Ontario Court of Appeal clarifies duty to mitigate damages in fixed-term independent contracts

In Monterosso v. Metro Freightliner Hamilton Inc.^[1] (Monterosso), the Ontario Court of Appeal answered the question left open by Mohamed v. Information Systems Architects Inc.^[2] (Mohamed): namely, whether the principle that there is no duty to mitigate damages for fixed-term employment contracts — as expressed in Howard v. Benson Group Inc.^[3] (Benson) — also applies to fixed-term independent contractor engagements.

Open question

The facts of Mohamed were as follows. The appellant company had engaged the respondent independent contractor pursuant to a fixed-term agreement. Just over a month into the term, the appellant relied on a provision to terminate the contract early. The trial judge found this provision to have been engaged in the absence of good faith or, in the alternative, void for vagueness.

The contractor sued for six months’ renumeration (i.e., the full amount of the contract), arguing on the basis of Benson that he had been engaged pursuant to a fixed-term contract and therefore had no duty to mitigate his damages. The motion judge agreed. Upon appeal, the Court in Mohamed agreed with the trial judge’s conclusion on the facts of the case, but was clear that it was not “deciding whether the principle from Benson would apply to all fixed term contracts of independent contractors”.^[4]

New clarity on Benson principle

Monterosso clarifies that the Benson principle — that there is no duty to mitigate damages for fixed-term employment contracts — is exclusive to employees. In Monterosso, the engagement of an independent contractor retained pursuant to a 72-month fixed-term arrangement was terminated with 65 months remaining in the term. The trial judge awarded damages equal to the full balance of the outstanding term on the basis that the independent contractor had no duty to mitigate the damages. The Court of Appeal disagreed, ruling that true independent contractors, unlike employees, are obligated to mitigate damages resulting from a breach of contract.

Monterosso therefore establishes that, in the absence of clear contractual terms specifying otherwise, independent contractors on fixed-term arrangements are subject to the duty to mitigate their damages for breach of contract. Monterosso is also clear that, in the event of a dispute, it will be incumbent on the engaging entity to demonstrate that the contractor has failed to mitigate its damages.