Can My Employer Eliminate My Base Pay and Only Pay Commission?

ANSWER

No, an employer cannot eliminate your base pay, and unilaterally change your compensation from one with base pay and commissions to one based solely on commissions.

Employers do not have the right to reduce an employee’s wages, because wages are a core aspect of one’s employment. Commissions and base salary are both considered “wages” under the Employment Standards Act in Ontario and BC, and the Employment Standards Code in Alberta.

If by eliminating an employee’s base salary, the employer is reducing the overall amount that the employee is paid. This is a unilateral change to the terms of the employment and may trigger a claim for constructive dismissal.

An employee who has been constructively dismissed is entitled to treat their employment as being terminated and can pursue their full severance pay in accordance with a wrongful dismissal.

How do commissions and base pay work?

One common method that employers use to compensate their employees is by paying a hybrid of both base salary and commissions. Under this method, the employee collects a regular salary and earns commissions, usually based on a percentage of the business they bring in, which is paid on top of their base salary.

These compensation methods are common for employees working in sales or project-based roles and they provide incentives for employees to maximize their value to the employer.

But what happens when an employer decides to eliminate the employee’s base pay and changes compensation to one based solely on commissions? This is a challenge that many employees are faced with and can cause quite a headache when trying to navigate what to do next.

What happens if I continue to work under the new pay structure?

If you continue to work under the new pay structure, you may be giving up your right to pursue a constructive dismissal and forfeiting your full severance entitlements.

It is very important that you consult with an employment lawyer as soon as your employer informs you that they are making a change to your compensation.

What are my severance entitlements?

How much severance you may be entitled to is dependant on a variety of factors including, but not limited to, your age, length of service, and position. A termination clause within any employment contact will also determine how much you receive. Depending on your circumstances, you may be entitled to up to 24 months’ pay. Your severance entitlements will be based on your base pay and your commissions.

Are commissions included in severance?

Yes, generally speaking, commissions are included in the calculation of your severance, particularly if your commissions formed an integral part of your overall compensation.

Terminated employees must be compensated throughout their severance period in the same manner that they were when they were actively working for the employer. This includes payment of any commissions you may have earned throughout that severance period.

How would commissions be calculated?

The challenge one faces when seeking commission entitlements during the severance period is that the employee is no longer working and is no longer making any sales for the employer. It is therefore difficult to calculate how much one would have made if they were permitted to work throughout the severance period.

The common approach to calculating commissions over the severance period is to look to the average commissions earned in the past.

In addition, employees are entitled to commissions that they earned prior to their termination, but that the employer has not yet paid out.

If your employer has made significant changes to your compensation, it is prudent that you consult with an employment lawyer as soon as possible to determine your rights and explore your options. Our employment lawyers in Ontario, Alberta and BC have helped tens of thousands of Canadians get the advice they need, the compensation they deserve.