Ontario worker entitled to commission on transaction for which he did the work and for which employer was paid after he was fired
An Ontario worker is entitled to a commission for fees that came in after his termination and a small bump in his reasonable notice period because of the effects of the global pandemic, a court has ruled.
Steven Kraft was hired in October 2014 as a research analyst by Firepower Financial Corp., an investment and financial advisory firm in Toronto. Kraft eventually assumed the role of a commissioned salesperson in the investment banking field, specializing on mergers and acquisitions. His job duties included looking for and presenting new business opportunities for Firepower, receiving a base salary plus commissions and incentive payments.
Kraft’s commissions were based on any fees that the company received as a result of his sourcing and presenting opportunities, called “success fees.” There was also a bonus pool into which all members of the sales team contributed and from which he received payment each quarter based on his percentage of the pool’s fee-generating activities.
In 2017, Kraft identified a potential merger and acquisition deal with a company called Arzon. After more than a year of negotiation and planning, Firepower reached an agreement and entered into a contract with Arzon in late 2018. With the deal done, all sales work was completed. It was the largest transaction in which Kraft had been involved since he had joined Firepower, so it would be his largest commission.
Dismissed before deals closed
In 2019, Kraft worked on another transaction with a company called Schure Sports. He completed his work by early 2020. However, in early March 2020, Firepower terminated his employment without cause. The Schure Sports transaction hadn’t yet closed and Firepower still hadn’t received any money from the Arzon transaction.
As part of the termination, Firepower proposed that, in addition to paying him his salary in lieu of notice, it would pay any commissions that arose on Kraft’s pending deals, including the Arzon one, as long as they closed within five months of his termination. Kraft felt the five-month timeline was arbitrary and didn’t like it.
The Arzon deal closed in September 2020, six months after Kraft’s termination, so Firepower didn’t pay him any commission, despite earning more than $1.3 million on the transaction. The Schure deal still had yet to close.
Kraft sued for wrongful dismissal, claiming he was entitled to 10 months’ salary and benefits in lieu of notice plus commissions on the Arzon and Schure Sports deals. He also argued that his dismissal occurred right at the beginning of the COVID-19 pandemic, which impacted his ability to find new employment — it took him 13 months to find new employment, during which time he applied to more than 70 jobs — and should be taken into account in his reasonable notice entitlement.
Firepower argued Kraft was no longer an employee at the time it received any money from the Arzon deal and it had yet to see anything from the Schure Sports deal, so Kraft shouldn’t receive any commissions from them. It also said that Kraft was dismissed before there was any emergency orders issued in Ontario and the economic shutdown had not yet started in the province.
The court found that Kraft was “mid-career” and, although his tenure with Firepower wasn’t particularly long at five-and-a-half years, he was “a well-qualified salesperson whose job required some specialized knowledge of the investment banking industry.” This reduced the spectrum of similar employment.
Uncertainty in job market
The court disagreed with Firepower on whether the pandemic-related economic uncertainty should be part of the consideration, as the timing of the emergency order in Ontario wasn’t relevant — the pandemic and economic shutdown was already happening by the time the order was issued. In addition, it was the uncertainty in the economy and the job market that followed that should be factored in, said the court.
“A global pandemic does not just emerge on the day of the government’s emergency decree,” said the court.
The court determined that for someone with Kraft’s age, experience, and time on the job, the average notice period was around nine months. However, it was also clear that the pandemic impacted Kraft’s ability to find new employment, so the court added one month to his reasonable notice entitlement.
The court noted that it had been established in the jurisprudence that “in the absence of an express contractual term to the contrary, there is an implied term of the employment relationship requiring an employer to pay a terminated employee his or her commission for sales effected but not yet concluded prior to termination, regardless of when the transaction closes.” In addition, commissions were earned “when a salesperson has substantially performed his or her duties in connection with the sale, despite the fact that the time for actually paying the commission has not yet arrived by the date of termination.”
The court also pointed to the Ontario Employment Standards Act, 2000, which considers commissions to be part of wages and therefore must be paid during the statutory notice period. Even an employment agreement that tries to exclude commissions during the notice period would be unenforceable, the court said. As a result, it ruled that Firepower should pay Kraft his commission on the Arzon deal, as the company received fees from it during the reasonable notice period.
However, the court denied Kraft any commission on the Schure Sports deal if and when it closed, as his notice period was over and his entitlement to wages “does not go on forever.” A decision on damages should be final so the employer and employee weren’t “tied to each other indefinitely,” the court said.
The court also found Kraft was entitled to his percentage share of the quarterly bonus pool for the time he worked plus the notice period, as it would have been paid to him had he continued working during the notice period. The court pegged the calculation to be made with Kraft’s average compensation for the 2018 and 2019 bonus pools.
Firepower was ordered to pay Kraft 10 months’ base salary and benefits in lieu of notice, his share of the bonus pool during the notice period, and his commission from the Arzon transaction.
For more information, see:
- Kraft v. Firepower Financial Corp., 2021 ONSC 4962 (Ont. S.C.J.).