What are the Laws for Commission Employees in Ontario?

a dismissal during the pandemic does indeed engender a longer notice period

So, you’ve been hired in a commission-based role – What are your legal rights?

Commission as a form of Wage

Commission is a form of compensation that is based on job performance. The Employment Standards Act (ESA) deems commissions to be a form of wage. Employers will usually provide their employees with an employment contract, such as a commission agreement that stipulates how the commission will be calculated, how the employee will be paid, and specific targets the employee must meet. The commission agreement must coincide with the laws of the ESA, otherwise, the agreement will be deemed null and void.

Commission agreements are important reference documents in the event of a dispute between an employer and an employee. If an employer does not provide a commission agreement, they increase their risk of conflict with employees with regard to the calculation of their commission.

Termination with Unpaid Commission

If an employee is terminated, an employer must provide an employee with reasonable notice of their termination. All employment-related compensation, including commissions, must be accounted for.

Section 60(1) of the ESA stipulates that during a notice period the employer:

  • Shall not reduce the employee’s wage, rate or alter any other term or condition of employment;
  • 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.
  • Shall continue to make whatever benefit plan contributions would be required to make in order to maintain the employee’s benefits under the plan until the end of the notice period.

It is against the law for an employer to withhold any residuary commissions earned by an employee upon termination. Because commissions are deemed wages, they are included in the reasonable notice period.

Case Law Precedence

In O’Reilly v. Imax Corporation, an Ontario Court of Appeal Case from 2019, the Court evaluated whether a wrongfully dismissed employee was entitled to receive employee stock options and restricted share units (RSUs) with a vesting date that was after the time of his termination. The employer argued that since the options had not yet been vested, the employee should not be entitled to them as part of his compensation package. The court, however, found that Mr. O’Reilly was entitled to receive all commissions that he would have been entitled to up until the date of his termination, including those with a vesting date after the time of his termination. This is based on the aforementioned principle that an employer cannot reduce an employee’s wage rate during the notice period (ESA, 2000, s. 60(1)).

In another case from the Ontario Court of Appeal, Andros v. Colliers Macaulay Nicolls Inc., the respondent was terminated from his position as Managing Director for a commercial real estate company. The respondent received a bonus for every year that he worked at the company, but he did not receive the bonus for the year that he worked up until his termination, as per his contract. The court found that the provision in the respondent’s contract, which disentitled him from receiving the bonus, conflicted with the ESA and the common law reasonable notice period and therefore was not enforceable. The judge affirmed that the respondent was entitled to the bonus earned while he was still employed and the bonus he would have earned during the notice period.

Unpaid Commission upon Resignation

When an employee resigns, the discretion of whether to pay the employee commission is left to the employer and the employment agreement. If the employment contract stipulates that the employee is not to be paid commission until the funds are received by the employer, then in the event that the employee resigns after funds are received, he or she will not be paid. Alternatively, if the employment contract states that the employee is to be paid when a deal is facilitated then the employee will be entitled to any commissions earned prior to resignation.

An employee’s legal rights for a commission-based role will vary according to the terms of the employment contract and the circumstances surrounding the cessation of employment. But in all cases, commissions are deemed as a form of wage and therefore employers cannot withhold from employees any commissions that they would otherwise be entitled to under the ESA or common law upon resignation or termination.

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