Expenses deducted from worker's commission rather than revenue
An employer is liable for two-and-a-half years of unpaid wages due to improper deduction of business expenses from a worker’s commission rather than overall revenue, the British Columbia Employment Standards Tribunal has ruled.
Hidden Gem Lash and Brow Studio, also known as Hidden Gem Medi Spa, was a hair salon and spa in Sorrento, BC, operated by a numbered company.
Hidden Gem hired the worker as a senior hairstylist in September 2017. Her employment contract stipulated that she received a 52-per-cent commission on her services and a 10-per-cent commission on product sales. The cost of services included a “backbar fee” charged directly to clients, which was the cost of hair products used by the business.
The backbar fee was $10 for colouring services $35 and up and $1 for haircuts excluding men’s and children’s cuts.
An employment contract could impose a fee for the cost of returning a company truck after a worker quit, but it couldn’t deduct it from wages, the Federal Court ruled.
Commission calculated first
The salon’s service reports indicated that the worker’s commission was calculated from the overall cost of the service provided and the backbar fee was then deducted from the employee’s commission.
The BC government declared a public health emergency on March 17, 2020, when the COVID-19 pandemic hit the province. All hair and beauty salons such as Hidden Gem were ordered to close and the worker was temporarily laid off. However, she resigned on May 27 before she was recalled.
The worker filed an employment standards complaint alleging that Hidden Gem had made unauthorized deductions from her wages, contrary to the BC Employment Standards Act (ESA). She argued that the backbar fees should have been deducted from the overall cost of the service, not her earnings.
A delegate of the Director of Employment Standards investigated and determined that the backbar fees represented a business expense that was deducted from the worker’s wages in contravention of the ESA. Hidden Gem was ordered to pay the worker almost $5,000 for unpaid wages, nearly $200 in vacation pay, and more than $400 in interest. The company was also ordered to pay two $500 administrative penalties for the contraventions.
A BC company could not deduct wages to recover the loss of a missing tool used by a worker, an arbitrator ruled.
Calculation error
Hidden Gem appealed the order, arguing that the director failed to observe the principles of natural justice and evidence had become available that was not available at the time of the determination – the owner’s handwritten notations explaining how she calculated the worker’s wages. The owner also claimed that she didn’t realize that deducting the backbar fees after calculating the worker’s commission would make a difference in the worker’s pay and such an error was not an “illegal act” that warranted the administrative penalties.
The employer also pointed out that the worker never raised any concerns about her wages during her employment and said that the complaint was not filed within six months after the end of her employment, as required by the ESA.
The tribunal found no evidence that the director failed to comply with the principles of natural justice, as the delegate communicated with the owner several times during the investigation and provided her with the report. The owner and the company had opportunity to note any errors or concerns and didn’t, said the tribunal.
The tribunal also found that the owner’s notations were not new evidence. They existed during the investigation and the owner should have presented them at that time or in response to the investigation report if she had any concerns about the accuracy of the report, the tribunal said, adding that the notations would not have changed the delegate’s ruling.
Repayment of training expenses or any deductions from pay requires a written agreement between the employer and the employee, says a lawyer.
Complaint not filed late
As for the timeliness of the worker’s complaint, it was actually filed in September 2020, less than six months after her final day of work. The delay was the result of the investigation not starting until nearly two years later, the tribunal said.
“While I am sympathetic to the employer’s argument that she should not be required to pay interest charges on outstanding wages due to the director’s delay in deciding this matter, the interest is calculated on wages that were not properly paid to the employee at the outset,” said the tribunal.
The tribunal upheld the finding that Hidden Gem made unauthorized deductions from the worker’s wages and dismissed the employer’s appeal. See 1229081 B.C. Ltd. (Re), 2023 BCEST 39.
