The Rights Of An Independent Contractor Upon Termination

Written on behalf of Arbesman Hamilton LLP

In the context of work, individuals providing services to a company or organization are either employees (with rights and privileges afforded to them by legislation and the courts) or they are independent contractors (who essentially run their own business, and whose services can be terminated without statutory notice).

The difference between being an independent contractor or an employee of a company can be significant in many ways, including around what happens on termination.

The rights of a contractor in the context of a termination were recently addressed by the Ontario Superior Court of Justice in a decision involving independent contractor who was terminated from a contracted job without notice.

The hiring, and the disclosure

The contractor in question, Mr. Mohamed (Mohamed) was hired on November 1, 2015 by a consulting firm (the firm) to provide technological services for Canadian Tire Corporation (Canadian Tire).

Mohamed was had a great deal of experience in the field of information systems and as a security engineer for financial information. The firm offered him the option of working for them as either an employee or as an independent contractor. Mohamed decided to work as an independent contractor.

There was a termination clause in Mohamed’s consulting contract with the firm which stated:

11.0 TERMINATION

This Agreement and its Term shall terminate upon the earlier occurrence of:

  1. (Employer), at their sole discretion, determines the Consultant’s work quality to be sub-standard.
  2. (Employer’s) project with Customer gets cancelled, experiences reduced or altered scope and/or timeline.
  3. (Employer) determines that it is in (Employer’s) best interest to replace the Consultant for any reason.
  4. Immediately, upon written notice from (Employer), for any breach of this Agreement by the Consultant.

Upon being hired, Mohamed had disclosed his criminal record to the firm, which included a conviction for assault with a weapon dating back to 2000. On November 4, Mohamed submitted a security disclosure form to the firm, where he again disclosed his criminal record.

Mohamed was then subcranteced to Canadian Tire and began working with them on November 5, 2015. His contract with the firm still governed his work with Canadian Tire. Shortly thereafter, Canadian Tire and the firm arranged for Mohamed to provide services on another project, this time with an end date of May 31, 2016. This new project required a new contract, though it contained the same termination language quoted above.

Termination

Canadian Tire learned of Mohamed ‘s criminal record on December 4, 2015, three days after he started the second contract, after being sent the results of his security check. They asked for him to be replaced on December 5, 2015.

Although Mohamed had disclosed his criminal record to the firm, they relied on the language in the Termination provision in his contract – allowing them to end his contract if it determined that it was in their best interest to do so – and let him go. The employee then sued the firm for breach of contract.

Arguments from both sides

Mohamed argued that he was terminated without cause, that the termination provision in his contract was invalid and unenforceable, and that he should be awarded damages equal to the amount remaining in his contract.

Meanwhile, firm argued they terminated Mohamed in accordance with the contract and that his claim to damages had been mitigated because he had found alternative employment.

Analysis and decision

The Court found that while the contract did provide the firm with the right to terminate on any grounds it saw fit, the doctrine of good faith in the performance of contracts should apply, writing:

“When there is an ambiguity or contradiction in an agreement that cannot be resolved by the other rules of construction, resort may then be had to the contra proferentem rule (interpretation against the drafter of the contract), that the language of the contract will be construed against the party that inserted the provision to the other with no opportunity to modify its meaning:”

Mohamed had an understanding that the contract would not be terminated for a frivolous reason. The court ultimately agreed with Mohamed and found the firm had breached the contract. Furthermore, the court found that the contract was vague and inconsistent. It included a clause that provided for notice, but did not say how much.

Ultimately, the court determined it did not matter whether Mohamed was an independent contractor or an employee. The contract signed was for a fixed term. The Supreme Court of Canada addressed fixed term contract enforceability in Bowes v. Goss Power Products Ltd., 1955 CanLII 44 (SCC):

“In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation. Just as parties who contract for a specified period of notice (or pay in lieu) are contracting out of the common law approach in Bardal v. Globe & Mail Ltd. (1960), 1960 CanLII 294 (ON SC), 24 D.L.R. (2d) 140 (Ont. H.C.), so, too, are parties who contract for a fixed term without providing in an enforceable manner for any other specified period of notice (or pay in lieu).”

Mohamed was awarded damages of $81,937.50, equal to what he would have been paid had the contract been carried out.

At Arbesman Hamilton LLP we represent both employers and employees in both employment law matters and workplace disputes. We can help employers draft contracts with the aim of avoiding vague clauses and provide legal guidance through all stages of an employment relationship. We also help employees understand whether their employment rights may have been violated in some way, either through actions in the workplace or termination. Contact us online or call us at 416-481-5604 to book your consultation today.