When consulted by employees on wrongful dismissal matters I often get asked about how commissions tie into calculating damages for wrongful dismissal.  In the smaller but interesting case Robert Katz v. Canada Mortgage & Lending Corp. Judge Mulligan was not only asked the same thing, but he was also asked to rule on the classic independent contractor/employee relationship. The case was a simplified procedure case (meaning in law that is your damages are under 50K then you must sue under simplified procedure. The plaintiff, Robert Katz (the “plaintiff”) claims damages for wrongful dismissal as well as other monies owing to him from his employer as a result of his employment. At the time the case got to Court, the plaintiff was 28 years old.  He was hired by the Canada Mortgage & Lending Corp. in May of 2007.

They are a pretty small financial services company . At the time of the Robert was employment there, MLC had approximately eight employees.  Len Kerman was the defendant’s sales manager at all material times.  Mr. Kerman was a friend of the plaintiff and had approached Robert about a possible job with the company.  The plaintiff went through a series of interviews in March 2007 with the company and eventually was offered a position of employment in April 2007 as a sales associate.  The plaintiff gave notice to his previous employer and started his new job in may of 2007. The plaintiff’s employment continued for a period of six months, through a period of training and then increased responsibilities with respect to meeting clients of the company both at the office in Toronto and on occasion at a satellite location in London, Ontario. On October 25, 2007, some six months after employment began, the plaintiff was called into the office of the president of the companyand his employment was fired.

It was the plaintiff’s position that he was an employee of the companycompany and the termination was without cause. The plaintiff further argued that this was a wrongful termination and  that he is owed monies for paymet in lieu of notice as well as compensation for other monies owing to him as a result of the course of his employment.

The company’s position was that  the plaintiff was an independent contractor and not an employee and that the termination  was for cause and that nothing was owed to him.

THEN WE GO TO COURT

In the Courtroom, the plaintiff testified that he was an employee of the company and that he was entitled to both salary and a commission.  The position agreement signed by both him and the company provided for both payment of a base monthly salary of $3,000 per month to be paid bi-weekly and a simple small bonus structure.  In his evidence, the plaintiff also stated that in accordance with company policy, he  was required to provide an invoice every two weeks on a form designed by the defendant, invoicing for $1500.00 every two weeks. Despite the invoice for services…and in addition to the amount on the invoice, the plaintiff was also entitled to commissions from time to time in accordance with the business he created. This was the same form used by other sales associates..

So in additio0n to the invoice issue, the company did not remit  no source deductions for C.P.P. or income tax.  The plaintiff was sent a T4-A for income tax purposes at the end of his employment.

Despite thi, the Judge found no hesitation in finding that the plaintiff was an employee working exclusively for the defendant.

Wrongful Dismissal

The plaintiff worked for six months for the companycompany.  During that period of time, he testified that he earned several awards or prizes during the sales campaigns as one of the leading sales associates in the office…then in October of 2007, when the plaintiff attempted to enter the company’s building, he had trouble with his access card.  Over that weekend, he learned that the sales manager, Len Kerman, had left the companyto pursue other employment. On Monday, he attended the office and was asked if he would be continuing his employment with the company.  A few days later, he was called into the office of the president of the company and there was a discussion about telephone calls to clients to confirm their appointment. Then the plaintiff was asked to pack up and leave.  He requested that his termination be re-thought.   The termination did not seem to be explained to him properly. The only explanation to him for the termination was his failure to call clients to confirm appointments.

It was the evidence of Bradley Compton, president of the company, that the plaintiff was terminated because he had ignored company policy and failed to follow the system of telephoning clients personally to confirm their subsequent appointments. There was no evidence from the companyas to any previous warnings or progressive discipline with respect to this issue.  No employee file with respect to the plaintiff was introduced as evidence.

Not surprisingly, the Judge didn’t find any cause for termination and the plaintiff was entitled to appropriate notice pay.

Damages

Three areas of damages were claimed.  1. the appropriate notice period 2. a promised trip valued at $5,000.00 and 3) tcommissions owing to him.  Firstly with the notice, the plaintiff was 28 years old at the time of the trial.  After his termination, he made a search for other employment in the financial services industry without success.  After a period of about six months, the plaintiff decided to pursue an opportunity to change careers and was accepted into teachers college.

The plaintiff claimed damages of $20,000.00 as a combination of his base salary of $3,000.00 per month, together with an estimate of his potential commission earned income for a six-month period. The Judge then used a prediction factor. He noted that although the plaintiff earned commission income during his period of employment, he found that  it would be difficult to speculate on the exact amount of commission income he would have earned had his employment continued.  The plaintiff left a previous employer, but that position was not a long-term position.  Because this was a smaller case, an economic report was not commissioned and so the Judge looked at the cases on wrongful dismissal which provide a range of authority for compensation from one to six months in circumstances similar to this.  The Judge found that Robert ought to be entitled to compensation equal to four months of his base salary of $3,000.00 per month for a total of $12,000.00!  The was also awarded $5,000.00 for the trip that – that was previously scheduled. Robert simply could not attend.

The Commissions

After Robert was terminated, he sent an email to the company requesting payment for his draw, his commissions earned and with respect to various commission items in progress.The companycalled witness Michelle Crompton, who supervised bookkeeping and operations for the company.  She acknowledged receiving the email, but indicated in her testimony that she was too busy to reply.However, the plaintiff was sent out cheques for the salary owed and commissions earned to date.  There was no explanation for the commissions earned in part. However, Robert’s lawyer introduced into evidence two letters of request to counsel for the companyfor disclosure of these details.  The company did not answer.  At trial, the company produced no records with respect to these commissions in progress.

The evidence of the defendant’s witnesses can be summed up as simply…nothing was owing to Robert.

The Judge did not agree and  award damages in the amount of $2109.40 for this head of damage.  He was in total awarded  $ 19,109.40

This case is not a big case, but it is a good read. The employer considered him a sales guy.   Most sales guys re independent contractors. We can see that even though the employer paid Robert by invoice, and did not apply source deductions, they still found him to be an employee  and not an indepdent contractor. There did not seem to be an agreement introduced that labelled him as “and independent contractor for services” only. There was only a “positional agreement” executed by both parties. Judges will look to find a reason to make workeers employee. Termination is the capital punishement of employment law.  They will not try and find reasons to make a worker an independent contractor.  The argument for termination for cause was also not strong enough. The failure to call clients to confirm appointments is the worst excuse for cause I think I have ever heard of. Employers: don’t ever ever do this.  There was no prior warnings or write ups before termination. Bad idea. The trip? The evidence was they paid for it and the guy could not go.  The commission structure in this file was quite basic – no economic loss reports based on assumptions of future earnings. It was a calculation by the Judge – but there was some commision awarded. It is a hard thing to calculate if the employment was lenghty, but in this case the employment was short lived and and calculation was pretty simple.

If you have any questions concerning commisions or employment arrangements please speak to a lawyer before dismissing anyone. Dismissal is fanatically dangerous if not done carefully and in good faith.

Matt Lalande