Termination of Contractor Agreements in Ontario
There are times when employers misclassify their workers as independent contractors, even though under the law the workers are considered employees, regardless of whether they signed an independent contractor agreement. To determine whether a worker is an employee or a contractor, courts typically look at the nature of the working relationship. Contractor agreements in Ontario differ from employment contracts due to factors such as who is in control and on whose behalf the worker is providing their services. This article provides an overview of contractor agreements in Ontario, as well as the ways in which those agreements may be terminated.
Contractor Agreement Terms
A contractor agreement is used to define the business relationship, and typically outlines the financial aspects of the relationship, as well as the service to be provided.
The main purpose of a contractor agreement is to outline the parties’ various obligations, to clarify terms, and to avoid disputes as well as costly and time-consuming litigation. The termination of contractor agreements has to be executed, if at all, after weighing various options and seeking legal counsel.
Contractor agreements in Ontario have various terms and clauses, some of which include:
- Services to be provided by the contractor;
- Fees to be paid for the services;
- Duration of the contract;
- Settlement clause outlining the manner by which a dispute between the parties ought to be settled; and
- Termination clause explaining how the agreement can be terminated by the parties
General Rules for Terminating a Contractor Agreement in Ontario
Whether there is an employment contract or a contractor agreement, a proper termination clause is crucial, as all relationships involving work will come to an end. As with an employment contract, a contractor agreement can only be terminated by the parties involved in the agreement.
The termination clause should be clear about when either party can terminate the agreement, with or without notice. Typically, the agreement includes a notice provision outlining the number of days or weeks that must be provided to terminate the agreement.
While a contractor agreement can be termination without notice depending on what is written in the termination clause, a business still has a duty of good faith. Such a principle was confirmed in Mohamed v Information Systems Architects Inc, 2018 ONCA 428, where the Ontario Court of Appeal held that regardless of what is written in the agreement, the employer/business does not have the unfettered right to terminate a contractor agreement.
Businesses must also be mindful that terminating the agreement of a dependent contractor may require them to pay the contractor reasonable notice, even if same is not drafted in the agreement.
In Cormier v 1772887 Ontario Limited c.o.b. as St. Joseph Communications, 2019 ONSC 587, a contractor worked for eight (8) years before the contractor agreement was terminated. The contractor was awarded twenty-one (21) months of pay in lieu of reasonable notice given their dependency on the company.
Termination for Convenience
A termination for convenience clause permits a party to terminate an agreement for any reason and is often found in construction agreements. Such a clause can be useful to avoid costly disputes.
However, a termination for convenience clause should have clear and unambiguous language, outlining any conditions that must be met, the procedure that will be followed, and any amounts that must be paid.
In Atos IT Solutions v. Sapient Canada Inc., 2018 ONCA 374, Ontario’s Court of Appeal affirmed that a termination for convenience clause typically defines the upper limit of a party’s liability for damages.
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