How Long Does an Employee Have to Sue for Unpaid Commission Payments?

How Long Does an Employee Have to Sue for Unpaid Commission Payments?

How long does an employee have to sue for unpaid commission payments in Ontario? Simple; two years. Two years from what date? That was the question that the Court of Appeal for Ontario was recently asked to resolve in the case of Ali v. O-Two Medical Technologies Inc., 2013 ONCA 733 (CanLII).

What Happened

As set out in the Court of Appeal’s reasons for decision:

[4] [The plaintiff employee] Ali worked as a mechanical engineer for [defendant employer] O-Two from March 22, 2002 to September 10, 2007, when his notice of resignation given August 29, 2007 became effective. He also had a side agreement with O-Two to sell its products in Iraq on a commission basis. According to his statement of claim, Ali negotiated a large sale to the Iraqi Ministry of Health on December 5, 2006. Once the buyer accepted delivery and paid for the products, he would be entitled to the commission calculated as set out in the agreement.

[5] Ali claims that one week after he negotiated the Iraqi sale, O-Two purported to unilaterally change the commission agreement and informed him on December 12, 2006 that it would pay him a lower rate of commission.

[6] The parties met and exchanged letters, in which Ali claimed he was entitled to commission at the higher rate and O-Two relied on the lower rate set out in its December 12 formula. Ali retained counsel who wrote to O-Two on August 28, 2007 demanding that commission be paid at the higher rate. O-Two replied by letter, dated September 7, 2007, reiterating its previous position.

[7] O-Two and the Iraqi Ministry of Health went on to complete their transaction. The Iraqi Ministry provided its first payment to O-Two under the contract in October 2007 and Ali became entitled to receive his commission in November 2007. On November 23, 2007, O-Two tendered payment of Ali’s commission at the lower rate.

[8] Ali issued a statement of claim for breach of contract and quantum meruit on September 16, 2009. O-Two took the position that Ali’s claim, if he had one, arose when it changed the commission structure on December 12, 2006 and that he had not filed his action until more than two years later. O-Two applied for and was granted summary judgment on the basis that Ali’s alleged claims arose outside the two-year limitation period under s. 4 of the Limitations Act.

On a summary judgment motion, the Honourable Justice Meredith Donohue of the Superior Court of Justice found that the plaintiff’s claim had been commenced after the expiry of the applicable limitation period. Her Honour accordingly dismissed the plaintiff’s claim. Justice Donohue’s reasons were reported at 2013 ONSC 880.

On appeal, the issue as framed by the court was when time begins to run under the Limitations Act, 2002, S.O. 2002, c. 24, Schedule B (“Limitations Act”), for an employee’s claim for unpaid commissions in a situation in which the employer has unilaterally changed the basis for the calculation of commissions earned.

Decision of the Court of Appeal

The Court of Appeal found that the clock did not begin to run until November 23, 2007, when he received the reduced payment.

As Justice Juriansz wrote on behalf of the court of Appeal:

[23] O-Two’s change in Ali’s commission structure on December 12, 2006 was a repudiation of its contractual obligations before it became obligated to pay his commissions in November 2007. By purporting to apply a new agreement, O‑Two could hardly have made its intention to repudiate the prior commission agreement clearer.

[24] Once the counterparty shows its intention not to be bound by the contract, the innocent party has a choice. The innocent party may accept the breach and elect to sue immediately for damages—in which case, the innocent party must “clearly and unequivocally” accept the repudiation to terminate the contract: [Brown v. Belleville (City), 2013 ONCA 148], at para. 45. Alternatively, the innocent party may choose to treat the contract as subsisting, “continue to press for performance and bring the action only when the promised performance fails to materialize”; by choosing this option, however, the innocent party is also bound to accept performance if the repudiating party decides to carry out its obligations: S.M. Waddams, The Law of Contracts, 6th ed. (Toronto: Canada Law Book, 2010), at para. 621.

[25] This court recently applied this principle in Brown, where Cronk J.A. confirmed, at para. 42, that an anticipatory breach “does not, in itself, terminate or discharge a contract.” Rather, Cronk J.A. noted that the innocent party may elect to treat the contract as continuing…

[26] In this case, Ali, although he could have elected to do so, did not accept O-Two’s repudiation of the contract and immediately sue for damages. Rather, he continued to press for payment in full. Because he did not accept the repudiation, he did not know he would suffer “damage” within the meaning of s. 5 (1)(a)(i) [of the Limitations Act] until the payment of his commissions fell due on November 23, 2007 and O-Two did not make full payment.

The Court of Appeal thus overturned Justice Donohue’s decision and the plaintiff’s claim was allowed to continue.

Commentary

Although the court expressly noted that this case was not a constructive dismissal case, I feel it important to return to the court’s expression of how an employee can respond to a unilateral change in employment for a moment. As those who practice in this area will recall, in Wronko v. Western Inventory Service Ltd., 2008 ONCA 327 (CanLII), Chief Justice for Ontario Winkler wrote the following:

[33] In [Hill v. Peter Gorman Ltd., [1957] O.J. No. 188, 9 D.L.R. (2d) 124 (C.A.)], Mackay J.A. identifies three options that are available to an employee when an employer attempts a unilateral amendment to a fundamental term of a contract of employment. They may be summarized as follows.

[34] First, the employee may accept the change in the terms of employment, either expressly or implicitly through apparent acquiescence, in which case the employment will continue under the altered terms.

[35] Second, the employee may reject the change and sue for damages if the employer persists in treating the relationship as subject to the varied term. This course of action would now be termed a "constructive dismissal"...

[36] Third, the employee may make it clear to the employer that he or she is rejecting the new term. The employer may respond to this rejection by terminating the employee with proper notice and offering re-employment on the new terms. If the employer does not take this course and permits the employee to continue to fulfill his or her job requirements, then the employee is entitled to insist on adherence to the terms of the original contract. In other words, if the employer permits the employee to discharge his obligations under the original employment contract, then -- unless proper notice of termination is given -- the employer is regarded as acquiescing to the employee's position. As Mackay J.A. so aptly put it [at para. 45]: "I cannot agree that an employer has any unilateral right to change a contract or that by attempting to make such a change he can force an employee to either accept it or quit."

In this author’s opinion, what Mr. Ali did was exactly that which was envisioned under the third point in Wronko: he made it clear to the employer that he was rejecting the new commission plan. Although not set out in the facts, it would appear clear that no attempt was made by O-Two to actually terminate Ali. Accordingly, as I read Wronko, Mr. Ali was “entitled to insist on adherence to the terms of the original contract.”

Although the court did not make any express mention of Wronko in its decision, and demonstrably it did not have to given the basis for its decision, in my opinion it could have. I can see no clearer example of the third option in practice than that which occurred in Ali. The employer attempted to change the terms of the contract, the commission plan, the employee continually said that he was not accepting the change, and then the court allows the employee to insist on the performance of the original contract.

In any event, regardless of the angle from which one approaches the case, I believe the outcome was correct. Given his protests, until O-Two provided Mr. Ali with less than that to which he was initially entitled, how was he to truly know what his employer was going to do? It was equally as likely that O-Two may have actually paid him the higher amount.

Takeaways for Employees

The takeaway for employees in this case are that: (a) you do not have to accept a fundamental change to the terms of your employment; and (b) if your employer advises you of their intent to not pay you the commissions you believe you are owed, you have two years from the date of receipt of payment to commence a lawsuit.

If you are an employee working in Ontario and your employer has announced changes to your employment with which you disagree it may be prudent to seek professional legal advice. The professional, experienced and cost-effective employment lawyers for employees at Ottawa's Kelly Santini LLP would be happy to be of service to you. To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260.

Takeaways for Employers

As the Ali case demonstrates, employers cannot simply make changes to an employee’s contract without providing notice of the change. Employees can refuse to accept the change and insist upon performance of the original contract. In cases where that position is unacceptable to your organization, then on the authority of Wronko, you may have to consider terminating the employee’s employment.

If you are an Ontario employer looking to make changes to your employees’ terms of employment, it may be prudent to seek professional legal advice. The professional, experienced and cost-effective employment lawyers for employers at Ottawa's Kelly Santini LLP would be happy to be of service to your business or organization. To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation and it is always prudent to seek professional legal advice before taking any decisions on one’s own case.

Sean Bawden, publisher of the law blog for the suddenly unemployed, can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321.

Sean P. Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP, and part-time professor at Algonquin College teaching Trial Advocacy for Paralegals. He is a trustee of the County of Carleton Law Association for 2013.