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Sales Commissions Can Reflect Employer Losses As Well As Profits
March 27, 2015
Author(s): David Woolias

In the recent case of Skana Forest Products Ltd. v. Lazauskas 2015 BCCA 85, the BC Court of Appeal has overturned an earlier decision of the lower court and provided some valuable clarification on the limits of the prohibition on making employees pay the “business costs” of their employer contained in section 21(2) of the Employment Standards Act.

Mr. Lazauskas was a lumber trader who was paid exclusively on the basis of sales commissions. In 2005, Skana established a policy whereby traders became personally responsible for the inventory they purchased. This resulted in traders earning a healthy commission if the lumber could be sold at a profit, but also exposed traders to the risk that if lumber could not be sold, they would bear the loss in the form of a reduced commission. Mr. Lazauskas resigned from his employment in 2010, leaving approximately $450,000 worth of lumber for which he was responsible, unsold. In accordance with Skana’s commission structure, it sought to recover this amount from Mr. Lazauskas as an overpayment on advances on his commission which it had paid to him previously. Mr. Lazauskas argued that this was prohibited by section 21(2) of the Employment Standards Act as it was tantamount to Skana requiring him to pay the cost of inventory, which is a business cost.

By the time of the trial, Skana had managed to sell most of the inventory in question, so the amount at issue was only $27,120. Nonetheless, Mr. Lazauskas was successful in his argument at first instance and was not required to pay back that amount. The judge held that “[t]o require an employee to share in the loss is a transfer of the inherent risk of the business and not permitted under s. 21 [of the Employment Standards Act]”. This finding cast doubt on the legality in BC of any commission structure that was calculated on the basis of employees sharing in losses as well as profits from their activities.

The Court of Appeal has now resolved that doubt, unanimously rejecting the lower court’s analysis and emphasizing that the Employment Standards Commission has repeatedly held that employer and employees are free to agree any commission structure they choose, so long as the employee is paid at least the minimum wage for all hours worked in each pay period. In applying the law to Mr. Lazauskas’ circumstances, Justice Lowry, speaking for the Court of Appeal, concluded:

“I do not consider the company’s commission policy to be prohibited by s.21(2) of the [Employment Standards] Act. It does not require an employee to pay his [sic] employer’s business costs. Rather it facilitates the remuneration of the company’s traders by a sales commission based on net profit derived from profits earned and losses sustained… Once it is determined [that Mr. Lazauskas] was paid more commission than that to which he was entitled, the company is to be repaid.”

Based on this decision, employers in BC who use commissions based on net profits to pay employees (subject to ensuring that the remuneration equals at least minimum wage) can have greater confidence that arguments that such arrangements fall afoul of section 21(2) of the Employment Standards Act will not be successful in the future.

A copy of the decision can be found here.

Questions relating to the content of the article may be directed to Nazeer Mitha.