In Salam v. Ontario Research and Innovation Network, a recent case before the Ontario Superior Court, the issue of commission entitlements was a primary concern. Mr. Salam pleaded that he was entitled to commissions which had not been paid to him. To determine this issue, the Court first looked at Mr. Salam’s employment contract. The contract itself contained a clause which stated his compensation included an amount for base salary “plus eligible for commission plan, payable based on annual sales results at the end of each fiscal year. … ORION may adjust the commission plan upon completion of agreed to Commission plan.” Given the language of the commission clause, the Court provided a clarification on the process of contractual interpretation.
The Court stated that when interpreting contracts, the “cardinal presumption” is that the parties intended what they wrote. This requires the Court to read the text of the entire agreement as a whole, giving the words used their ordinary and grammatical meaning. Such interpretation also strives to ensure each of the terms in the agreement is given meaning, while avoiding interpretations which render terms ineffective. The Court ruled that the language used in the agreement established that there was a commission plan and provided for future amendments to the plan. Yet, the Court also noted that the terms did not specify any actual details of the commission plan. In other words, there was no clear agreement within the contract as to how Mr. Salam’s entitlement to commissions would be assessed. Nevertheless, Mr. Salam’s eligibility to participate in the plan established an entitlement to participate, so long as he met the applicable criteria. Having ruled that the entitlement was established, the Court required further analysis to determine exactly the amount of commission to which Mr. Salam was actually entitled.
Subsequent Conduct of the Contractual Parties
After outlining the explicit contractual terms establishing the entitlement to commissions, the Court acknowledge that the actual terms of the commission plan remained ambiguous. In instances where the terms of the contract are ambiguous, the Court will consider the subsequent conduct of how the parties interpreted the contract. This interpretive aid can be helpful to clarify intentions and terms when the written contract remains silent on some point. The Court noted that no other part of the factual matrix outlines the terms of the amount of commission to which Mr. Salam was entitled. While Mr. Salam claimed it was up to 15%, this was disputed by the employer. However, when looking at the subsequent conduct of the employer, the Court found that in fact, Mr. Salam was entitled to up to 15% of his base salary for commissions. In three separate letters issued for Mr. Salam, the employer stated that he was receiving commission payments equal to or up to 15%. These letters provided evidence of the parties’ subsequent conduct in establishing the terms of Mr. Salam’s entitlement. This was especially the case because the employment letters were signed by the President and CEO of the employer and were all provided to third parties and Mr. Salam.
Further subsequent conduct was also relevant to establishing Mr. Salam’s entitlement. In addition to the three separate letters issue for Mr. Salam, the employer did in fact pay Mr. Salam commissions of up to 15% during his first year at the company. Mr. Salam’s emails also referenced the 15% for commissions, establishing that both parties understood that the commissions were based on this figure. The subsequent conduct proved to be highly relevant in establishing precisely what Mr. Salam was entitled to, showing that both parties operated as though 15% was the agreed upon entitlement. Despite the contract itself being silent on how commission payments were calculated, the court’s analysis of the parties’ subsequent conduct provided substance to the terms.