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Independent Contractor Owed Notice of Termination

By , November 1, 2017 10:01 am

One common misconception is that, unlike employees, independent contractors are not owed notice of termination. In one recent case from Ontario, an employer was forced to pay an independent contractor for notice because of the way the termination clause was drafted in the contract. Although the facts of this case are somewhat unique, there are still important takeaway points for independent contractors to keep in mind, which I will discuss below.

Mohamed v Information Systems Architects Inc.

Facts

Mr. Mohamed was hired as an independent contractor for Information Systems Architects Inc. (ISA) to provide technological services for their client, Canadian Tire for a 2 month project. Prior to being hired, on November 1, 2015, Mr. Mohamed consented to a security check and disclosed that he had been convicted for assault with a weapon in 2000 on the consent form. The next day, Mr. Mohamed signed a consulting agreement which included the following termination clause:

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

I. ISA, at their sole discretion, determines the Consultant’s work quality to be sub-standard.

II. ISA’s project with Customer gets cancelled, experiences reduced or altered scope and/or timeline.

III. ISA determines that it is in ISA’s best interest to replace the Consultant for any reason.

IV. Immediately, upon written notice from ISA, for any breach of this Agreement by the Consultant.

On November 4, 2015, Mr. Mohamed sent ISA a security disclosure form in which he once again disclosed his criminal record. The next day, he began to perform computer security services for Canadian Tire on site.

Around this time, Canadian Tire retained ISA for a second project which required a security engineer to temporarily fill a position for six months. ISA offered to project to Mr. Mohamed, which he accepted by signing a second consulting agreement.

On December 4, 2015, ISA received the security report for Mr. Mohamed, which indicated his conviction. The report was forwarded to Canadian Tire, which asked ISA to replace Mr. Mohamed. Mr. Mohamed was advised that he was being terminated by Canadian Tire and had to leave the premises. Mr. Mohamed sent an email to ISA detailing the steps he had taken to obtain a pardon for his conviction. ISA terminated Mr. Mohamed, relying on the termination clauses found in the consulting agreement.

Decision

The court found that the termination clauses were vague and unclear, and therefore, unenforceable. The termination clauses gave ISA the unfettered right to terminate Mr. Mohamed’s contract. The judge found this to be inconsistent with the doctrine of good faith in the performance of contracts. The judge also commented on how the clauses made no sense in operation as they provided for notice if Mr. Mohamed breached the agreement (without specifying the amount of notice), and yet no notice was required if Mr. Mohamed’s work quality was sub-standard (which is a breach of contract). The judge found it to be illogical for the termination clause to require notice where he breaches the contract, but no notice if he had done nothing wrong.

The court moved on to note that nothing turned on whether Mr. Mohamed was an independent or dependent contractor: as the contract was for a fixed term, Mr. Mohamed was entitled to the balance of contract owing, with no obligation to mitigate his damages. Therefore, Mr. Mohamed was entitled to 5 months and 3 weeks of the contract. In my next blog, I will delve more into how the judge arrived at this decision.

Lessons to be Learned

  1. Although independent contractors don’t enjoy protections under the Employment Standards Act, notice of termination may still be required. If you were characterised as an independent contractor and were terminated without notice, it is still advisable to speak to an employment lawyer to ensure you are not owed notice of termination.
  2. The way damages are calculated for breach of an indefinite contract versus a fixed term contract is very different. I will be exploring this concept further in my next blog.
  3. As an interesting side note, a private member’s bill has recently been introduced which, if passed into law, would extend protections under the Human Rights Code to people with police records (currently, Mr. Mohamed would only enjoy protection under the Code if he had obtained a pardon for his conviction). To read more about my thoughts on this proposed addition to the Code, click here.

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