Labour lawyer urges employers to review and update offer letters, commission plans, bonus plans
In a recent decision concerning an employee who was terminated in March 2020, the Ontario Superior Court of Justice set the reasonable notice period at 10 months on the basis of his difficulties finding other work during the pandemic-related economic shutdown.
In Kraft v. Firepower Financial Corp., 2021 ONSC 4962, the defendant employer terminated the plaintiff employee without cause during the second week of March 2020. The plaintiff was a specialized salesperson in the investment banking field, focusing on mergers and acquisitions, for which he had received a base salary, commissions, incentive payments, paid vacation and health benefits.
At the time of his termination, a certain M&A deal which the plaintiff had identified for the defendant was close to completion. The defendant, which was proposing to pay the plaintiff commissions arising from pending deals closed within five months of his termination, refused to pay commissions for the M&A deal because it had closed on Sept. 9, 2020, or six months following his termination.
The plaintiff filed a motion for summary judgment under Rule 20.01 of the Rules of Civil Procedure for pay in lieu of notice, commissions, bonuses, statutory holiday pay and vacation pay.
In its judgment the Superior Court of Justice of Ontario ordered the defendant to pay, in lieu of notice, 10 months of the plaintiff’s final base salary; his share of the bonus pool, calculated using his average amounts for the last two years; his foregone vacation and holiday pay corresponding to the 10-month notice period; and $77,559 in commissions from the deal closed on Sept. 9, 2020.
The court set the reasonable notice period at 10 months, which was one month more than the average for the plaintiff’s circumstances before the COVID-19 pandemic. The court cited the evidence that the plaintiff’s search for new employment coincided with the economy’s shutdown amid the pandemic, which led to uncertainty in the job market. The plaintiff claimed that he had applied for more than 70 jobs over a 13-month period.
The court explained that the reason why the pandemic did not impact the reasonable notice period analysis in Yee v Hudson’s Bay Company, 2021 ONSC 387, a case cited by the defendant, was because the employee in that case lost his job in August 2019, or over half a year before the pandemic, and provided no evidence that the pandemic affected his job search.
The plaintiff was entitled to commissions for the deal that closed on Sept. 9, 2020, given that the transaction closed within the notice period, said the court. Other pending deals closed beyond that period would not be included in the plaintiff’s compensation, it added.
The court determined that the plaintiff was also entitled to his percentage share of the bonus pool, considering that he would have received it as a matter of course if he had kept working during the notice period, and to his vacation and statutory holiday pay, which is counted as wages under the Employment Standards Act, 2000, SO 2000, c. 41.
Monty Verlint, a labour and employment law partner at Littler Mendelson P.C. in Toronto, suggests that, in cases such as this one, employment counsel and litigators can present evidence of the specific job market if they wish to defeat any claim for an extended notice period.
Defence lawyers may also consider making a record of all local job advertisements within the former employee’s skills and qualifications that come up during the common law notice period and questioning why the former employee did not apply to these job opportunities, Verlint says.
He recommends that lawyers remind their employer clients to review and update their offer letters, commission plans and bonus plans from time to time to ensure compliance with the applicable employment standards legislation, given that any breach could render the language unenforceable.
Clear and unambiguous contractual language is key, Verlint adds, as anything less could modify the court’s holding in terms of commissions, bonus and other incentive pay.
“It is likely that the court in this case was influenced to increase the employee’s reasonable notice period because the employee offered evidence that he had applied for 70 jobs in the 13-month period that coincided with the economic shutdown caused by the COVID-19 pandemic,” wrote Verlint in a post alongside Rhonda Levy, knowledge management counsel at the firm.