'Courts are loathe to support an employer removing any earned compensation' in a contract
“Trying to structure compensation such that any objective earnings are forfeited is going to be tough.”
So says Joseph Oppenheim, a labour and employment lawyer with Carbert Waite in Calgary, after an Alberta arbitrator awarded more than $400,000 in wrongful dismissal damages to a fired employee, including more than $120,000 for potential commissions during the lengthy notice period.
“Frankly, my advice is to be very clear about the line at which one stops earning commissions and to structure it such that any commissions that have objectively been earned at the time of termination be payable in the contract,” he says.
Terminated in restructuring
Schlumberger Canada (SCL) is an oilfield services company based in Calgary. It hired the worker in 2000 and she gradually moved into more senior positions, becoming an SIS account manager/sales engineer in 2018.
The worker’s job duties included establishing and building relationships with customers, promoting products and services, matching customer needs with proper solutions, and growing market share and revenue with her assigned accounts. She didn’t have any employees reporting to her.
In March 2020, the worker’s performance appraisal indicated that she had reached just over 80 per cent of her 2019 target. She was told to focus more on client engagement and building relationships and to collaborate more with colleagues and her manager.
On Oct. 15, 2020, SCL terminated the worker without cause, citing a sharp decrease in oil prices, the economic downturn in Alberta, and the negative effects of the COVID-19 pandemic on the economy. The worker was 43 years old.
SCL provided the worker with eight weeks’ pay in lieu of notice, in accordance with the Alberta Employment Standards Code, but no commission – which normally amounted to almost half as much as her base salary if she approached her targets.
The worker was unable to find work for some time and moved to Kelowna, B.C., in September 2021. However, she continued to search for jobs that she could perform remotely.
The worker was offered a client success manager position in Kelowna, but she didn’t take the job. Despite negotiating flexible hours, the position paid significantly less and had worse benefits than her SCL job. The worker indicated that she would be interested if the total compensation package was modified.
The worker sued SCL for wrongful dismissal damages, claiming entitlement to a reasonable notice period of 21 to 23 months. SCL countered that the notice period should be closer to 15 to 20 months, with a reduction for a failure to mitigate her damages. For the latter argument, SCL pointed to the offer that the worker declined, as well as the fact that her moving away from Calgary was a failure to mitigate, since most oil and gas companies with similar employment were based there.
Long-term, non-managerial employment
The court found that the worker’s position was fairly high level but not managerial, and she was highly educated with specific skills. Her service time of 20 years with SCL was significant, but not enough to be considered special circumstances that could lead to an extension of the notice period.
The court also found that the worker’s age was young enough that it was a neutral factor for consideration.
The court determined that the worker was entitled to 20 months’ reasonable notice.
The notice award was a little higher than might be expected for someone not in a management position and still in their early 40s at the time of termination, even for a long-term employee, says Oppenheim.
“Generally, courts tend to be a little more conservative than that, but I think what pushed it up in this case was the [economic] downturn,” he says. “The court didn't seem to state explicitly that it was a big factor – and I'm reading between the lines here – but I think that, given the state of the economy at the time she was let go, that probably pushed it up.”
“If I'm advising an employer or an employee, I'm going to say, ‘Look, the economic downturn that was in existence at the time of termination is something that we're going to pay special attention to,’ he says.
No failure to mitigate
The court disagreed with SCL’s argument that the worker failed to mitigate her damages by not accepting the client success manager position. The difference in pay for someone with the worker’s background and experience wasn’t reasonable enough that she was required to accept it to mitigate, said the court.
The court also noted that SCL didn’t provide any evidence suggesting that the worker’s move to B.C. should be considered a failure to mitigate.
Oppenheim says that the employee has to make reasonable efforts to mitigate their losses, but there is significant flexibility for the courts in determining what is reasonable.
“The employer has a tough road to establish that the employee failed to mitigate – every benefit of the doubt is typically given the employee in these cases because, fundamentally, you've got an employer who, if they haven't provided reasonable notice, has breached the contract or implied term of the employment contract,” he says. “And the law is pretty explicit that it does not lie in the mouth of the employer to criticize the employee for not, in effect, rescuing the employer from its breach.”
Ambiguous language didn’t disentitle worker from commissions
SCL’s sales commission plan had a clause stating that “no commission will be paid on any revenue recognized after the participant’s last date of employment,” which the court found precluded using commissions from sales after the worker’s termination in 2020. However, the clause didn’t unambiguously take away the worker’s common law right to damages for commissions that could have been earned during the notice period in 2021 and 2022, said the court.
It determined that the worker was entitled to 50 per cent of the average 2019 and expected 2020 commissions, based on the probability that she would or wouldn’t have met her targets during the notice period.
When an employment contract intends to take away or limit common law rights with respect to compensation, it has to be absolutely unambiguous – especially in cases like this where commissions are a large part of the worker’s compensation, says Oppenheim.
“It's hard to say exactly what the employer could have done to make [the commission plan] unambiguous, but I would suggest that there needs to be an explicit spelling out that you will not earn any commission [after termination],” he says. “Courts are loathe to support an employer removing any earned compensation, and if the evidence is that the employee has earned a bunch of money and the only reason it's being forfeited is because of a technicality of the contract, the court is going to scrutinize that contract.”
In addition, the court accepted the worker’s claim for employer Canada Pension Plan contributions during the notice period, due to potential damage in the future when CPP calculates the value of her contributions and years of service and see no earnings during the notice period.
The court also found that the worker was entitled to damages for the loss of SCL’s payment of cellphone service for her own cellphone.
In total, Schlumberger was ordered to compensate the worker for 20 months’ base salary, commissions, performance bonus, benefits, CPP contributions, and cellular plan payments. Minus the eight weeks’ salary that SCL provided upon termination, the company had to pay the worker $410,708.
See Watson v. Schlumberger Canada Limited, 2022 ABKB 646.
