Thursday, May 9, 2013

Independent Contractor Could Be Fired Without Notice

Here's a new and interesting one from the Ontario Superior Court of Justice:  McCready v. De Dwa Dehs Nyes.

The question, summed up by the judge at the very outset of the decision is this:  "What rights does a non-exclusive consultant retained on a six-month contract have, if he is terminated after the first week of work?"

The answer, according to Justice Morgan, is this:  He's only entitled to be paid for the work he did.

The Facts

McCready is a professional social worker, and a community advisor and research consultant.  He was hired on by the defendant for a six month consulting contract.  Or was going to be hired on.  As is notorious in employment law, they brought him in on the understanding that a contract would be signed.  The Court concluded that the defendant, through its executive director Chester Langille, had made a firm offer on the telephone with all the important terms agreed on, involving him working on a six month project with a budget of $55,000.

By the time McCready started, however, Langille was on sick leave, and some of the matters they had discussed didn't get passed along to the acting executive director, Dennis Compton.  For example, there were a number of periods of planned travel that McCready had told Langille about, including one week to work on another contract and a five-week period to teach in Africa.

McCready attended a six day training session with the defendant, and at the end they met with him to express concerns about his commitment.  Bottom line:  They told him at that point that he needed to work for them full time, every day through the 6 months, or not at all.  He insisted that he had a verbal agreement with Langille, and his other commitments could not be backed out of.  Shortly thereafter, they fired him.

The circumstances of the meetings were also less-than-ideal.  They called him into the ultimatum meeting fifteen minutes before he was to start a conference call for other clients, which had been pre-arranged to take place in a conference room of the defendant.  He was ten minutes late getting into the conference call, and then they interrupted the conference call to bring him in for the termination meeting.  I've dealt with enough terminations to know that you're hit and miss on the simplest of tasks immediately after a termination, but having to return partway through a professional conference call after being fired?  You'll be about as useful in the conversation as a babbling infant.  While he was finishing the conference call, the defendant cleared the premises early to prevent him from talking to anyone on his way out.

The way they treated McCready led to a claim for aggravated damages, though no evidence of injury was led, and punitive damages.


The Court's conclusion is full of surprises.

Firstly, the Court concluded that he was entitled to be paid for the time he had put in.  This isn't surprising.  But what is very surprising to me is that this was the entire award of compensatory damages.

In a consulting contract, there is no implied term of reasonable notice.  The presumption, in the absence of a term to the contrary, is that either party can terminate the arrangement at will.  The Court referred to a case where a 'termination at will' clause was spelled out in the contract, and where the Court of Appeal considered it to be a fair arrangement:  The contractor was able to pursue other work so long as it didn't put him into a conflict, could work at his own pace and hours, and could sever the contract at any time.  The Court concluded that the logic applied similarly here, that the terms, including an at-will provision, were fair to McCready.

My concern with the decision is that it doesn't appear to directly address the terms of this contract.  Indeed, the facts appear fairly straightforward, that it was an engagement for a fixed term, for a particular project, for particular compensation.  This differs from most consulting contracts, which consist of ongoing work on an 'as-needed' basis.

The difference is similar to that between indefinite term employment contracts and fixed-term employment contracts.  The fact of a fixed term is a rebuttal to the presumption that the contract can be terminated on reasonable notice.  Similarly, and perhaps more strongly, it would seem that a fixed term consulting agreement implicitly rebuts the implied 'at will' term.

If I offer to pay you x to perform task y over time period z, and you agree, and then I come back and repudiate the contract, then presumptively you are entitled to the money you would have made had the contract been completed.  It doesn't matter (except perhaps to mitigation) whether the contract is for exclusive services, for non-exclusive services, for provision of material goods, or anything else.  This is literally Contract Law 101.  To read into such a contract an implied term that I can terminate the contract at any time, even though task y isn't complete and time period z hasn't expired, is to ignore the intentions and reasonable expectations of the parties.

I would not be surprised, therefore, to see an appeal of that finding.

The other surprise is that the Court awarded punitive damages, surprising in part because it relies on decisions from employment contexts, and there are precious few successful claims for punitive damages in employment contexts.  The bar is set very high, but increasingly that seems to be changing.  Because of the very modest compensatory award ($5040), the punitive damages were limited to $15,000.  And then legal costs were awarded of $40,000.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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