The duty of good faith has long arms, even in contractor and staffing arrangements
An Ontario staffing vendor that withheld approximately two months of a consultant's earned pay has been hit with punitive damages and had its non-compete clause thrown out. In ITCAD Tech Inc. v. Patel et. al., 2026 ONSC 368, released January 23, 2026, Justice H. Sachs found the restrictive covenant unenforceable because it was used to circumvent a government client's decision to revoke the vendor's authorization. The ruling upheld $15,750 in punitive damages.
IT consultant Kishan Patel wanted to work for a branch of Ontario's Ministry of Health. Because the ministry does not hire consultants directly, he went through ITCAD Tech Inc., a government vendor of record.
After coaching from ITCAD's operator, Linda Zhao, Patel secured the position and incorporated TechSpirer Inc., which entered into an Independent Contractor Agreement with ITCAD on May 21, 2021, containing a 12-month non-competition clause. Patel signed a second contract on November 24, 2022, with essentially the same terms.
ITCAD billed the ministry and retained a portion of fees. In February 2023, ITCAD and Zhao were named defendants in a fraud action, suspending ITCAD's vendor-of-record status. ITCAD found other vendors willing to pay it a share, offering to waive the non-compete if the consultants signed with one. TechSpirer instead signed with a different vendor on March 30, 2023, one that agreed to pay TechSpirer a greater share of MOH fees.
Pay withheld, punitive damages upheld
ITCAD refused to pay $31,238.01 owed to TechSpirer for February and March 2023 services and threatened legal action. The consultants sued for the unpaid amount and punitive damages; ITCAD counterclaimed for breach of the non-compete. The motion judge awarded the consultants the full unpaid amount and $15,750 in punitive damages, and initially awarded ITCAD $17,500 on its counterclaim — an award that the Divisional Court later reversed in full.
The motion judge found it was "untenable for [ITCAD] to withhold compensation earned and payable to the plaintiff" and that "the employer has an implied duty of good faith and fair dealing."
Justice Sachs upheld the punitive damages on appeal, noting that without them, "ITCAD would suffer no penalty other than paying the Consultants the money it admitted it owed them." A prior Small Claims Court case showed "the Consultants were not the only ones who were subjected to ITCAD's tactics when ITCAD lost its status as a vendor of record." Too small an amount, the court warned, "might simply be regarded as a licence fee..." to continue the misconduct.
Non-compete struck down on public policy grounds
The Divisional Court overturned the finding that the non-compete was enforceable. Justice Sachs found "the MOH, not the Consultants, brought about the circumstance that caused the Consultants to seek a new vendor of record" and it "could not reasonably be in the contemplation of the parties" that the consultants could not preserve their employment if the ministry disqualified ITCAD.
The court found ITCAD was using the covenant to continue earning from the consultants' services after the ministry revoked its authorization, which was "contrary to the public interest." ITCAD's counterclaim for damages was dismissed.
Enforcement of the covenant, the court found, "frustrated, rather than furthered, their freedom to contract."
ITCAD Tech Inc. v. Patel et. al., 2026 ONSC 368
