Unilateral Decision to Alter Workers’ Commission Structure Warrants Damages From New Employer

Written on behalf of Peter McSherry
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Many aspects of employment relationships are out of an employee’s control, particularly with respect to termination and the health of the business, as the average employee cannot do much to ensure that a business remains profitable and continues to operate.

When an employer is required to enter into bankruptcy, employees may be negatively impacted. However, if new owners acquire the business, they attempt to divert from the status quo. Therefore, it is important for employees to understand their rights pertaining to their employment contract, especially as it pertains to being pushed out of, or constructively dismissed, from a job.

A recent decision from the Ontario’s Superior Court of Justice addressed the issue of an employee’s wrongful dismissal claim due to significant unilateral changes to the employee’s employment.

Employer enters into bankruptcy, new owners resume business

In the case of 542491 Ontario Limited v 8240631 Canada Inc., the plaintiffs were the employees of the predecessor company of the defendant company (“PCI”). The plaintiffs were sales agents who began working for PCI in 2002 and were paid 10% commission for any new business they brought to the company and 8% commission for repeat customers. There were no noteworthy events that occurred between 2002 and 2014, at which time PCI entered into bankruptcy. Shortly thereafter, a new company was incorporated and assumed the business of PCI, hereinafter referred to as the “employer”.

After resuming business, the plaintiffs remained employed under the new employer. r continued to employ the plaintiffs. There was no interruption in the function of their work or in the services they provided, even through the bankruptcy process. The original terms of the plaintiffs’ pay went unchanged for a period of time. The plaintiffs introduced a new client shortly after the employer took over and were paid a 10% commission.

However, in April 2014, the employer provided the employees with a letter setting out its unilateral decision to alter the employees’ compensation structure. The new payment arrangement had a sliding scale for commission, which was based on the amount of money a new client spent. The higher the sale was, the lower the commission would be. As a result of this change, the plaintiffs experienced a reduction in pay. The same letter also advised the employees that their employment would be terminated on December 31, 2014, which was only 8 months away.

Employer directs plaintiffs to cease contact with clients

In August 2014, the employees were instructed to cease all contact with any clients of the employer, which the plaintiffs say led to an inability for them to perform their responsibilities and was effectively a breach of contract.

The employees brought an action against the employer. The Court found that the employer had blocked multiple attempts to move the matter forward before ultimately ceasing to participate in the dispute altogether. The result of this conduct was a ruling by way of summary judgment in which the Court assessed the evidence provided by the employees and the employer, to the extent that it was available.

Are the employees entitled to damages?

The Court began its analysis by noting that it was uncertain whether the plaintiffs were entitled to damages for wrongful dismissal because it was unclear whether they were employees, independent contractors, or dependent contractors. If the plaintiffs were found to be independent contractors, no notice requirements would have been necessary prior to their termination.

This confusion was partially due to one of the plaintiffs referring to himself as an employee as well as a contractor. An employment contract was presented to the Court by one of the plaintiffs, which referred to him as an employee, however, it was unsigned. Further, the rates established for sales commissions in the contract differed from what the employees told the Court they received prior to their employment under the new employer. It was also unclear to the Court whether that contract was applicable to the relationship between the employees and the employer.

Unilateral change in payment was not allowed regardless of notice requirements

Despite not being able to establish whether the plaintiffs were actually employees of the employer, the Court found that some of the details in the claim warranted examination, primarily the claims related to the unilateral decision by the employer to change the plaintiffs’ pay structure. for commission owed.

The Court calculated that the plaintiffs were owed $79,745.15, an amount representing the work the plaintiffs did for the employer from February 2014 to July 31, 2013 which went unpaid. The Court clarified that this amount was due and owing regardless of whether the employer took over the business and whether the plaintiffs were classified as employees or not.

The Court held that a one-day hearing would help establish whether or not the plaintiffs were employees of the defendant employer.

Employment Lawyer Peter A. McSherry in Guelph Advises on Worker Classification Disputes and Wrongful Termination Claims

Trusted employment lawyer Peter A. McSherry understands the nuances and complexities that can arise in an employment relationship. Whether there is a disagreement as to a worker’s classification status, or an employee brings a claim for constructive dismissal or discrimination, our team can help. For these reasons, it is important to have a comprehensive and accurate employment agreement. In cases where a dispute requires litigation, we work diligently to protect our clients’ rights and entitlements, and ensure that they obtain the best possible resolution. If you are a worker involved in an employment dispute, contact us today online or by phone at 519-821-5465 to schedule a confidential consultation and learn how we can help.