Ontario Superior Court Considers Entitlement to Commissions During Common Law Notice Period

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In a recent decision from the Ontario Superior Court, the court clarified whether an employee was entitled to commission payments after the termination of his employment, but during his “common law” notice period.

Facts

In Kerner v. Information Builders (Canada) Inc. the Plaintiff was employed to work for the Defendant’s parent company in the United States. He was also subject to both an employment agreement and sales commission agreement. The Plaintiff was initially employed by the Defendant for a period of 17 years before resigning in 2013. He was subsequently rehired in January, 2018 and terminated from employment in September, 2018.

One issue for consideration was the quantification of the Plaintiff’s damages for the Defendant’s failure to provide reasonable notice of termination of employment. The court ultimately determined that eight (8) months was the appropriate notice period. However, the main dispute between the parties was “the Plaintiff’s entitlement to commissions that he could have earned during this notice period…During this time, had he been given proper working notice, he would have had the opportunity to earn such commission.”

The requirements for entitlement to the relevant commission fees were set out in both a 2017 Sales Plan and 2018 Sales Plan as follows:

2017 Sales Plan

Please note that the governing principles set forth below are applicable in all cases. In order to be entitled to receive a commission you must met [sic] all of the requirements of paragraphs 1 through 3 below, as well as all applicable provisions of the attached documents. Unless you do so, no commission is earned, due, owing, or payable to you:

  1. You must have been a procuring cause of the sale and complied with all other applicable requirements. In some cases commissions may be payable in installments.
  2. No commissions are payable until the sale has been booked and billed.
  3. In order to be entitled to receive a commission you must be employed by IB at the time the sale has been booked and billed. [emphasis added in decision]

2018 Sales Plan

Commissions are not payable in respect of any period of notice, whether contractual, statutory or based upon the common law, following termination of your employment for any reason whatsoever, unless the sale transaction was booked and billed prior to the date of termination of your employment. The date of termination is the date on which your active employment with Information Builders ceases and you are no longer providing services to the company. [emphasis added in decision]

Decision

The court reinforced many of the same principles that have previously been determined, and concluded that the Plaintiff was fully entitled to his commissions during the eight month notice period.

In regards to the 2017 Sales Plan, the court found that it did not specifically exclude the Plaintiff’s right to be paid commission during the common law notice period. In particular, the court noted that there was no “clear language to the contrary” demonstrating that the parties had agreed to limit payment in the event of an “unlawful dismissal”. The “damages” that the Plaintiff would have received during the eight month common law notice would therefore have included commissions pursuant to the 2017 Sales Plan.

With respect to the 2018 Sales Plan, the court found, inter alia, the Plaintiff was not aware of the change to his employment contract, he did not accept it, and a material/significant change to the terms and conditions of employment requires fresh consideration, of which there was none.

Key Takeaways

In particular, the court reinforced the concept that an employer who wishes to limit and/or exclude an employee’s incentive payment upon termination of employment, must take special care when drafting employment agreements and incentive plan documents. Employers must ensure that they do not contract out of statutory obligations under the Employment Standards Act, 2000 (which includes full wages during the statutory notice period). Moreover, such agreements must be drafted in clear and unambiguous language.

Should you have any questions regarding the impact of this decision on your business, or wish to have your employment agreements reviewed, please do not hesitate to contact McCarthy Tétrault’s labour and employment group.

Employment Law

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