Canada: Independent Contractors And Their Rights Upon Termination

Originally published at www.irvinschein.com.

The recent Superior Court decision of McCready v. De Dwa Dehs Nyes provides interesting observations about the rights of independent contractors upon termination.

In this case, the Plaintiff was a social worker with years of experience working with aboriginal communities.

The Defendant was a non-profit organization providing health care and related services to aboriginal people.

In 2009, the Defendant obtained funding for a six-month research project to collect information relating to aboriginal health care issues. The Defendant was referred to the Plaintiff in September, 2009 as a person who might be able to supervise the project. In one single phone call, the Plaintiff and a representative of the Defendant discussed the project and the Defendant hired the Plaintiff as an independent consultant for the six month timeframe in which the project was to be completed. A total fee for the Plaintiff's work was also agreed on.

Both parties agreed that the consulting contract would ultimately be put into writing. In the telephone call, however, they agreed that the Plaintiff would start work with a training session at the Defendant's premises on October 1st and that the written contract would follow at a later date.

A key fact to note was that the consulting contract was non-exclusive. In other words, the Plaintiff was free to take on other consulting work during the six months that the project was anticipated to last.

The Plaintiff started his training on October 1st as planned. By the end of the week, on October 8th the Defendant had made the decision that the position actually required a full-time research co-ordinator, and the Plaintiff was fired.

The Plaintiff then sued for the entire amount that would have been payable to him for the six months' worth of work. The Defendant responded by insisting that no firm contract had been entered into since whatever had been discussed on the telephone was never reduced to writing and signed.

The Court had little difficulty dispensing with the Defendant's argument, and found that a binding agreement for a non-exclusive consulting arrangement had been made on the telephone and was enforceable.

However, in response to the Plaintiff's argument that given that there was a contract for a fixed term with a fixed price, and that in the absence of any termination provision, he was entitled to have the contract price paid in full, the judge responded by analogizing the situation to that of a lawyer.

Where a lawyer is retained, even if it is for a specific task or term, no one would expect the lawyer to get paid for work expected to be done but not yet reached if the lawyer's retainer is terminated before the task has been completed. As far as the Court was concerned, this is a function of the fact that typically, lawyers are engaged by clients on the basis that they are at liberty to work for other clients at the same time, i.e., on a non-exclusive basis.

In this case, the Court concluded that as the Plaintiff had been hired on a non-exclusive basis only, he was not entitled to the full contract price. He was entitled only to the value of the time he actually spent on the project prior to termination.

As a result, the Plaintiff's damages were fairly limited.

However, and as an aside, the Court did wish to express its disapproval for what it considered to be the disrespectful way in which the Plaintiff was treated. Accordingly, punitive damages in the amount of $15,000 were awarded. This may not seem like a significant amount but the fact is that punitive damages are only rarely awarded in breach of contract cases.

The Plaintiff was also awarded a substantial amount for costs. In fact, the costs award was roughly eight times the amount of the damages awarded. Presumably, this was also a reflection of the judge's distaste for the Defendant's conduct.

The important point to be taken in this case, of course, has to do with the nature of the consulting agreement. The fact that a consulting agreement is non-exclusive in nature will have a very dramatic effect on the damages that might be claimed by a consultant in the event of early termination.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.