A business owner enters into an agreement to sell his company and to become its new management consultant. Things go well until he’s given a task that he declines to carry out. Has he breached the contract by refusing the work?
With significant damages pending, the case of Angeltvedt v. Flint Field Services illustrates the complexities surrounding such issues as constructive dismissal and breach of contract, the worker’s duty to mitigate, and the fundamental question of whether a worker is considered an employee or an independent contractor.
In 1979, Kelvin Angeltvedt started an Alberta-based oilfield servicing company, Angel Stream Services Ltd. After 23 years in the business, he decided to sell the assets to Flint Field Services Ltd (“Flint”). The sale was accompanied by a 2-year consulting services agreement for Angeltvedt to act in a management capacity.
Over the ten months following the sale, Angeltvedt worked on several assignments. But in June 2003 when his latest assignment finished, no new work was forthcoming. After searching for something Angeltvedt could do next, Flint directed him to review and propose updates to the company’s truck safety manuals. This time, however, Flint insisted that the work be completed during office hours and in one of Flint’s out-of-town offices. After the Manual Review was complete, Angeltvedt’s next assignment would be to do “paper and office work”. Angeltvedt’s requests for discussion on the assignment were unsuccessful. So after a day’s contemplation, he informed Flint that he declined the assignment which he felt was outside of the scope of the consulting agreement and sued Flint for repudiating the agreement and for the remainder of the two-year contract.
Employee or Contractor?
The Court considered whether Angeltvedt was an employee or contractor. In this, as in many cases, there were no clear-cut definitions. Although Angeltvedt used Flint’s equipment, the contract was open to the possibility of Angeltvedt hiring his own agents. Angeltvedt had no investment in the company, but had control of his own schedule and was given considerable latitude to accomplish his work. While he was acting in a management capacity, his role was not an executive one that was crucial to Flint’s operations. Overall, Justice J.E. Topolniski found Angeltvedt to be an independent contractor.
Who Did the Repudiating?
In both constructive dismissal of an employee and breach of contract, the repudiating party is the one who makes it clear that he or she no longer intends to be bound by the terms of the contract. Despite Flint’s claims that Angeltvedt had breached the contract by refusing work, the Court found that Flint’s actions spoke loudly in proclaiming its own repudiation.
Whereas Angeltvedt might reasonably have been asked as a manager to review the work done by a subordinate conducting the safety manual revision, Flint had directed Angeltvedt to personally carry out the non-managerial work of conducting the actual revisions. Significantly, Flint later outsourced the project to a contractor who had previously worked on the level of safety coordinator.
Flint was also unable to justify the new degree of control it now sought to exert over Angeltvedt as to where and when he would complete the assignment. As final testimony, Flint received Angeltvedt’s work invoices for July and August but paid only up until mid-July, when Angeltvedt declined the safety manual assignment. As the aggrieved party, Angeltvedt then accepted the end of the contract by discontinuing his invoices to Flint.
What Constitutes Reasonable Mitigation Efforts?
Justice Topolniski confirmed that Angeltvedt had the duty to “act reasonably in the circumstances” following the end of the contract. Notably, the contract contained no specific terms for payment owed following an unseasonable end of the contract, which terms would have relieved Angeltvedt from the duty to mitigate.
Flint argued that Angeltvedt did not reasonably mitigate and should have subsequently worked at the safety manual project, or as a truck driver or plumber. However, the Court stated that mitigation efforts need not require measures such as relocation or accepting work that is substantially different or of lesser status than that previously enjoyed. Interestingly, the agreement’s non-competition clause also effectively prevented Angeltvedt from working in “the only field he’d known for the past 23 years.”
Following the repudiation, Angeltvedt took a vacation, helped with his family’s elk ranch, upgraded his computer skills, and in the spring of 2004 invested in and took on presidency of another Alberta business. Justice Topolniski found these efforts to be reasonable, both in nature and timeliness. Notably, negotiation of Angeltvedt’s latest business venture required the same length of time as did his contemplation of the transaction with Flint.
With eleven months remaining on the contract, Angeltvedt was awarded:
- base compensation minus mitigation, totalling $74,374.97 for 10.5 months, at an original $85,000 per year;
- pension contribution of $3,718.75, which represents what the parties had agreed upon for 5% of Angeltvedt’s base compensation;
- $1,325.63 for the cost of his benefits plan premiums, as no other evidence was presented as to costs covered by the plan, Flint’s contribution toward the plan or the cost of replacement benefits.
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