SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-13-472372
DATE: 2013/09/19

RE: Ian Vaudry v. Commerx Computer Systems Inc.

BEFORE: Moore J.

COUNSEL:
Caroline Ursulak, for the Plaintiff/Applicant

Ernest Coetzee, for the Defendant/Respondent

E N D O R S E M E N T

[1] This is an application by the applicant, Ian Vaudry (“Vaudry”), for a judicial interpretation of the rights of the parties pursuant to an employment contract dated March 9, 2011 between Vaudry and Commerx Computer Systems Inc. (“Commerx”).

[2] Vaudry seeks the balance of severance money payable at the time Commerx terminated his employment.

[3] Vaudry began working at Commerx on May 5, 2009 in the position of president. He reported directly to the chief executive officer and chairman of the company.

[4] On or about July 3, 2009, he was presented with a draft employment contract (“the contract”) prepared by Commerx. Initially, the parties did not agree to all of the terms in the contract. Discussions followed.

[5] In January 2010, a final version of the contract was agreed upon. Vaudry executed the contract on March 9, 2011. Certain terms were made retroactive to July 1, 2009. Going forward, he was entitled to payment of a base salary of $150,000 year. In addition, he was entitled under the contract to certain other allowances and benefits and entitled to payment of "earned commissions" based on the company's net profits.

[6] It is common ground that Vaudry had no ownership or equity position in Commerx. Other than how they affect his commissions, he was not legally or financially responsible for net losses and nor did he benefit from net profits.

[7] The contract provided, in paragraph 5(ii)(c) that as of January 1, 2011 Vaudry would be entitled to payment for earned commissions to be paid on a quarterly basis equal to 30% of the company’s profit, to be paid within 30 days of the end of the company’s fiscal quarter. If his employment was terminated before the end of the quarter, this provision entitled Vaudry to earned commissions for that quarter on a pro-rata basis.

[8] Paragraph 6(i) of the contract spoke to termination rights and obligations. It enabled Commerx to terminate Vaudry’s employment at any time, without just cause, upon paying him 12 months’ pay based on his base salary and average annual commission calculated over the last three completed years of employment. These monies were to be paid in a single lump sum and were to be inclusive of any entitlements he may have to termination pay, severance pay and vacation pay, or any other statutory remuneration called for by the Ontario Employment Standards Act, 2000.

[9] By email dated February 2, 2011, Vaudry wrote Commerx to clarify the terms of how earned commissions would be calculated each quarter. He specifically agreed and confirmed thereby that if there is a net loss, according to his agreed net profit calculations for commission purposes for any quarter, Vaudry accepted that the net loss would be carried forward to his net profit calculations for the next quarter.

[10] Vaudry remained employed as company president until his termination without cause on September 24, 2012. While employed, his earned commissions were directly tied to the net profit and loss positions accomplished by Commerx. As president, he was responsible for the overall profit and loss positions realized by the company, of this there is no dispute in this matter.

[11] The dispute arises as to entitlement to commissions as at the point of termination. As the Commerx fiscal year ended on June 30, Vaudry was paid $143,686.21 in earned commissions from September 25, 2009 to December 31, 2011. It is not disputed that Vaudry’s share of Commerx net losses incurred in the third and fourth quarters of 2012 amount to $70,485.90.

[12] The parties agree as well that Vaudry was entitled to commissions of $6,373.47 for the first quarter of 2013 and that the total amount of Vaudry’s overall earned commissions during the last three years of his employment is $79,573.78, resulting in an annual average commission of $26,524.59.

[13] Commerx has actually paid Vaudry $176,524.59, a figure calculated to represent his base salary and his average annual commission over the three last years plus a further $5,400 in lieu of benefits. Commerx insists that it owes Vaudry nothing more. Vaudry seeks further commission income of $34,319.41.

Positions of the Parties

[14] Vaudry submits that the language of the contract is clear. The calculation of termination of employment entitlements is backward looking and the only figures relevant for the calculation are the amounts paid and received in the previous three years. The contract does not articulate a rationalization of past losses against past payments of salary or commissions as they relate to severance pay.

[15] Vaudry insists that the contract speaks of payment of earned commissions on a pro-rata basis but not of repayment based on company losses. He insists that to read the contract otherwise could be inherently unfair to the employee who has no control over the timing of termination and could be open to manipulation by the employer which could exercise its right to terminate following a spike in losses thereby allowing it to recoup all previous commissions earned by the employee.

[16] As well, Vaudry asserts that allowing the employer to reach back based on pre-termination losses is unfair since the employee is deprived of any opportunity to earn future commissions to offset his/her share of such losses against.

[17] Vaudry submits that his email does not address termination rights but the contract does so in clear and unambiguous language such that the severance payment is not to be calculated with reference to prior losses.

[18] Commerx submits that it is important to note that while Vaudry did not have an ownership stake in Commerx, his earned commissions were directly tied to the company’s net profit and loss; as such, he was expected to benefit when the company earned a net profit and he was expected to share in the loss when Commerx suffered a net loss. As company president, Vaudry was ultimately responsible for the overall profit position of the company.

[19] Commerx asserts therefore that Vaudry’s responsibility for and acceptance of fiscal responsibility for net profit and net loss requires an interpretation of the termination provisions of the contract that takes into account the third and fourth quarter losses in 2012.

[20] Commerx points out that it is not asking that commissions paid Vaudry prior to termination be paid back but only that forward looking income entitlement at the time of termination be calculated with reference to outstanding losses in the two relevant quarters of the last fiscal year.

[21] Commerx asserts that to ignore these losses would be inherently and commercially unfair to Commerx and would bestow an unjust enrichment on Vaudry that would not accord with the contract.

[22] Commerx insists that it is only because Vaudry was given the cash flow benefit of not having to pay for his fair share of Commerx losses on the spot that this issue has now arisen. This benefit bestowed on Vaudry does not eliminate the fact that the losses occurred and does not change his actual earned commission amount for purposes of calculating his termination pay.

[23] Commerx submits that the funding arrangement under the contract for commissions from a given fiscal period produces the result that Vaudry is overpaid when losses occur. Nevertheless such losses occurred during his watch. It is argued that it is only reasonable and commercially sound to consider such losses as part of the bona fide calculation of termination pay.

[24] Commerx insists that losses suffered must be factored in to the calculation of “average annual commission calculated over the last three years” as stated I the contract, provided those losses occurred over the last three completed years. Commerx submits that in the circumstances of this case and consistent with the contract, “earned” commissions are not the same as paid commissions.

Analysis

[25] I accept that the contract was fully negotiated by sophisticated parties over an extended period of time with the assistance of legal counsel. This is not a case calling for the application of the rule of contra proferentem on that basis. Further, I find the language of the contract to be clear and that the parties honoured its spirit and terms throughout the term of Vaudry’s employment and, for the most part, thereafter.

[26] The circumstances that give rise to this claim are unique in that the two periods of losses in fiscal quarters were isolated and occurred relatively recently before the termination event. There is no suggestion or evidence supporting Vaudry’s stated concern that an employer might manipulate the timing of termination to the disadvantage of the employee being a factor motivating Commerx in this case.

[27] The evidence is clear and consistent with the contract that Vaudry understood and operated at all times under the belief that reference to “annual commission” in paragraph 6(i) of the contract refers to “earned commissions” based on net profit earnings at Commerx.

[28] The contract did not speak of “paid commissions” at all. Vaudry accepts that he was the most important person at Commerx in relation to the bottom line efficiency of the company. He further accepts that his share of the third and fourth quarter losses in 2012 was $70,485.90, being 24% of Commerx’ overall losses in those quarters. But for the termination of his employment, those losses would have been factored into the calculation of Vaudry’s “earned commissions”.

[29] Put another way, Vaudry agreed in his cross examination evidence that he would agree to take responsibility for such losses as president of the company as it relates to his future income. So the question becomes: is the termination pay future income. In my view, it is.

[30] The termination payment is calculated as a lump sum payment to be made upon termination. It becomes income in the terminated employee’s hands from and after termination. This interpretation is one consistent with the language of the contract.

[31] In Morgan[^1], this court endorsed the proposition that commercial contracts must be construed having regard for sound commercial principles and good business sense that will avoid any resulting commercial absurdity.

[32] It tortures the language of this contract and offends commercial principles and good business practices to find that Vaudry should undertake responsibility and accountability for the financial performance of the company throughout the term of his employment and walk away from that responsibility with a windfall from leaving Commerx to bear the entire cost of losses that occurred on his watch.

[33] In the result, Commerx is not obliged to pay Vaudry any further amount arising from the termination of his employment beyond that which Commerx has already paid him.

[34] The parties having agreed to the costs to be awarded depending on the outcome of this application, Commerx shall recover its costs fixed at $7,500.

Moore J.

DATE: September 19, 2013

[^1]: Morgan v. John Bear Pontiac Buick Cadillac Ltd., (2010) ONSC 6231