Commission is compensation that is earned based on job performance. Those who are in a commission-based role often agree to be compensated a certain amount of money or percentage dependent on hitting a target.
Many employers have a Commission Agreement that outlines the targets and how employees will be compensated. The Employment Standards Act (ESA) in Ontario stipulates that commissions are deemed a form of wage.
A Commission Agreement is a detailed document that outlines a variety of topics including, how commissions are calculated, targets that must be met, when an employee will be paid said commissions, and any limitations that may exist in compensating an employee for commissions, to name a few.
It is vital for employers to have Commission Agreements for all commission-based employees. Having a Commission Agreement benefits both the employer and the employee as it explicitly sets out the calculation of how commissions are compensated and can be used as a reference should a dispute ever arise. It is important to note that similar to an Employment Agreement, no clause contained in the Commission Agreement can contradict the ESA any other applicable legislation otherwise it would be deemed void.
But what happens when your employer refuses to pay?
Well, under the law, they cannot do that. Unpaid commissions are unpaid wages, and you have a legal right to the commission you earned following a sale. Your employer cannot refuse to pay you, negotiate the amount paid, or pay you later. If you locked down the sale while employed, you earned the commission.
Here’s what you need to know about unpaid commissions, and how to protect yourself.
If you have unpaid commission when your job ends, it may be due to one of two reasons:
1. Unpaid Commission Due To Termination of Employment
If an employee is terminated, an employer must provide an employee with reasonable notice of their termination. All employment related compensation, including compensation for commissions, ought to be accounted for during the reasonable notice period. The ESA states in section 60(1):
60 (1) During a notice period under section 57 or 58, the employer,
(a) shall not reduce the employee’s wage rate or alter any other term or condition of employment;
(b) shall in each week pay the employee the wages the employee is entitled to receive, which in no case shall be less than his or her regular wages for a regular work week; and
(c) shall continue to make whatever benefit plan contributions would be required to be made in order to maintain the employee’s benefits under the plan until the end of the notice period.
The most important take away from section 60(1) of the ESA is that an employer cannot attempt to disentitle an employee from compensation for commissions, even if the commission agreement says otherwise. As mentioned above, commissions are deemed wages, and therefore ought to be included throughout the reasonable notice period.
The cases of Sylvester v. British Columbia and Singer v. Nordstrong Equipment Limited both support that all employment related compensations must be continued throughout the reasonable notice period, and that wrongful dismissal damages must place an employee in the same financial position that they would have been.
In the case of O’Reilly v Imax Corporation, the Court of Appeal upheld a trial judge’s decision to award all commission earned up to the date of termination, as well as an average of commissions during the notice period.
2. Unpaid Commission Due To Resignation
The rules surrounding entitlement to commissions when resigning are very different. The ESA requires employers to pay wages when they are “earned”. This leaves considerable discretion to the employer as to when an employee has earned the commission. To determine this, the Commission Agreement must be reviewed, specifically, when commissions are paid to the employee.
For example, if the Commission Agreement stipulates that commissions are paid the moment the deal is facilitated, then an employee ought to be entitled to it as they earned the commission prior to the resignation.
In an alternative example, should the Commission Agreement stipulate that commissions are not paid until the funds are received by the employer for the deal, and this has not yet happened prior to the employee’s resignation, the employee then has not earned that commission and therefore forfeits the compensation.
If your employer is refusing to compensate you for commissions you have earned, call Monkhouse Law at 416-907-9249 for a free 30-minute consultation.
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