Termination Provision in Commission Plan Illegal as it Purports to Deny Commission Over the Statutory Notice Period:

In Kerner v Information Builders ( Canada ) (2020 ONSC 2975 ) Pollak J. had a case which involved whether the employee was entitled to commissions over the notice period in addition to his base salary. There were two different provisions at stake.
The 2017 Plan said that in order to receive a commission you must be employed at the time the sale was booked and billed.
It read as follows:


2017 Sales Plan

Please note that the governing principles set forth below are applicable in all cases. In order to be entitled to receive a commission you must met all of the requirements of paragraphs 1 through 3 below, as well as all applicable provisions of the attached documents. Unless you do so, no commission is earned, due, owing, or payable to you:

1.      You must have been a procuring cause of the sale and complied with all other applicable requirements. In some cases commissions may be payable in installments.

2.      No commissions are payable until the sale has been booked and billed.

3.      In order to be entitled to receive a commission you must be employed by IB at the time the sale has been booked and billed.

The 2018 Plan said that you get no commissions after you end active employment for any reason and also excluded statutory notice periods.
It added the following paragraph :


2018 Sales Plan

Commissions are not payable in respect of any period of notice, whether contractual, statutory or based upon the common law, following termination of your employment for any reason whatsoever, unless the sale transaction was booked and billed prior to the date of termination of your employment, The date of termination is the date on which your active employment with Information Builders ceases and you are no longer providing services to the company. [emphasis added]


In regards to the 2017 Plan, the Court found that the reference to ” termination” must mean lawful termination, thus at the end of the notice period. As such he was entitled to his commissions during the notice period.

In relation to the 2018 Plan, the Court found that the Employer failed to satisfy its onus to prove that they properly communicated this important change to the plaintiff when it was implemented thus it was not binding on him . Although the changes were in the 2018 Plan which the plaintiff was given, because this change was not not referred to in an accompanying document called “Major Changes ” nor was it discussed at a sales meeting intended to explain the new plan, the Judge accepted the plaintiff’s testimony that he was not aware of this change .

She also found that as this was an significant modification to the implied term of reasonable notice, that as there was no consideration , it was unenforceable . This is what she said :

Changes to the 2018 Sales Plan are not supported by the necessary consideration

[54]           The employer also has the burden of proving that a unilateral change to a significant term of employment is supported by consideration.

[55]           The Defendant’s alleged changes to the termination clause in the 2018 Sales Plan could have significantly modified the Plaintiff’s entitlements upon termination. The changes had the potential to disentitle the Plaintiff to a significant part of his income during his notice period. The evidence was that in the last four months of 2018, had the Plaintiff remained employed, he would have earned $99,237.36 in commission income but only $50,000.00 in base salary.

[56]           Our jurisprudence has held that a significant change to the terms and conditions of employment requires consideration. In this case, I find that there was no consideration.

[57]           The Court of Appeal, in Hobbs v. TDI Canada Ltd., 2004 CanLII 44783 (ON CA), [2004] O.J. No. 4876 (C.A.), described the law as follows:

“The requirement of consideration to support an amended agreement is especially important in the employment context where, generally, there is inequality of bargaining power between employees and employers. Some employees may enjoy a measure of bargaining power when negotiating the terms of prospective employment, but once they have been hired and are dependent on the remuneration of the new job, they become more vulnerable: at para. 42.”

[58]           There was no evidence regarding how the changes to the 2018 Sales Plan would benefit the Plaintiff. The Plaintiff testified that the changes to the Plan would help some but not others.

[59]           The Defendant’s attempt to limit the Plaintiff’s right to commission during the notice period is a significant modification which would require reasonable notice.

[60]           Further, A new notice of termination provision in an employment contract is “a significant modification of the implied term of reasonable notice” that requires consideration. There was no consideration for this change.

However the big takeaway is her finding that as the 2018 Plan purported to deny his right to commissions during the statutory notice period under the ESA, the clause was illegal as commissions are wages under the ESA. 

This is what she said :


Limiting provision in the 2018 Sales Plan is void because it potentially violates the ESA

[61]           In Covenho v. Pendylum Inc., 2017 ONCA 284, 43 C.C.E.L. (4th) 99, the Court of Appeal held, at para. 7:

In determining whether the contract is in compliance with the ESA, the terms must be construed as if the appellant had continued to be employed beyond three months; if a provision’s application potentially violates the ESA at any date after hiring, it is void. [emphasis added]

[62]           The language in the 2018 Sales Plan has the potential effect of contracting out of the Defendant’s statutory obligation to provide the Plaintiff with his full wages during the statutory notice period, which includes commissions that become payable during the notice period.

[63]           Commissions are included as “wages” pursuant to s. 1(1) of the ESA. The Court of Appeal, in North v. Metaswitch Networks Corporation, 2017 ONCA 790, 417 D.L.R. (4th) 429, has held that commissions must be paid during the notice period. If no notice period is provided, commissions must be paid as part of the lump sum wage payment in lieu of notice (s. 61).

[64]           The Plaintiff argues that the “termination clause” in the 2018 Sales Plan contracts out of the ESA, contrary to s. 5(1) of the Act, and is therefore void and unenforceable.

[65]            Section 5(2) of the ESA does permit an employer to contract out of the ESA as long as a greater benefit is given to the employee. There is no evidence that the 2018 Sales Plan gives Mr. Kerner a greater benefit. The termination clause in the 2018 Sales Plan does not substitute a greater benefit by providing reasonable notice; rather, it provides for the ESA’s minimums.

[66]           The Plaintiff submits that there are circumstances where the Plaintiff would be better off if he were to be paid his minimum ESA entitlements instead of his base salary during a reasonable notice period determined at common law. Pursuant to the ESA, the Plaintiff would be entitled to two weeks’ notice of termination and 17.92 weeks’ severance pay. Pursuant to s. 60 of the ESA, the Plaintiff would be entitled to receive his wages, including any commissions that become payable in those weeks.

[67]           Therefore, the Plaintiff’s minimum statutory entitlement to termination of employment must include notice of termination, severance pay, and any commissions payable during the notice period. These payments would not be subject to the duty to mitigate.

[68]           If the provision in the 2018 Sales Plan’s termination clause were enforceable to exclude commission payments to the Plaintiff earned during his notice period, the greatest entitlement benefit the Plaintiff could receive would be reasonable notice at common law, based on his base pay only, excluding commissions. I find that there is a real possibility that a common law notice period calculated using the Plaintiff’s base pay would be less than the Plaintiff’s minimum statutory entitlements. Section 5 of the ESA prohibits such a result.

[69]           The Plaintiff’s evidence was that his largest booking and billing was an $11,000,000 deal with a commission earned between $150,000 to $200,000. It would be better for the Plaintiff to be paid commission during the statutory notice period instead of being paid base salary during the reasonable notice period.

My Comments :
This case is one of a spate of recent cases which deals with the enforceability of clauses that seek to limit the implied term of reasonable notice. It is important because it deals with four key areas, namely :
1) lack of clarity in excluding the common law
2) failure to properly identify the restrictions
2) lack of consideration for the change
3) illegality as it offends the ESA
One last comment. I am not sure that Justice Pollak’s analysis of the ” greater benefit shall prevail ” arguments is correct. As I understand this provision you look at each employment standard on its own and you do not do the comparison on a a cumulative basis. In other words if someone were to be paid only one week vacation per year but had a wage of $40 per hour, the one week vacation clause would still be in violation even though the wage was considerably higher than the minimum wage .
Therefore, in this case the simple issue is if commissions are wages and you must get your wages over the statutory notice period , then any attempt to deny that payment is illegal. Imagine that the employee was fired on January 1st and was entitled to 8 weeks of his full wages. However he gets a new job on January 2 ( or he dies ) so he has no common law damages. This clause would deny him his full wages. Thus it is illegal. Period , End of story.