Lawyer Trevor Thomas, Contributor.
When it comes to calculating an employee’s entitlements on termination, the primary focus tends to be on how many months of severance (or notice) the dismissed employee should receive. A secondary but equally important aspect of the calculation is what types of compensation should be included in the final severance amount.
It is a basic principle under Canadian employment law that a dismissed employee is entitled to both an amount representing his lost salary during the notice period, and compensation for benefits that were incidental to his employment which he has lost as a result of termination. But what about where part or all of an employee’s compensation was commission based? Are lost commissions compensable during the notice period – and if so, on what basis?
The British Columbia Supreme Court recently reviewed this issue in Steinebach v. Clean Energy Compression Corp., where the plaintiff’s remuneration included a base salary and commission, and affirmed the following principle:
- Damages for wrongful dismissal include compensation for the loss of opportunity to earn commissions over the notice period.
In doing so, the Court made two significant rulings with respect to the calculation of this loss:
1. The loss is a measurement of commissions the employee would likely have earned, had his employment not been terminated. Even if the employee’s employment contract states that commissions will only be paid for work performed up to the date of termination, this will not necessarily preclude the dismissed employee from damages for the loss of opportunity. As the Court in Stuart v. Navigata Communications Ltd.explained,
- If a contractual clause could effectively deprive an employee of recovery for loss of opportunity to earn commissions, this could lead to the untenable result that an employee, paid entirely on a commissioned basis, might not recover any damages for lost earnings upon being wrongfully terminated.
2. To assess damages for lost commissions during the notice period, the courts will examine a variety of factors, including the employee’s past commission earnings over a representative period, the employer’s actual or anticipated sales revenues, and whether the business conditions during the relevant period were responsible for unusually high or low commission earnings. In Steinebach, the court calculated commissions for the notice period based on a recent contract which had significantly altered the commission structure, rather than using a previous representative period. The court found that the plaintiff’s evidence of his commission calculation (i.e. looking forward rather than based on previous years) was sufficiently accurate to stand up to the scrutiny of the defendant employer.
Implications for Employers and Employees
In summary, Steinebach offers two important reminders for employers and employees alike:
- If an employee’s employment contract purports to limit her entitlements on termination to commissions already earned, but not paid, such a limit may not be effective. The employee likely also has a claim to commissions she would have earned had she worked during the notice period. In other words, don’t take the contract at face value.
- When calculating the commissions a dismissed employee would have earned had she not been fired, the court may do so based on future anticipated earnings, rather than past earnings, where the employee is able to demonstrate the likelihood of receiving those commissions.
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