Termination of Contractor Agreements

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 differ from employment agreements 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, as well as the ways in which those agreements may be terminated.

Contrator 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 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

Whether there is an employment agreement or a contractor agreement, a proper termination clause is crucial, as all relationships involving work will come to an end. As with an employment agreement, 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 of 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 mus tbe 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.

Contact Us for Help

If you are a business looking to terminate your contractor agreement, or a contractor seeking to clarify your rights, our team of experienced employment and human rights lawyers are happy to help. Contact us at 1-(800)771-7882, or email [email protected] and we would be happy to assist.

If you are a small or medium-sized company looking for full-service support, visit our CLO program page for our strategic solutions.

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Disclaimer: This blog is not intended to serve as, or should be construed as legal advice, and is only to provide general information. It is in no way particular to your case and should not be relied on in any way. No portion or use of this blog will establish a lawyer-client relationship with the author or any related party. Should you require legal advice for your particular situation, fill out the contact form, call 1-(800)771-7882, or email [email protected].