1356-98-ES Danny Noivo, Applicant v. Reliable Laser Products Inc. and Ministry of Labour, Responding Parties.

Employment Practices Branch File No. 20033234

BEFORE: Pamela A. Chapman, Vice-Chair.

APPEARANCES: Danny Noivo on his own behalf; Peter Kniewasser and Dieter Danguillier for Reliable Laser Products Inc.; Graine McGrath for the Ministry of Labour.

DECISION OF THE BOARD; June 7, 2000

1. This is an application for review of the decision of an Employment Standards Officer, pursuant to section 68 of the Employment Standards Act (“the ESA”). The applicant (“the employee”) asks that the Board set aside the decision of the Officer refusing to issue an Order to Pay against Reliable Laser Products (“the employer”) for unpaid wages and termination pay.

THE FACTS

2. Danny Noivo was approached by one of the owners of Reliable Laser Products, Bobbi Ruel, to come to work as a sales representative at the company in March 1997. The contract of employment was confirmed by letter dated March 21, 1997, which provided that he would be paid a base salary of $2000.00 per month for a minimum of six months. The contract further stated that the employee would be “required to go on straight commission after that time, only if and when the new commission structure is formalized”.

3. Ruel at that time held the position of President and Sales Manager. Peter Kniewasser was the General Manager. Noivo testified that he understood that he was to report to Ruel, although Kniewasser clearly held a position of authority and was in charge of matters generally.

4. At the end of 1997 Noivo’s base salary was increased to $2500.00 per month after he met with Ruel and Kniewasser and expressed his concern that his salary was insufficient.

5. Beginning in the fall of 1997 a dispute developed between Ruel and the co-owner of the company, Dieter Danguillier, which also involved Kniewasser. I will not review in any detail the power struggle which apparently ensued, other than to note that Noivo was clearly allied with Ruel to the extent that he played any role in these battles, and that for a period of time employees at the company were very uncertain about who was in fact in charge. In particular, Kniewasser and Danguillier claim that Ruel resigned as Sales Manager effective September 3, 1997, and that Kniewasser assumed those responsibilities on an acting basis at that time. In addition, at one stage in the litigation Ruel obtained an injunction against the other two which affected the issuance of employees’ pay cheques.

6. Whether or not Kniewasser actually had the authority to act as Sales Manager after September 1997 there is no doubt that he played an active role with respect to Noivo’s employment as a sales representative beginning late in 1997. He and Noivo had conversations about the company’s sales expectations beginning in November 1997, and certainly by February 1998 Kniewasser had begun to express concern that Noivo was not generating enough sales to justify the amount of his salary. These discussions were complicated by ongoing tension over the question of whether or not Ruel still had any authority over Noivo’s employment, and by Noivo’s apparent loyalty to her. In particular, Noivo claims that while Kniewasser was expressing concern to Noivo about his work and suggesting that his salary might not be continued without an improvement, Ruel was telling him that he had nothing to worry about and that she wouldn’t permit a termination of his base salary. In February Noivo met with both Kniewasser and Ruel, but this “standoff” continued.

7. On February 17, 1998 Kniewasser delivered to Noivo a letter demanding that he provide, by February 20, 1998, a “properly documented estimate of when and how your commission income will equal or exceed your present draw of $2500", on pain of termination should he fail to do so. In the same letter Kniewasser stated that “If you are not prepared to demonstrate to me that your commission income will equal or exceed your draw starting in February 1998, then your draw will cease effective February 1".

8. Noivo and Kniewasser met on February 19 and the employee did provide sales projections, but Kniewasser was of the view that they were not properly supported and demanded that Noivo provide additional information. Ruel also attended that meeting uninvited, and advised that she was taping the discussions on her lawyer’s instructions.

9. On March 12, 1998 Kniewasser delivered a further letter to Noivo together with his pay cheque which was for a much smaller amount than usual. That letter is titled “Termination of Employment at Reliable Laser Products Inc.”, and states that “your draw has ceased effective February 15, 1998 ... henceforth, if you decide to stay with Reliable, you will be paid on a commission basis only. I request that you meet with me immediately so that we can finalize your commission rate.”

10. Noivo and Kniewasser had no further discussions about the situation before March 30, 1998, when Noivo indicated that he had made a complaint to the Ministry of Labour about the unpaid wages. However, on March 19 the lawyer acting for Ruel sent a letter to the lawyer acting for Danguillier , confirming that she had exchanged correspondence with Kniewasser about two issues, including Noivo’s employment status. Kniewasser acknowledges that he had contact with Ruel’s lawyer about his treatment of Noivo. The letter dated March 19 reviews the events of February, including the meeting between Ruel, Kniewasser and Noivo on February 19 at which sales targets were discussed, and responds to the letter dated March 12 with the following statements:

... In that context, Mr. Kniewasser’s subsequent letter of March 12 (enclosed) to Mr. Noivo is surprising and disturbing. Mr. Kniewasser purports to pay Mr. Noivo “commission” on the basis of a structure which, according to his own letters, has never been finalized or agreed on. He has “terminated” Mr. Noivo’s salary “for cause”. This sort of retrospective amendment of an employee’s employment contract is unacceptable. The actions taken by Mr. Kniewasser leave Reliable in the position where it is likely to be made a Defendant in an action commenced by its employee Mr. Noivo. ...

In these circumstances, I believe Ms. Ruel intends to request that a cheque be delivered to Mr. Noivo on March 20 which will provide him with the balance of the net pay he should have received on March 13. ...

DECISION OF THE EMPLOYMENT STANDARDS OFFICER

11. After holding a fact-finding meeting the Employment Standards Officer refused to issue an Order to Pay in respect of the employee’s claim for unpaid wages and vacation pay. The employee’s claim for unpaid commissions, and for an unauthorized deduction from wages, was acknowledged by the employer and these amounts were subsequently paid.

12. The officer concluded that effective February 13, 1998 Noivo became a commission salesperson within the meaning of Regulation 325, clause 3(1)(h) of the ESA, which provides as follows:

13. (1) Parts IV, V, VI, VII and VIII of the Act do not apply to a person employed,

(h) as a salesperson, other than a route salesperson, who is entitled to receive all or any part of his or her remuneration as commissions in respect of offers to purchase or sales of goods, wares, merchandise or services and which offers or sales are normally made at a place other than the place of business of the employer; or

13. As a result, the officer determined that there was no entitlement to vacation pay or an ability to make a claim for unpaid wages.

14. The officer also considered the circumstances of the employee’s departure from the workplace, noting that he quit on May 1, 1998, sometime after he was advised that his remuneration was being changed from wages to straight commission. The officer concluded that by continuing to work after February 13, 1998, the employee had accepted the change in the terms and conditions of his employment, presumably negating any possible claim for constructive dismissal.

THE DECISION

15. I must first consider whether as a salesperson Noivo was exempt from the minimum wage, hours of work and vacation pay provisions of the ESA as a result of Regulation 325, clause 3(1)(h) which is reproduced above.

16. There is no question that a large part of Noivo’s duties were as a salesperson, operating at a place other than the place of business of the employer, although he also performed numerous other, albeit related, duties. However, he was paid wages, rather than commission, until March 12, 1998, when the employer purported to retroactively alter his employment status to that of a commissioned salesperson effective February 15, 1998.

17. There was some suggestion that this change was contemplated by the parties due to earlier discussions about a transition to a commission structure, and that Noivo therefore had notice of the change before March 12, 1998. While such a change had been discussed as far back as Noivo’s date of hire, it had always been contingent on a new commission structure being formally adopted and approved. In more recent correspondence Kniewasser clearly threatened that a change would be forthcoming if Noivo was unable to justify the level of his salary based on sales, but he did not confirm the amount of commission which would be set, or obtain the employee’s approval to such a change.

18. Having regard to the facts relating to this change, which are reviewed in some detail above, I find that Noivo was not a salesperson “entitled to receive all or part of [his] remuneration as commissions in respect of offers to purchase or sales of goods ...” until March 12, 1998 at the earliest. Until that date, he was clearly employed on a monthly wage, and the employer was not entitled to unilaterally amend the terms and conditions of his employment retroactively so as to disentitle him from the payment of wages for the period February 13 to March 12, 1998. I find therefore that the employer is required to pay to the employee one month’s wages, for the period February 13 to March 12, 1998, less any commissions paid for that period.

19. It appears that the employee was paid $713.41 for commission sales for the month of February, and $604.58 for the month of March. The former amount should be deducted in its entirety from the salary I have found owing, as pursuant to the terms of the former arrangement Noivo would not have been entitled to any commission had he been paid his salary for the entire month of February. I cannot say for certain what portion of the March commission might have been earned after Noivo was advised of the change in the terms of his employment from wages to commission, on March 12, 1998, but will presume that half of the total may accrue from that period. As a result, I find that the employee is owed $2500.00 for one month’s salary, minus $713.41 paid to him as commission in February, and $302.29 paid to him as commission in March, for a total of $1484.30 in unpaid wages.

20. The second issue which is raised by the facts described above is that of constructive dismissal. The letter sent by the employer to the employee on March 12, 1998 clearly constitutes a fundamental change in the terms and conditions of his employment, as his wages are eliminated and he is required henceforth to work on straight commission. Interestingly, the subject line of that letter is “Termination of Employment at Reliable Laser Products Inc.”.

21. The employer argued, and the Employment Standards Officer apparently accepted, that the employee had waived any right to assert that the employer’s actions constituted a constructive dismissal by continuing to work as a salesperson on commission after his salary was withdrawn. The officer referred in the narrative report to the employee having continued to work after February 13, 1998. In fact, the employee was not notified of the employer’s retroactive alteration of his status until March 12, 1998, so that is the earliest date on which he could have acted in a way which might constitute condonation.

22. While he did continue to work for the company after receiving Kniewasser’s letter, Noivo at no time indicated any acceptance of the company’s change in the structure of his remuneration, either orally or in writing. And by March 19, 1998, only a few days after he was notified of the change, Noivo’s objections to the change were made clear to the employer through the lawyer acting for Ms. Ruel in the ongoing struggle for control of the company. In a letter dated that day, counsel confirmed an earlier exchange with Kniewasser about Noivo’s situation, and stated that “this sort of retroactive amendment of an employee’s employment contract is unacceptable” and “the actions taken by Mr. Kniewasser leave Reliable in the position where it is likely to be made a Defendant in an action commenced by its employee Mr. Noivo”.

23. While these representations were not made directly by Mr. Noivo, clearly they were advanced on his behalf, and constituted a direct statement to the employer that the employee was not consenting to the change in the terms and conditions of his employment. His dissatisfaction was confirmed by his decision to quit effective May 4, 1998, approximately six weeks after the change to his pay structure was unilaterally implemented by the employer.

24. These facts establish all the ingredients of a constructive dismissal by the employer, and in the circumstances I have concluded that the employee is entitled to termination pay in lieu of notice pursuant to section 57 of the ESA. As Mr. Noivo was employed by the company for just over one year, he is entitled to one week’s termination pay, in the amount of $625.00.

DISPOSITION

25. The Application for Review is allowed and the officer’s refusal to issue an Order to Pay is set aside. Reliable Laser Products Inc. is hereby ordered to pay to Danny Noivo:

(i) $1,484.30 in respect of unpaid wages for the period February 13 to March 12, 1998;

(ii) $625.00 in respect of termination pay;

(iii) 4% vacation pay on the total amount of $2,109.30.

26. Reliable Laser Products is further ordered to make all applicable statutory deductions from these monies.

“Pamela A. Chapman”

for the Board