If employees are paid on a commission basis, it is important to clearly spell out the terms on which commission will and won’t be paid.

In a recent decision of the ERA, an employee was awarded the value of an unpaid commission along with interest (and with legal costs also likely to be paid by the employer).

The employer had relied on a clause in the employee’s employment agreement that gave it the discretion to pay commission to the employee.  The ERA determined, however, that the exercise by the employer of the discretion not to pay the commission was subject to its statutory obligation to act fairly and reasonably.

The ERA found that the employer had not acted fairly and reasonably because it attempted to justify the exercise of its discretion based on alleged performance concerns (that had never been raised with the employee), and alleged policies regarding paying commission when an employee was no longer on the payroll (that the employee was not aware of).

If an employer wants the discretion to not pay a commission, it needs to be clearly recorded in the employee’s employment agreement.

Where the employer then wishes to exercise that discretion, it needs to do so in accordance with applicable employment laws.

If the employer has policies regarding the exercise of the discretion, those need to be recorded and brought to the attention of potentially affected employees.