left the question open as to whether the requirement applies to fixed-term contracts of independent contractors.
The Court of Appeal decided that a duty to mitigate arises when a contract is breached and nothing in this case took the matter outside of the normal circumstances where mitigation is required. For example, the parties did not have an exclusive, employee-like relationship and Monterosso was not dependent on Metro. He was entitled to perform services for other parties to limit his damages.
While the Court of Appeal agreed Monterosso had an obligation to mitigate, it was found Monterosso took every opportunity to mitigate his damages and Metro failed to provide any evidence to the contrary. Monterosso was awarded a further $17,500 in costs.
This case serves as an important reminder to ensure contracts are properly drafted and to understand your rights before entering into them.
Walker Law has employment litigation lawyers with expertise in handling employment dispute matters. If you are an employer who needs help with drafting employment contracts, contact Walker Law to learn about your rights and how best to resolve these issues when they occur.
Please note that this article is intended for information purposes only. It is not intended to provide legal advice. If you have any specific questions, please contact a lawyer.