The Canadian Bar Association
Employment & Labour

Court awards commissions owing at time of termination, severance

By Barry B. Fisher

In Carroll v. Purcee Industrial Controls Ltd. (2017 AMQB 516) Madam Justice Dawn Pentelechuk had to deal with two issues regarding commissions.

Commissions on deals signed but not completed as of the date of termination

The plaintiff sold industrial products with a sales cycle of some months, by which I mean that first the salesman would get the order, then some time later it would be shipped to the customer and then after another time period, the invoice would be paid and only then would the salesman receive his commissions.

The employee was terminated on June 7. The employer paid all his commissions on invoices paid up to the date of termination.

Over the next number of unspecified months, the employer received payment on all of the orders that the plaintiff had placed prior to his dismissal. The commission on these sales came to $71,000. The employer said that they had never paid out commissions of this nature in the past and refused to pay the plaintiff. He sued.

This is what the court had to say:

89 There is no dispute that commissions are payable to Mr. Carroll upon completion of the sales cycle — that is, if and when Purcee Canada received payment from the customer. This was an innate understanding by the parties and is consistent with industry standard. However, the point at which Mr. Carroll became entitled to the commission payment was not specifically discussed by the parties. Similarly, the parties did not discuss payment of commissions if Mr. Carroll’s employment ceased. While Mr. Carroll concedes that Purcee paid him commissions after Purcee received payment for sales he effected, he argues that his entitlement to eventually receive commissions crystallized at the time the sales were effected. Accordingly, he argues he is entitled to receive commissions for sales that he effected prior to his dismissal, regardless of whether payments were received by Purcee before or after the date of termination.

90 Purcee argues that Mr. Carroll’s entitlement to receive commissions crystallized at the date of payment. Accordingly, Purcee argues Mr. Carroll is not entitled to receive commissions for sales effected prior to the date of termination if the customer had not paid for the order until after the date of dismissal.

93 No doubt, if a written employment contract between the parties unambiguously states the employee is not entitled to receive commissions if payment is not received at the date of termination, the employer would be entitled to rely on that contractual provision unless the employee could prove that, in law, the employer is estopped or otherwise prevented from relying on the plainly-worded contract: Styles at paras 22-23. That is not the case here, since the written contract (which had expired in any event) is silent on the issue of Mr. Carroll’s entitlement to commissions post-termination.

104 It appears, from review of the case authority, the courts have not hesitated to imply a term in employment contracts requiring the employer to pay terminated employees commissions for sales effected but not concluded prior to the termination. In Rowles v Al-wood Manufacturing Ltd (1979), 17 AR 306, 9 Alta LR (2d) 61 (Dist Ct), Decore J, after providing a thorough review of the authorities, found that implication of a term in the employment contract was clearly applicable and the employee was entitled to commissions on sales he effected while employed, the invoices for which were sent out after his employment was terminated.

105 In rationalizing these apparently diverse lines of authority, I consider the following factors to be germane. It is clear from the evidence that Mr. Carroll completed his role for all of the commissions claimed. He was directly involved in each and every one of the sales in question, and the sales can be primarily attributed to his efforts (similar to the case in Micallef). Further, it is clear on the evidence that the Defendants have now been paid for all of the sales, although specific dates of payment are not in evidence. While there was evidence from the Defendants that their policy was not to pay commissions following termination of employment, there is no evidence before me that this policy was ever brought to the attention of Mr. Carroll, nor was he ever asked whether he was aware of this policy. Ms. Parra’s testimony supports that a general policy was in place, but her testimony does not prove that Mr. Carroll was subjectively aware of the policy.

106 Even if it is not reduced to writing, credible evidence establishing the existence of a term precluding employees from collecting commissions earned post-termination may well justify denial of commissions on sales paid after termination, as was the case in Bixby. Further, it is open to the parties to lead evidence as to a widely known and accepted industry standard. No such conclusive evidence is before me.

107 Furthermore, the fact that commissions were typically paid only after payment was received from the purchaser does not necessarily imply that such commissions are not payable following termination. Following Micallef, a term in an employment contract requiring that an order be paid before the salesperson receives his commission does not necessarily imply that the salesperson’s entitlement to that commission crystallizes at the date the customer pays the invoice. Rather, it is entirely reasonable to conclude that the employee’s entitlement to receive a commission crystallized at the date the sale was effected, even if payment is delayed until sometime thereafter. At that point, the employee’s job has been performed, and the employer is set to reap the benefit of the employee’s labour once the customer remits payment.

108 In my view, this interpretation properly applies the business efficacy test as set out by the Supreme Court in Grover and MJB Enterprises. The Court should imply terms that are necessary to give effect to the consideration agreed to between the parties. In this case, Purcee agreed to pay Mr. Carroll a base salary plus commissions in exchange for Mr. Carroll effecting sales on Purcee’s behalf. It is reasonable to imply a term that Mr. Carroll’s entitlement to commissions crystallized at the moment the sale was effected, because that best gives effect to the consideration agreed to between the parties. At that point, Mr. Carroll had performed his duties, and he is entitled to the compensation for his labour that he bargained for. To find otherwise would lead to a windfall for Purcee.

109 This, in my view, is also consistent with what I term the “modern approach” to this issue. After all, it is recognized that where an employee’s compensation is based in whole or in part on commissions, a dismissed employee will be compensated for the loss of the opportunity to earn commissions over the applicable notice period. Sparling v DH Howden & Company, 68 CLLC 573, [1968] OJ No 399 (QL) (H Ct J); Sublett v Facit-Addo Canada Ltd, (1977) 16 OR (2d) 791, 79 DLR (3d) 286 (H Ct J)Goldberg v Western Approaches Ltd, 7 CCEL 127, [1985] BCJ No 937 (QL) (BCSC).

110  I conclude where an employee has been dismissed and the employment contract is silent on this issue, absent evidence of known company policy or accepted industry standard, a Court should not hesitate to imply a term that commissions earned on sales generated before termination but paid to the employer after termination, should still be paid to the employee.

111 Accordingly, Mr. Carroll is entitled to commissions for sales generated, including on sales paid after his termination.

What if the employee had resigned? Should he still not been paid for those sales earned before his resignation but paid to the employer after the resignation?

Calculating projected commission income over the notice period:

However, the court went on to also award him a notice period of eight months based on his projected commissions over the notice period which was based on a historical average of the last two years less a 15 per cent reduction because sales were on the decline.

Is this a double payment?

On the one hand if we calculate damages for reasonable notice based on how much he would have earned over the next eight months, then part of that eight month income, had he worked it, would have been the $71,000 in commissions that would have been received from sales he completed before his termination date. Thus by simply paying him a severance payment based on his average commission earnings over the notice period are we not properly compensating him with that payment alone?

On the other hand, if he had been given eight months working notice, he would have continued to make sales up to his last day of work  and at that time there would have been commissions “in the pipeline,” that is commissions owing on sales placed before the end of the notice period but not yet owing to the salesman because the client had not yet paid the invoice.

This case seems to stand for the proposition that the employee receives both of these payments, unless there is a clear agreement to the contrary.

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