How to Terminate an Independent Contractor Agreement in Ontario

Terminating an Independent Contractor Agreement in Ontario: Dependent Contractor Risk, Good Faith Obligations, and How to Do It Right

Terminating an independent contractor agreement in Ontario carries more legal risk than most businesses expect. While independent contractors are generally not protected by Ontario's Employment Standards Act, 2000, that does not mean the relationship can be ended without consequences. The contractor agreement's termination clause, the nature of the working relationship, and whether the contractor has crossed into dependent contractor territory all determine what obligations arise on termination and what liability flows from getting it wrong. A termination that feels straightforward can become a significant wrongful dismissal equivalent claim where the facts are not assessed carefully in advance.

The core risk employers underestimate

Terminating a contractor relationship in Ontario is not simply a matter of giving notice under the contract. Where the contractor qualifies as a dependent contractor, they may be entitled to reasonable notice equivalent to an employee regardless of what the agreement says.

The dependent contractor doctrine applies where a contractor works almost exclusively for one client, relies on that client's income economically, and has a long-term integrated relationship with the business. Courts have awarded dependent contractors months of reasonable notice in some cases more than a year after relationships were ended abruptly. Whether your contractor falls into this category requires an assessment of the actual working relationship, not just the contract terms.

Are you planning to terminate an independent contractor relationship in Ontario?

Before ending the relationship, assess the risk whether the contractor may be a dependent contractor, whether the termination clause is enforceable, and whether the manner of termination creates good faith liability. A pre-termination consultation is far less expensive than defending a claim.

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The three main legal risks on termination of a contractor relationship

Dependent contractor claim

Where a contractor is found to be economically dependent on your business working almost exclusively for you over an extended period they may be entitled to reasonable notice of termination equivalent to what an employee would receive. This entitlement arises from common law, not the contract, and can significantly exceed anything the agreement provides for. The label "independent contractor" does not prevent the claim.

Unenforceable termination clause

A termination for convenience clause that is vague, internally inconsistent, or fails to clearly address payment obligations on termination may not be enforceable. Where the clause fails, the contractor may be entitled to damages equal to the reasonable notice period or the remaining contract value. Poorly drafted agreements that give the appearance of a clean exit frequently do not hold up when challenged.

Bad faith termination conduct

Even where a valid termination for convenience clause exists, the Ontario Court of Appeal confirmed in Mohamed v. Information Systems Architects Inc. (2018 ONCA 428) that abrupt or bad-faith terminations can generate liability beyond what the contract provides. The duty of good faith in contract performance applies to contractor relationships as it does to employment. How you communicate the termination matters as much as whether you are contractually entitled to terminate.

How to identify whether your contractor may be a dependent contractor

The contractor works almost exclusively for your business and derives the majority of their income from you

The relationship has been ongoing for a significant period months or years rather than a defined project

The contractor is integrated into your business operations in a way that resembles an employee rather than an outside service provider

The contractor does not actively maintain other clients or market their services to other businesses

The contractor relies on your business economically in a way that makes them vulnerable to the loss of the relationship

Cormier v. St. Joseph Communications 2019 ONSC 587

Dependent contractor awarded 21 months of reasonable notice

In Cormier, the Ontario Superior Court found the contractor qualified as a dependent contractor despite the independent contractor label used throughout the relationship. The court considered the exclusivity of the relationship, the contractor's economic dependence on the client, and the length and integrated nature of the arrangement. The contractor was awarded 21 months of reasonable notice well beyond anything the contract provided for.

The case illustrates that the dependent contractor risk is not theoretical. Courts look at the substance of the working relationship, and a long-standing exclusive arrangement can create significant notice entitlements regardless of how the parties characterized it in writing.

Key clauses every Ontario contractor agreement must address

Scope of work

Clearly defined deliverables and responsibilities vague scope creates disputes about whether obligations were met and whether cause for termination existed.

Payment terms

Amounts, timing, and payment triggers including what is owing on early termination must be explicit. Ambiguity about payment on exit is a frequent source of claims.

Term and renewal

Whether the contract is fixed-term, project-based, or ongoing affects the termination analysis significantly. Indefinitely renewed contracts create dependent contractor risk over time.

Termination for cause

What constitutes cause, the process for asserting it, and any cure period must be defined. Asserting cause without a contractual basis exposes the business to damages for wrongful termination.

Termination for convenience

The notice required, the financial obligations on termination, and the scope of the clause must be clearly stated. Vague convenience clauses frequently fail when challenged.

Dispute resolution

Whether disputes go to litigation, arbitration, or mediation and where should be defined. A missing or inconsistent dispute resolution clause complicates enforcement.

In Atos IT Solutions v. Sapient Canada Inc., the Supreme Court of Canada considered the limits of a termination for convenience clause where the language was insufficiently precise about payment obligations on exit. Vague or internally inconsistent termination language limits what an organization can recover or withhold on termination. Clear, specific, and legally reviewed termination clauses are the most effective risk management tool available before a contractor relationship begins.

How to terminate a contractor agreement lawfully in Ontario

Where the agreement contains a valid termination for cause clause and cause exists, document the breach clearly, follow any required cure process, and communicate the termination in writing with the reasons. Where cause is weak or uncertain, terminating for cause rather than convenience significantly increases legal risk.

Where the agreement contains a valid termination for convenience clause, comply with its terms precisely give the required notice, pay the amounts specified, and ensure the manner of communication is professional and documented. Where the convenience clause is vague or may not be enforceable, get legal advice on the realistic exposure before proceeding.

In either case, do not terminate abruptly, without documentation, or in a manner that could be characterized as bad faith. The Ontario Court of Appeal confirmed in Mohamed that abrupt termination can attract damages beyond what the contract provides regardless of the termination right. The manner of the termination is part of your legal obligation not an afterthought.

Planning to end a contractor relationship in Ontario?

Assess the risk before acting dependent contractor status, termination clause enforceability, and good faith obligations all affect what you owe and what exposure you face. Our team advises Ontario employers on contractor terminations and classification disputes.

Assess Your Risk Or call us: 1-800-771-7882

Frequently asked questions about terminating contractor agreements in Ontario

Can I terminate a contractor agreement in Ontario without notice?

Only where the agreement contains a valid termination for cause clause and genuine cause exists, or where a clearly worded termination for convenience clause permits immediate termination without further notice or payment. Where neither condition is met, abrupt termination can expose the business to damages for the reasonable notice period, particularly where the contractor qualifies as a dependent contractor. The Ontario Court of Appeal confirmed in Mohamed v. Information Systems Architects Inc. (2018 ONCA 428) that even contractually permitted abrupt terminations can attract good faith liability.

What is a dependent contractor in Ontario and why does it matter on termination?

A dependent contractor is a person who is contractually characterized as an independent contractor but is economically dependent on one client typically working almost exclusively for that client over an extended period. Ontario courts have recognized that dependent contractors are entitled to reasonable notice of termination equivalent to what an employee would receive. In Cormier v. St. Joseph Communications (2019 ONSC 587), a dependent contractor was awarded 21 months of reasonable notice. The label used in the contract does not determine the outcome the actual nature of the relationship does.

Does a termination for convenience clause protect against all contractor claims on termination?

Not necessarily. A termination for convenience clause that is clearly worded, internally consistent, and specific about payment obligations on termination provides strong protection. One that is vague, silent about payment, or internally contradicted by other terms may not be enforceable. The Supreme Court of Canada considered these limits in Atos IT Solutions v. Sapient Canada Inc. Even a facially valid convenience clause does not protect against good faith claims where the manner of termination was abrupt or harmful. Legal review of the specific language before relying on it is essential.

What should be included in a termination clause in an Ontario contractor agreement?

A valid termination clause in an Ontario contractor agreement should clearly state the grounds for termination (cause and convenience separately), the notice or payment required under each basis, what amounts are owing on termination for any work completed but not yet paid, and any process requirements such as cure periods for cause-based terminations. The clause should be internally consistent with the rest of the agreement and reviewed by legal counsel before the agreement is signed. Clauses drafted without legal review are the most common source of enforcement problems.

How do Ontario courts determine whether a contractor is actually a dependent contractor?

Courts assess the substance of the working relationship rather than the label used in the contract. The primary factors are economic dependence on one client, the exclusivity of the relationship, the length of the engagement, and the degree of integration into the client's business operations. A contractor who works for multiple clients, maintains their own business infrastructure, and is genuinely free to accept or decline work is more likely to be treated as a true independent contractor. A contractor who works exclusively for one client over years and has no meaningful ability to grow other business relationships is at significant risk of being found to be a dependent contractor.

Questions about terminating a contractor relationship in Ontario?

Our team advises Ontario employers on contractor terminations, dependent contractor risk, classification disputes, and agreement drafting. Contact us for a confidential consultation before ending any contractor relationship.

Call us at 1-800-771-7882 or fill out the form below and we will be in touch.

The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Achkar Law Professional Corporation and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Achkar Law Professional Corporation. ©

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