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Divisional Court finds that employer demonstrated bad faith and acted as "puppeteer" in treatment and termination of fixed-term independent contractor

The recent case of Radikov v. Premier Project Consultants Ltd et al. is a cautionary tale of the importance of good faith in contractual relations after the Ontario Superior Court of Justice dismissed Premier's appeal, finding Premier had acted as a "puppeteer" by keeping Mr. Radikov at its "beck and call" for roughly three months before attempting to terminate his fixed-term contract just two days before completion and refusing to pay Mr. Radikov's outstanding invoices.

The parties entered into a six-month fixed term contract for consulting services, which was to run from May 6, 2015, to November 6, 2015, with Mr. Radikov submitting biweekly invoices. The contract included an early termination provision whereby Premier could terminate the agreement on two weeks' advance written notice. Mr. Radikov provided services pursuant to the contract until approximately August 14, 2015. Thereafter, Premier elected not to use Mr. Radikov's services and never provided written notice of termination until two days before the fixed term consulting agreement was to end. Justice Sloan determined that there was nothing to show either party viewed what happened in August as a "layoff".

The Small Claims Court heard the case at first instance and found in favor of Mr. Radikov, holding that the appropriate measure of damages is the balance of the fixed-term contract price with no duty to mitigate in these circumstances (the court applied Howard v. Benson Group Inc. 2016 ONCA 256 (CanLII)).

On appeal, the Superior Court considered several questions, including whether the contract had been terminated in keeping with the agreement, in which case Premier's liability would be limited to damages for the 2 weeks' notice, or whether damages should be measured by the remainder of the contract price which was more lucrative for Mr. Radikov. The court also considered whether Mr. Radikov had a duty to mitigate in the circumstances.

The court found that since either party was entitled to two weeks' notice for termination, the contract was never terminated before its end date. This rendered Premier's submission that its damages should be limited to "two weeks of earnings" effectively moot, as the termination clause was never properly exercised. The court was persuaded by Mr. Radikov's counsel citing Ariston Realty Corp. v. Eclarim Inc. 2014 ONCA 737, arguing that as Premier failed to fulfil the condition precedent which was to provide two weeks' advance notice of termination, Premier had no contractual entitlement to have its damages capped at two weeks' pay. Ultimately, the court upheld the Small Claims Court's finding that the appropriate measure of damages was the balance of the fixed-term contract price with no duty on Mr. Radikov to mitigate.

The court essentially found that Premier had acted in bad faith in the case. The trial judge of the Small Claims Court summarized the puppeteering by Premier as follows:

"...Premier has played hardball with Mr. Radikov: it laid him off without terminating the contract, then claimed at almost the end of the fixed term that it had terminated the contract previously, then denied the termination in its pleading, and at one point proposed to allege in the alternative that it had terminated the contract for cause, then later abandoned that proposal. In my view Premier's treatment of Mr. Radikov is anything but a model of good faith performance of contractual relations."

The Superior Court agreed, stating that Mr. Radikov was essentially a puppet and Premier the puppeteer. Whilst Premier ran the argument that there should be no payment obligation where Mr. Radikov provided no services, perhaps similar to a retainer agreement at a law firm where no fee is owed for services not yet rendered, Sloan J. found the submission and analogy unconvincing. A better analogy is that of a limousine driver who would have to arrange his schedule to be on call when required. It was "disingenuous" for Premier to keep Mr. Radikov at its "beck and call" until the end of the contract, and then try to limit its damages in accordance with a clause in the contract which Premier itself saw "fit not to use". Therefore, the court held Mr. Radikov was entitled to damages for the remainder of the contract price or roughly three months of pay prior to the end of the contract.

This case has ample lessons for parties to fixed term consulting contracts. The main message appears to be that trying to exercise a termination clause at the eleventh hour, while not respecting the stipulated notice period, will not satisfy the court that the contract has been terminated, and will only impair a party's later attempt to limit its damages to the earnings of the notice period.

Fortunately, justice was done and De Bousquet PC was able to navigate Mr. Radikov's case to a favorable outcome, with the Superior Court upholding the award of $15,798.71 plus interest to Mr. Radikov given by the Small Claims Court, plus costs fixed by the Divisional Court at $23,00.

If you believe that you have been wrongfully terminated, do not face your struggle alone. De Bousquet PC has a proven track record of fighting for the rights of employees and parties to services contracts and we will help you obtain the best results in your case.

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