In 2250898 ONTARIO INC., o/a FERRARI AND ASSOCIATES INSURANCE & FINANCIAL SERVICES INC., v MATTHEW PEPE and MJP COMMERCIAL CORPORATION, ( ONSC 2026 4676) Justice Leach has a situation where an insurance salesperson left his job after a few months. In that period of time he had received a draw against commissions which was about $33,000 more than he had actually earned in commissions.
His former employer sued for the overpayment .
The Small Claims Court Deputy Judge found in favour of the former employer.
The former employee appealed to Divisional Court.
The relevant clause was as follows:
Compensation:
As a result of this employment offer, you will be paid a draw against commissions for the first three (3) years in the amount of $90,000 annually, paid on the 15th of every month, based on the following commission structure.
The Judge pointed out that were two types of draws against commssion;
While there is little doubt that reference to a “draw against commission” generally refers to a compensation payment structure whereby a salesperson is given money in advance of it being earned by future sales earnings, (thereby lending a degree of financial stability and support for new hires), the more fundamental legal reality, lying at the heart of much of the caselaw in this area, is that not all “draws against commission” are intended to have the same character in the event paid draws exceed earned commissions. Some are intended to be “recoverable draws”, while others are intended to be “non-recoverable” draws. In particular:
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- Some situations involve draws against commissions that are intended to be generally “recoverable” and repaid by the salesperson to his or her employer via whatever funds are required in that regard, to the extent the salesperson’s sales do not cover the amount or amounts paid in advance by the employer. In such cases, a “recoverable draw” is an advance that essentially operates like a short-term loan, intended to be repaid in any event from the salesperson’s corresponding earned commissions to the extent there are any, (via a reconciliation calculation performed in that regard), and otherwise from the salesperson’s general resources; i.e., from a source of funds other than earned commissions. If the salesperson’s earned commissions are less that the paid draw amounts, the salesperson owes the deficit back to the payor in any event; i.e., with the deficit constituting a repayable debt to be addressed from the debtor’s general assets like any other debt. Such an intended arrangement effectively casts the overall financial risks of the employment relationship on the salesperson; i.e., exposing such a salesperson to potential debt accumulation and repayment pressure and stress.
- Other situations involve draws against commissions that are intended to be “non-recoverable”; i.e., essentially operating as a guaranteed minimum payout to the salesperson, while the salesperson retains an incentive to generate commission in excess of that payout to receive augmented compensation through an agreed commission structure. If the employee fails to sell enough to generate commissions sufficient to cover the paid draw amount or amounts, the salesperson does not have to pay the difference back, and the employer payor absorbs the loss. In other words, repayment of such draws is to be addressed solely via earned commissions, to the extent they exist, but do not otherwise constitute a debt repayable from the salesperson’s other resources. Such an intended arrangement effectively casts the overall financial risks of the employment relationship on the employer, which nevertheless might be willing to assume such risks to promote other business objectives; e.g., to attract top-tier sales professionals looking for financial stability, (by offering guaranteed baseline support via a more traditional “salary plus commission” type of compensation arrangement), when such professionals otherwise might be inclined to reject “pure commission” employment lacking a financial safety net.
How then do we determine which type of draw agreement is applicable ?
This judgement gives us some guidelines :
In my view, this matter should have been relatively straightforward and easy to decide, insofar as it effectively stood on all fours with the decision rendered by the Superior Court of Justice in Holman Design Ltd. v. Desmarais-Worgan, supra, which the Deputy Judge himself cited. Without limiting the generality of the foregoing, including the more specific and detailed reasons outlined above:
The question of whether the defendants had an obligation to repay paid draws exceeding earned commissions from any fund other than earned commissions was to be decided by the specific intention of the parties to this particular employment relationship, rather than any supposed legal presumption.
The clear wording of the parties’ agreement in this case specified, in relation to the compensation arrangement, that the draws to be paid were “paid against commissions”, (i.e., the contemplated commissions to be earned), without the contract, drafted by the plaintiff employer, going on to specify that the defendants had any obligation to repay draws paid in excess of any such earned commissions in any event from a fund other than such earned commissions.
Such an obligation cannot be imposed on an employee such as Mr Pepe after the fact, especially when doing so would “overwhelm” the actual wording the parties chose to employ in their agreement, and represent a deviation from the fundamental principle that the interpretation of a written contractual provision must always be grounded in the text, read in light of the entire contract. In this case, the arrangement expressly agreed upon by the parties specified that draws were to be paid “against commissions”, and therefore repayable from such earned commissions. No other term, enabling the plaintiff to recover such draws from any other source, was included in the agreement. Nor can such a term be implied, particularly when one has regard to the “entire contract” provisions expressly agreed upon by the parties.
Once it is recognized that there is no legal obligation on the defendant to repay paid draws exceeding earned commissions in any event from funds other than earned commissions, and that the defendants accordingly are permitted to retain draws paid in excess of the commissions earned, Mr Pepe effectively will have received compensation for his employment exceeding the minimum wages and vacation pay to which he was entitled by virtue of the ESA, and the concerns about violation of the ESA’s guarantees regarding payment of such minimum wages and vacation pay fall away.
This last point regarding the ESA requires some explanation. If the employee had been required to pay back the $33,000, he would have actually received less than the ESA minimum wage. The Small Claims Court Deputy Judge determined that the employee was actually an independent contractor and therefore the ESA did not apply. The Divisional Court Judge found that to be an obvious error as neither of the parties argued that point and in fact both sides conceded that there was an employment relationship. Moreover the contract used the term “employee ” multiple times.
I note that the actual citation on the case sent to me by counsel is 2016 ONSC 4676. I assume that this is a typo because the case was argued on October 3, 2025. I have therefor listed the citation as 2026 ONSC 4676
For a copy of this decision email me at barry@barryfisher.ca
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