‘While the language wasn't explicitly clear, the employment agreement did provide for payment of some commissions’
“Employers should understand that courts will, as a matter of principle, read contracts as they are, and with the idea that what's written down is intended by the parties. And when you have a situation where an employment contract or offer letter refers to a specific entitlement, it would be difficult for an employer to contradict or deny that entitlement in the face of language that suggests the entitlement is there.”
So says Rich Appiah, principal of Appiah Law in Toronto, after an Ontario court ruled that a dismissed worker with less than three years of service is entitled to almost $60,000 in wrongful dismissal damages as compensation for unpaid commissions and a six-month reasonable notice period.
In 2017, the worker applied for a senior product sales solution manager position at Ontario Research and Innovation Optical Network (ORION), a not-for-profit organization that offers a private research and education network for researchers, educators, and innovators at post-secondary institutions, hospitals, and research institutions in Ontario.
ORION told the worker that it was looking to aggressively grow its new sales revenues and would be paying higher incentives such as sales commissions. ORION’s vice-president of business development and marketing told him that one of the three components of his compensation would be a “15 per cent sales commission on salary” and the approval of the commission plan, which had been the subject of internal discussion within the organization, was “merely a formality.”
The worker joined ORION in July 2017. His employment agreement outlined three elements of his compensation – a base salary, eligibility for a “commission plan,” and eligibility for a discretionary performance-based bonus that wouldn’t exceed five per cent of his base salary. The agreement stated that “ORION may adjust the commission plan upon completion of agreed to commission plan.”
Compensation included salary, commission, bonus
Four months later, in November, ORION gave the worker an employment confirmation letter stating that his “annual compensation is $130,000 plus 15 per cent commission on salary and an additional bonus up to 5 per cent.” A second confirmation letter followed in February 2018, with identical wording and signed by the president and CEO.
ORION increased the worker’s salary in April 2018 and gave him a “performance bonus” of $15,600, which the company explained in an email was for achieving 80 per cent of his quota that year. The worker understood that the $15,600 was his commission, as it equalled 15 per cent of 80 per cent of his salary. He asked about his five-per-cent performance bonus, but he was told the payment he had received was a performance bonus and not a commission payment.
The company increased the worker’s base salary again in July, in response to the worker’s concern about the performance bonus. The worker was told that going forward, his performance bonus would be “measured based on a sales commission structure plan” that would be rolled out pending CEO approval.
In February 2019, ORION prepared a draft commission plan and showed it to the worker. The plan stated that the annual new revenue target for the worker was $610,000 and commissions would be paid on 15 per cent of the proportion of salary equal to the percentage of the revenue quota achieved. Although this was clearly a draft plan, it matched the way that ORION had calculated the worker’s performance bonus in April 2018, so the worker believed that the plan was already being acted upon. However, other members of management were clear that the draft commission plan was just a proposal.
In March, ORION gave the worker another employment confirmation letter outlining his compensation as his annual salary “plus up to 15 per cent commission on salary.” Two months later, the organization increased his base salary again and gave him another “performance bonus” of $15,015.
The worker asked if his “bonus/commission” was based on the new draft plan, but he didn’t receive a definitive answer.
Termination without cause
On Oct. 16, ORION terminated the worker without cause, providing him with his statutory entitlements plus an additional two-and-a-half weeks’ base salary, in accordance with his employment agreement. He was 49 years old.
The worker filed a wrongful dismissal claim for 12 months' notice plus unpaid wages including a 15-per-cent commission for the portion of the 2019-2020 fiscal year for which he worked plus another six months of reasonable notice, and $611,917 in commissions based on the draft commission plan because he helped ORION surpass his annual revenue target.
The court determined that six months was an appropriate notice period, based on the fact that the worker was a relatively short-term employee, was 49 years old at dismissal, held a leadership position, and there appeared to be similar employment available. The court noted that there were “numerous cases” where five or six months’ notice was awarded to employees in similar circumstances.
The court found that the draft commission plan never became a binding part of the worker’s employment agreement, as the document was always marked as a draft, was never signed, and there was no mutual agreement on its terms. While the worker believed that he was being paid in accordance with the draft plan, he was incorrect, said the court.
However, the court still found that the worker was entitled to commissions of up to 15 per cent of his base salary, as this was stipulated in his original employment agreement. This entitlement was reinforced by ORION’s conduct, including confirmation letters and commission-like payments equal to 15 per cent of his salary for the 2017-2018 and 2018-fiscal years, the court said.
Employment agreement
“The language in the employment agreement isn't as clear as I would have wanted it to be in terms of specifying an employee's commission entitlement - does that mean he's eligible to participate in a commission plan, or is he eligible to participate in commissions?” says Appiah. “In this case, it said he's eligible for a commission plan and then talked about the timing of payment of commissions, so while the language wasn't explicitly clear, the employment agreement did provide for payment of some commissions.”
The parties’ conduct demonstrated that ORION understood and intended that the commissions would be equal to up to 15 per cent of the worker’s base salary, says Appiah.
“The court found that ORION acted intentionally in sending out those employment confirmation letters that specifically indicated that [the worker] was entitled to up to 15 per cent commissions, so the organization essentially bound itself to the content of those letters,” he says. “And looking at the $15,600 payment, the court noted that it reflected what the worker understood to be the terms of his commission, along with an email that explained he had achieved a certain percentage of quota for the year - confirmation in writing that the organization was following the commission plan [from the employment agreement].”
The court determined that the worker was entitled to a 15-per-cent commission for the portion of the 2019-2020 fiscal year that he worked and for the six-month notice period, calculated based on the average commissions from the prior two years.
ORION was ordered to pay the worker $58,419.52, calculated from six months’ salary and benefits minus what he earned from a new and lower-paying job he found in the last two months of the notice period, plus a pro-rated commission for the 2019-2020 fiscal year and subtracting the pay in lieu of notice that the worker had already received.
Restricting entitlements
Employers should review their contracts and offer letters carefully to ensure that what they've included is intended to be included, particularly in the event of a without-cause termination, Appiah says.
“There are opportunities in employment contracts or offer letters for employers to restrict employees’ entitlements to certain forms of compensation during a common law notice period,” he says. “Those restrictions must be laid out clearly at the outset and they must comply with employment standards legislation - but they have the opportunity to include those restrictions as long as they do so correctly. “
