3198-00-ES Hampton Securities Ltd., Applicant v. Barry Epstein and Ministry of Labour, Responding Parties.
Employment Practices Branch File No. 32006996
BEFORE: Mary Ellen Cummings, Alternate Chair.
APPEARANCES: John Melia and Peter Deeb for the applicant; Barry Epstein appearing on his own behalf; Karen Northey for the Ministry of Labour.
DECISION OF THE BOARD; June 21, 2001
This is an employer appeal of an Order to Pay wages.
The facts are not much in dispute. Mr. Epstein was a broker, employed at Hampton Securities Inc. (the employer) from April 1, 1999 to August 8, 2000. At the time Mr. Epstein was terminated, the employer withheld $10,280.00 from his commissions. Mr. Epstein considers those monies to be his commission, and so part of his wages. The employer asserts that the amounts are not wages, but an expense that the employer was entitled to deduct before determining the “wages” payable.
The $10,280.00 amount withheld was to cover a bad debt of one of Mr. Epstein’s clients. The employer’s President and Chief Executive Officer, Peter Deeb, testified that it is a common and well-accepted practice in their industry to deduct from commissions a range of expenses, including bad debts. Mr. Deeb was asked whether this industry practice had been discussed with Mr. Epstein on hiring. Mr. Deeb could not say that there had been a specific discussion; both he and Mr. Epstein testified that the focus of the discussion had been on Mr. Epstein’s business goals and how they might fit with the entrepreneurial approach of the employer. Mr. Deeb believed he conveyed to Mr. Epstein that the company operated in accordance with general industry practice, which included, in Mr. Deeb’s mind at least, deducting bad debts from commissions. Mr. Epstein recalls no such discussion, general or otherwise.
It is agreed, however, that Mr. Epstein and Mr. Deeb had a discussion about how Mr. Epstein’s commissions would be calculated. Mr. Epstein was entitled to half the gross commissions of his trades, subject to a $20.00 fee for each trade.
The demise of the relationship came when one of Mr. Epstein’s clients failed to honour a margin call. The client, Mr. Deeb testified, then complained that the account had been managed contrary to his instructions. Mr. Epstein was terminated. The employer entered into a settlement with the client to resolve the complaint, which resulted in the employer paying the client $10,280.00
To be clear, Mr. Epstein denied all wrongdoing, but also appreciated that the hearing concerns the commissions deducted, not whether he was properly terminated.
Although the employer relies principally on its argument that the $10,280.00 not paid to Mr. Epstein was an allowable expense it could deduct, as an alternative argument, it submits that Mr. Epstein agreed that the amount could be deducted from his wages. The basis for that argument is an e-mail sent by Mr. Epstein to Mr. Deeb at the point where the client had provided a cheque for which there were insufficient funds. The e-mail reads:
As discussed the above client will be coming in with a post-dated cheque to cover the offside amount in his account. On Friday, I will go to said clients bank to certify the cheque so there is no possibility of bouncing. Should there be any problem in certifying the cheque, securities can be sold out of the clients account to cover the margin. If there exists any unsecured position in the account after this, I take full responsibility for the debt and will absorb said costs out of pocket. I trust there will be no problems.
- Counsel for the employer submitted that this was a sufficient authorization of the employee to entitle the employer to deduct the debt from his wages.
Decision
It is important to remember what issue I am to decide. I am not deciding if Mr. Epstein owes a debt to his employer. I am not determining if the financial services industry has a “practice” of requiring brokers to “make good” on the debts of their clients. I am determining a much narrower question; assuming Mr. Epstein was required to “make good” on client debts, was the employer entitled to deduct the amount from his commission payments.
“Wages” is defined in section 1(1) of the Employment Standards Act as follows:
In this Act,
"wages" means any monetary remuneration payable by an employer to an employee under the terms of a contract of employment, oral or written, express or implied, any payment to be made by an employer to an employee under this Act and any allowances for room or board as prescribed in the regulations or under an agreement or arrangement therefor but does not include,
(a) tips and other gratuities,
(b) any sums paid as gifts or bonuses that are dependent on the discretion of the employer and are not related to hours, production or efficiency,
(c) travelling allowances or expenses,
(d) contributions made by an employer to a fund, plan or arrangement to which Part X of this Act applies;
The provisions with respect to set off from wages are found in section 8 of the Act, and in section 14 of Regulation 325 to the Act.
Except as permitted by the regulations, no employer shall claim a set-off against wages, make a claim against wages for liquidated or unliquidated damages or retain, cause to be returned to the employer, or accept, directly or indirectly, any wages payable to an employee.
(1) Despite section 8 of the Act, an employer may set off against, deduct from, claim or make a claim against or retain or accept the wages of an employee where,
(a) a statute so provides;
(b) an order or judgment of a court so requires; or
(c) subject to subsection (2), a written authorization of the employee so permits or directs.
(2) No written authorization of an employee shall entitle an employer to set off against, deduct from, retain, claim or accept wages for faulty workmanship, or for cash shortages or loss of property of the employer where a person other than the employee has access to the cash or property.
(3) Where an employee has been given or paid a vacation with pay or payment for vacation in excess of the requirements of Part VIII of the Act, no employer shall set off or deduct such excess against or from any vacation with pay, pay for vacation, or payment under section 30 of the Act.
Counsel for the employer submitted that the client debt was an expense, like any other, such as secretarial, client entertainment, technology costs etc. that brokers see deducted from their commissions. In counsel’s view, then, the client debt was not deducted as an improper form of set off from wages, but was an allowable expense to be factored into the calculation of “wages”. Counsel agreed that the consequence of such a conclusion was that an employee could end up with a “negative” wage, as happened in this case; the deduction of the bad debt reduced Mr. Epstein’s commission to zero.
Counsel for the Ministry of Labour submitted that this analysis was an inappropriate means to defeat the provisions limiting an employer’s ability to make set offs from wages. I agree. In my view, the definition of “wages” does not support the analysis submitted by the applicant. Although “expenses” are excluded from the definition of wages, it does not follow that wages are a product of monies earned, less expenses incurred. To make such a conclusion would permit, as counsel for the Ministry of Labour submitted, employers to make all kinds of “expense” deductions, thereby avoiding the express prohibition against set off. It is useful, at this point, to recall why employers are not permitted, except in proscribed circumstances, to make set offs. The reason for such limits is well set out in Jermark Plumbing and Mechanical Services (September 24, 1992, ES 161/92, Muir) at page 2:
The language of the Act is clear; deductions from wages are prohibited. The justification for this strict rule is equally clear: an employer, because of its control over the workplace and more particularly control over payroll, should not be both prosecutor and judge in disputes with an employee. An employer who considers that an employee owes it money has recourse to the civil courts for redress, however the Act prohibits that employer from deciding that the employee is guilty and then deducting the amount in question from wages.
The very mischief that the Adjudicator/Referee discussed is present in this case. The employer determined unilaterally that the bad debt was the fault of Mr. Epstein, and took its remedy, in the form of Mr. Epstein’s wages. Again, I am not determining that there is no debt; I am only concluding that the employer’s method of “collecting” that debt is a violation of the Act. The employer may well have a civil remedy, but it is not entitled to use its power as an employer to bypass due legal process.
Turning finally to the employer’s alternative argument that Mr. Epstein authorized the deduction by sending the e-mail set out above, I find that the memo does not provide anywhere enough particularity to support such a finding. The memo does not in any way direct the employer to use Mr. Epstein’s wages to pay the debt, nor is the amount involved indicated. At best, the memo indicates a willingness on Mr. Epstein’s part to take on some liability, in the event that the client does not make the payment and in the event that sale of the client’s securities does not satisfy the full amount of the indebtedness.
Disposition
- For the reasons set out above, the application for review is dismissed. The Order to Pay is affirmed. The Director, Employment Standards, is directed to pay out the monies held in trust, and any interest thereon, to Mr. Epstein as soon as practicable.
“Mary Ellen Cummings”
for the Board