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 company 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 addition 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 this, 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 company. 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) commissions 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 company called 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 workers
employee. Termination is the capital punishment 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
commission awarded. It is a hard thing to calculate if the employment
was lengthy, but in this case the employment was short lived and and
calculation was pretty simple.
If you have any questions
concerning commissions 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