In Hawes v Dell Canada ( 2021 BCSC 1149) Justice Iyer had to determine the amount of commission that would have been earned over the notice period, much of which had not yet occurred.
This what the Judge said
[24] The parties’ disagreement about the calculation of the commission component of damages revolves around Mr. Hawes’ commission earnings for 2018. He made a couple of large sales to one of his public sector clients that year, earning a significantly larger commission. Mr. Hawes’ commission earnings from 2013 – 2019, the last full year of employment are:
2013 $162,156
2014 $133,166
2015 $163,822
2016 $66,709
2017 $166,042
2018 $346,959
2019 $167,328
[25] Mr. Hawes argues that the best indicator of what he would have earned in commissions during the notice period is the average of his last three years, which is $226,776.
[26] Dell argues that Mr. Hawes’ unusually high commission in 2018 and his unusually low earnings in 2016 should be excluded as outliers, and that his average commissions from the other five years from 2013 to 2019 represent the best estimate of what he would have earned in the notice period. This figure is $158,502.
[27] It is clear from the authorities that, where an employee’s earnings are variable, there is no set formula. The court must award what is fair in the circumstances to approximate what the employee would have earned during the notice period. Sometimes courts have used the average of the past five years of commission earnings: Veach v. Diversey Inc., [1993] B.C.J. No. 2420. Where an employee’s commission earnings have been on an increasing or declining trend in the years prior to dismissal, it may be preferable to use only the last year’s earnings: O’Reilly, at para 43. Where the past is not a reliable indicator, the court has made an estimate based on the whole evidentiary record: TCF Ventures at para 43.
[28] Mr. Hawes’ annual commission earnings were not inclining or declining. The evidence shows that were usually in the range of $162,000 to $167,000. It is not appropriate to take the average of the last three years of commission earnings because 2018 was an outlier and the evidence shows Mr. Hawes was very unlikely to have comparable sales during the notice period. Further, there is some evidence that the pandemic-driven economic downturn was likely to adversely affect sales to Mr. Hawes’ client list and his sales in 2018 would have increased his quota during the notice period. Considering all of the evidence, I find that the best estimate of what his annual commission would have been during the notice period is $165,000.
My Comments :
The calculation of incentive income can be very important in wrongful dismissal cases especially where that type of income forms a significant portion of the total compensation plan .
This case clearly sets for the various ways that Courts have dealt with this issue and that there is not one perfect way of doing it.
What this judge effectively did was use the statistical median rather than the average, which is found by ordering the set from lowest to highest and finding the exact middle.
If we arrange the numbers from lowest to highest it looks like this
$66,709
$133,166
$162,156
$163,822
$166,042
$167,328
$346,959
The exact middle number is $163,822 .
The Judge found the right number to be $165,000.
The advantage of the medium rather than the average is that it ignores the distorting effect of outlier numbers.
What I find interesting is that neither party led any evidence as to what sales there actually were in the Plaintiff’s territory after he left, as presumably his territory and/or clients were given to another sales rep. If this evidence was ascertainable, it would have provided the Court with a more reliable basis for determining the actual income loss.
By the way, I never took a stats course and math was my second worse mark in high school.
P.S. My worst mark was French.
If you would like a copy of this case email me at barryfisher@rogers.com