CITATION: Bakshi v. Global Credit, 2016 ONSC 4610

COURT FILE NO.: CV-12-466367-CP

DATE: 2016-11-10

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Sachin Bakshi, Plaintiff

AND:

Global Credit & Collection Inc., Defendant

Proceeding under the Class Proceedings Act, 1992

BEFORE: Justice Edward P. Belobaba

COUNSEL: Kenneth Alexander and Henry Juroviesky for the Plaintiff

David Milosevic and Caroline Garrod for the Defendant

HEARD: July 14 and 15, 2016, and written submissions

SUMMARY JUDGMENT ON COMMON ISSUES

Overview

[1] Global Credit & Collection Inc. (“Global”) is a debt collection company. Banks and credit card companies hire Global to track down and collect their accounts receivable. In 2011, Global’s largest client, accounting for almost half of its revenue, was Capital One.

[2] On June 1, 2011, Capital One terminated its collection agreement with Global. The next day, Global laid off some 368 employees, including 324 debt collection employees. Given the size of the Capital One account, Global was concerned that it would not survive. As it turned out, the company persevered, and about seven months later, almost all of the laid-off employees were recalled and back at work.

[3] In the days following the termination, Global and Capital One entered into a settlement agreement. Capital One paid Global $5.7 million “to resolve any and all existing and potential disputes between them ... including any claims of disparagement, unlawful competition, defamation, libel and/or slander.”[^1]

[4] The plaintiff, Sachin Bakshi, one of the debt collectors who did not return to work, brought a class action claiming that the $5.7 million payment was compensation for the post-dated cheques that were returned to Capital One when Global was terminated. The class members say they are contractually entitled to a 15 percent commission on the $5.7 million settlement payment, or about $850,000, plus punitive damages.

[5] The proposed class is defined as:

All persons who were employed by Global and engaged in Capital One collections on June 2, 2011 and were eligible to receive but did not receive commissions under Global’s commission structure.

[6] The action was certified last year on consent as a class proceeding.[^2]

[7] The defendant now moves for summary judgment on the common issues (set out in the Appendix) asking, in essence, that the class action be dismissed. The representative plaintiff brings a cross-motion for summary judgment asking that the common issues be answered in favour of the class.

[8] The class action turns on the interpretation of the evidence relating to the settlement agreement and the defendant’s commission structure, including whether the collection staff was entitled to commissions on post-dated collections that were in essence “cashed” after the collection staff was “temporarily” laid off.[^3]

[9] Both sides agree that the common issues can be decided on these cross-motions for summary judgment. I do as well. The numerous affidavits and cross-examination transcripts, together with the detailed factums and follow-up written submissions, provide more than a sufficient evidentiary base for a fair and proper determination of the common issues, none of which require a trial.[^4]

[10] The evidentiary record is extensive – each side filed numerous affidavits and conducted extensive cross-examinations. Although some case law was argued when the cross-motions were heard, the primary focus was factual – the structure of the defendant’s “commission deal” as it was understood and accepted by the collection staff and the rationale or reason for the settlement payment. On both points, there was considerable disagreement. However, given the detailed nature of the evidence and a judicious use of common sense, I was comfortably able to make the important factual findings on a balance of probabilities. I am satisfied that these findings best reflect what both sides understood and accepted as fair and reasonable.

Decision

[11] For the reasons set out below, the common issues are answered in favour of the defendant. The plaintiff’s characterization of both the impugned settlement payment and the scope and content of the defendant’s commission structure are contrary to the preponderance of the evidence and common sense. The claim that further commissions are owing or that the class member-debt collectors are entitled to a portion of the $5.7 million settlement payment does not succeed. The class action is dismissed.

Global’s debt collection business

[12] Global currently employs just over 300 debt collectors who work on assigned “desks” or “accounts” to locate and persuade reluctant debtors to pay all or part of the amount owing, typically by remitting post-dated cheques.

[13] Collection staff is compensated with a salary and an opportunity to earn commissions. The salaries that are paid to collection staff are significant. During the time in question, the representative plaintiff, Bakshi, was paid a salary of about $38,400. His co-workers and co-affiants, Curalli, Price and Manorath, were paid $48,000, $52,000 and $60,000, respectively.

[14] The commission structure is based on two broad propositions: commissions are paid when Global is paid, and commissions are paid when a pre-assigned “breakeven” is exceeded. Let me explain each of these points in turn.

[15] First, commissions are paid when Global is paid. No collection agency would bind itself to pay employee commissions on amounts that they themselves have not earned as fees from the client. Global receives a service fee (or commission) ranging from 15 to 20 percent for the collections that are made, “cashed” and remitted to the client. The more Global can collect and cash, the more it will be paid by the client and the more it can pass on to its collection staff. But only if Global is paid first.

[16] Second, there is the “breakeven” requirement. To incentivize their collections staff, Global offers a monthly “commission deal” that is set out in a short memorandum to the employee on the first day of the month. The commission agreement, in essence, assigns an individual “breakeven” number, which is a multiple of the debt collector’s monthly salary and provides for a 15 percent commission “on all monies exceeding your breakeven.”

[17] The breakevens that are individually assigned by management to the debt collectors generally range from three to five times their monthly salary. The typical breakeven is three times monthly salary. Thus, if Mr. Bakshi’s monthly salary were, say $3,200, then his “three times monthly salary” breakeven for the upcoming month would be $9,600. If Mr. Manorath’s monthly salary were $5,000, his assigned breakeven would be $15,000.

[18] All cheques or post-dated cheques that are collected and payable in that month go toward building up the debt collector’s assigned breakeven. Once the breakeven is reached, the debt collector is paid a 15 percent commission on the amount collected over the breakeven. If a post-dated cheque is returned NSF, that amount is deducted the next month. At the start of every month, the process begins anew. The focus is on monthly productivity. As Mr. Manorath, a seasoned debt collector, explained: “In this game that we play called collections on a 30-day cycle, it’s all performance based.”

[19] The monthly commission structure at Global is common to the collection industry. If a debt collector exceeds a pre-assigned monthly threshold, he or she can add another one or two thousand dollars (sometimes more) to the monthly pay cheque. But not every debt collector will clear his or her breakeven. Only a fraction of the debt collectors have the skill or the experience to earn commissions. One of the plaintiff’s co-workers testified that about 20 percent of the debt collectors earn commissions. Another indicated that the portion was about a third. The point is this: the number of debt collectors that exceeded their breakevens and were paid commissions was not large, at most a third.

[20] The collection staff understood and accepted that the breakeven was designed primarily to cover the debt collector’s salary and overhead, provide some profit margin to Global and generally incentivize the collections staff to increase their productivity. They also understood and accepted that the breakeven could change monthly, depending on a range of factors: the nature of the account that was being worked, including the difficulty in collectability; changing currency rates or economic conditions; and changing internal financial realities, including the ongoing profitability of the company. As the plaintiff himself acknowledged, “[Global’s] got to make their margins too, right?”

[21] The collection staff also understood and accepted, as the monthly “commission deal” memo made clear, that commissions could be reduced or eliminated entirely if there were problems with NSF’s, regulatory violations or non-compliance with departmental work standards.

[22] In short, it was understood and accepted that the commission deals were inherently discretionary. At the bottom of the monthly breakeven memo, the debt collectors were reminded of this in bold print:

All Commission Deals Are Subject to Change. Payment or entitlement to commission or bonus payments is completely discretionary and the responsibility of the manager. No entitlement to commission or bonus exists for any employee and funds paid are not salary or wages for any employee.

[23] I should pause here to make two points about this bold print provision: one, the law is clear that contractual discretion is not untrammeled and must be exercised reasonably;[^5] and two, contrary to the last sentence just quoted above, earned commissions are wages under provincial employment law and must be paid.[^6]

[24] Here, however, there is no complaint that the “breakeven commissions” were not reasonable or were not paid. The complaint is that no commissions were paid on the post-dated collections that were returned to Capital One and were effectively “cashed” after the class members were laid off. This complaint rests on two submissions:

(1) that Global was contractually required to pay commissions, absent breakevens, to debt collectors for post-dated cheques that were “cashed” after they were moved to another account or went on an extended vacation or took maternity leave – and if so, then it follows that commissions on post-dates should also be paid to the debt collectors who were temporarily laid off; and

(2) that the $5.7 million settlement payment was intended by the parties as compensation for the post-dated collections that were returned to Capital One on termination and, in essence, reflected their monetized or “cashed” value.

[25] In my view, neither submission has been established on the evidence before me.

Two key findings

(1) No requirement to pay commissions if the breakeven is not cleared

[26] Under s. 11(1) of the Employment Standards Act,[^7] Global is required to “pay all wages earned during each pay period”. “[W]ages” are defined to include commissions and bonuses if paid with regard to productivity.[^8] No employer can contract out of these statutory protections.[^9] Thus, Global is required to pay all commissions earned during each pay period.

[27] There is no dispute that how and when commissions are “earned” depends on the terms of the employment contract or commission agreement or, in this case, the “commission deal.” There is also no dispute that under the monthly commission deal, commissions were earned and paid if and only if the assigned breakeven was exceeded.

[28] Thus, any post-dated collections that were still in queue (because the debtor typically remits 12 to 36 post-dated cheques) and that were “cashed” in subsequent months were credited to the original debt collector only if he or she was still working the account. Post-dated collections typically needed additional work or follow-up to make sure that the debtor hadn’t changed bank accounts and there were sufficient funds in the account to pay that month’s commitment. Also, as already noted, as long as the debt collector was working the account, Global could adjust the breakeven to accommodate monthly currency or market fluctuations or company profit-margin concerns, and thus retain an accepted measure of control over the commission payments.

[29] As Mr. Esteves, an experienced industry representative explained, collection agencies would not survive if they were required to pay unadjusted commissions on post-dated payments that cashed after the debt collector was no longer working at the agency. Post-dated payments can be promises to pay that extend over 18 months or more. It would simply not make economic sense, said Esteves, for an agency to commit to paying commissions on these payments to departed employees well into the future.

[30] There is evidence that on occasion, a manager in his or her discretion would allow a debt collector to carry his post-dates to a new account or would assign a zero breakeven or even pay a bonus in recognition of the post-dates that were left behind. But this was not a regular or expected practice. Nor was it contractually required. According to the plaintiff, debt collectors who were moved to another account could lose all their postdated payments and get a “zero dollar commission cheque.” It all depended on the manager. As the plaintiff explained, “It all comes down to management’s discretion.”

[31] The collection staff understood and accepted the role of the breakeven in the payment of commissions. The role required the debt collector to be working the account, getting the collections and clearing the monthly breakeven. On this point, both sides agreed:

Collector Manorath: “You can’t make money if you are not collecting your breakeven.”

Collector Curalli: “A bill collector always expected to be paid, if targets were met …”

Global CEO Elmalem: You only got commissions on cheques cashed while you are employed “provided [you] were above [your] breakeven of course.”

[32] In short, I find on the evidence before me that the only “commission deal” was the breakeven commission deal and that the plaintiff’s first submission – that Global was obliged to pay commission on post-dates that were “cashed” after the debt collectors were laid off and did not make their breakeven – has not been established and does not succeed.

(2) The $5.7 million settlement was not compensation for the post-dates

[33] I also find on a preponderance of the evidence that the $5.7 million settlement payment was not intended by the parties as compensation for the post-dates that were returned to Capital One on termination. Rather, and in all likelihood, it was a settlement of a potential damages claim for “extraordinary expenses” and defamation that Global was actively considering.

[34] Let me explain.

[35] Within moments of the Capital One telephone call that terminated the services agreement with Global on June 1, 2011, rumours began to circulate both at Global and within the collection industry that the company had been terminated for wrong-doing (for clipping or doctoring the phone call samples that Global was obliged to submit to Capital One for its review). Global’s Chairman came to believe that some of these rumours were emanating from Capital One itself. As a result, Global’s CEO contacted Capital One, threatening legal action to recover some $8 million in wasted expenditures relating to the Capital One account and significant damages for defamation. Within a matter of days, Capital One agreed to pay a $5.7 million settlement and issue a formal letter making it clear that Global had been terminated “for convenience” and not because of any “illegal collection activities.”

[36] The letter, backdated to June 1, noted that although Capital One “strongly believes” that it had sufficient basis to terminate the Global agreement for cause, “Capital One has elected to terminate [the agreement] for convenience”.[^10] The effective date of termination was July 1. However, under the services agreement, Global was required to return all of the Capital One post-dated collections immediately and it did so.

[37] The $5.7 million settlement agreement was dated June 20, 2011. The preamble made clear that the Global services agreement was being terminated “for convenience”. The preamble also noted that the parties wanted “to resolve any and all existing disputes and potential disputes between them.” The mutual release provision explicitly referred to the release and discharge of all claims, including “any claims of disparagement, unlawful competition, defamation, libel and/or slander.”[^11]

[38] The “consideration” provision, and the one that the plaintiff relies on, provided that Capital One would pay $5.5 million “for US Card payments” and $175,000 for “Canadian payments”, for a total of $5,675,000 (or in these reasons, $5.7 million). This statement, says the plaintiff, proves that the entire $5.7 million payment was intended as compensation for the post-dates that were returned on termination and that the class members are owed a 15 percent commission on this settlement amount.

[39] I do not agree.

[40] In my view, the plaintiff has not shown on a preponderance of the evidence that the settlement payment was intended by both parties, Capital One and Global, as compensation for the returned post-dates. Neither the overall content of the settlement agreement nor the surrounding circumstances support the plaintiff’s characterization. I say this for the following eight reasons:

(i) It is beyond dispute that under the services agreement, Capital One was not contractually required to make any payment for the returned post-dates. Indeed, in the June 24, 2016, letter providing clarification of the June 20, 2011, settlement agreement, Capital One noted that it was “not legally obliged” to pay Global for the returned post-dated collections.

(ii) There is no evidence that the returned cheques, which were made payable to Global, had any further value. Indeed, there is some evidence that the returned post-dates were destroyed.

(iii) Global returned about $83 million in post-dates on termination. Global’s service fee or commission, had the cheques “cashed” in the normal fashion, would have been about $22 million. If Capital One was obliged to compensate for the returned post-dates (it was not), it is highly unlikely that Global would have agreed to a mere $5.7 million when the “cashed” value, even discounted for NSF’s, was upwards of $20 million. It simply doesn’t make sense.

(iv) Global’s uncontroverted evidence, from both its Chairman and CEO, is that Capital One agreed to pay the $5.7 million to settle the expenses and defamation claims that were being threatened by Global.

(v) Global’s evidence, again uncontroverted, is that this was the reason why Global also demanded and received a formal letter making it clear that the company was being terminated for convenience and not for “doing anything wrong.”

(vi) The settlement agreement itself notes that the parties wanted “to resolve any and all existing disputes and potential disputes between them.” The mutual release provision explicitly refers to the release and discharge of all claims, including “any claims of disparagement, unlawful competition, defamation, libel and/or slander.”

(vii) Global’s evidence is that Capital One’s recitation in the “consideration” provision that the $5.7 million was payment for “US and Canadian Card payments”, did not reflect the true reason for the payment but was language used by Capital One for internal accounting purposes.

(viii) There may be some truth in this last point. When asked to explain the “US and Canadian Card payment” language, Capital One said that it estimated the amount that Global would have collected on its [U.S. and Canadian] accounts, had the services agreement not been terminated and that it discounted this amount to reflect the likelihood of recovery and present value. Capital One then said it used this “formula” as “a means by which to quantify a settlement amount that it deemed appropriate.”

On its face, this appears to be a statement that compensation was indeed being paid for the post-dates based on the stated formula. But given the relatively opaque language, there is also room for Global to argue that this was simply a “formula” used by Capital One for its own internal book-keeping purposes. In any event, it is not unusual for parties to a settlement agreement to have very differing perspectives on why the settlement payment is being made. At its highest, this is a case where the parties may have agreed to disagree about the reason for the settlement payment.

[41] For all of these reasons in combination, I cannot find on the evidence before me that the $5.7 million settlement was paid to compensate Global for the returned post-dates. Rather, I find it more likely that the money was paid exactly as the settlement agreement provides: “to resolve any and all existing disputes and potential disputes between [the parties] … including any claims of disparagement, unlawful competition, defamation, libel and/or slander.” Capital One’s opaque explanation, as noted above, actually provides some support for this conclusion.

The common issues

[42] I can now turn to the certified Common Issues as set out in the Appendix.

[43] Common Issues 1 and 2 are not contested. Global agrees that it was in a contractual relationship with the class members and owed a duty of good faith and fair-dealing in the performance of both the employment and the commission agreements.[^12] The answer to Common Issues 1 and 2 is “yes.”

[44] The key issue is Common Issue 3: Was Global obligated to pay the class members commissions or damages arising from the Capital One post-dated collections? As noted above in paragraph 14, Global’s commission structure was based on two broad propositions: commissions were paid to individual debt collectors only if Global was paid and only if the monthly pre-assigned breakeven was exceeded.

[45] Here, as I have already found, Global was not paid the $5.7 million settlement as compensation for the returned post-dates. And even if it were otherwise, Global was contractually required to pay commissions only if the assigned breakeven was exceeded by the debt collector while working the account. Given the June 1 (first day of the month) termination, it is obvious that no such breakevens could have been or were exceeded. Thus, for both reasons, the answer to Common Issue 3 is “no.” Global was not contractually obligated to pay the class members commissions or damages arising from the Capital One post-dated collections.[^13]

[46] Common Issue 4 asks whether Global was unjustly enriched by failing to pay post-dated collections commissions to class members in accordance with its obligations. As I have already found, Global had no obligation to pay commissions on the $5.7 million settlement payment because the settlement payment was not paid as compensation for the returned post-dated collections and because the breakeven requirement was not satisfied.

[47] It follows that there was no unjust enrichment. To track the language in Fairview Donut Inc. v. The TDL Group Corp.,[^14] no benefit has been directly and specifically conferred on the defendant at the expense of the plaintiff.[^15] In any event, the commission deal and the settlement agreement provided two separate juristic reasons justifying the result herein. The answer to Common Issue 4 is “no.”

[48] It follows from the answers to Common Issues 3 and 4, that Global is not liable to the class members in either contract or unjust enrichment. There is no basis for a damages award. Thus, Common Issues 5 and 6, which ask about aggregate damages, and Common Issues 7 and 8, which ask about aggravated and punitive damages, have no application and/or must be answered in the negative.

Disposition

[49] All of the key common issues are answered in favour of the defendant.

[50] The class action is dismissed.

[51] I would encourage the parties to resolve the issue of costs. If the costs cannot be resolved by the parties, I would be pleased to receive brief written submissions from the defendant within 14 days and from the representative plaintiff within 14 days thereafter.

[52] I am obliged to counsel on both sides for their assistance.

Belobaba J.

Date: November 10, 2016

Appendix: Certified Common Issues

1. Was the defendant, Global, in a contractual relationship with the Class Members?

2. Did Global owe a duty of good faith and fair dealing in respect of its obligation to perform under its contract with the Class?

3. If “yes” to “1”, or “yes” to “2”, was Global obligated to pay the class members commissions or damages arising from the Capital One post-dated collections?

4. Was Global unjustly enriched by failing to pay post-dated collection commissions to Class Members in accordance with its obligations?

5. If the answer to some or all of the common issues is “yes”, is Global potentially liable on a class-wide basis? If “yes”:

a. Can damages be assessed on an aggregate basis? If “yes”:

b. What is the quantum of aggregate damages owed to Class Members?

6. What is the appropriate method or procedure for distributing the aggregate damages award to Class Members?

7. Is the Class entitled to an award of aggravated, exemplary or punitive damages based upon Global’s conduct towards some or all Class Members?

8. If “yes”, what is the appropriate quantum of aggravated, exemplary or punitive damages that should be awarded?

[^1]: The actual settlement amount is $5,675,000. It is not clear on the face of the settlement agreement whether the settlement amount was to be paid in US or Canadian funds. If the payment amount was in US funds, then the Canadian equivalent is about $7.3 million. Because nothing turns on this issue for the purposes of the analysis herein (other than the quantum, of course), I will continue to refer to the settlement amount as $5.7 million without referring to the applicable currency.

[^2]: Bakshi v. Global Credit, 2015 ONSC 6842.

[^3]: The lay-off letter was headed “Notice of Temporary Lay-off” and advised the recipients that they were in a “temporary lay-off position with the company.” The letter noted that it was “[Global’s] intention to have you return to work as a full-time employee with our firm.”

[^4]: At one point, I decided that a mini-trial was needed to clarify two issues: what work, if any, was done by Global on the post-dated collections in the days following the termination, and was all or part of the $5.7 million settlement paid as compensation for post-dated collections. Counsel clarified the first issue to my satisfaction – no further work was done on the Capital One collections, other than answering some incoming calls. As for the second issue, counsel advised that both sides had agreed “that the court has sufficient evidence in the record before it to make a decision ... and that a mini-trial is not required.” I reviewed the evidence again and the additional submissions from the parties summarizing this evidence, and I concluded that counsel were right – a mini-trial was not needed. I therefore proceeded to decide the second issue on the material before me.

[^5]: McCamus, The Law of Contracts (2012, 2nd ed.), at 849, summarizes the case law: “[W]here discretionary powers are conferred by agreement, it is implicitly understood that the powers are to be exercised reasonably.”

[^6]: Employment Standards Act, 2000, S.O. 2000, c. 41, ss. 5(1) and 11(1), discussed in more detail below.

[^7]: Ibid, s. 11(1).

[^8]: Ibid, s. 1(1). Wages are defined as including all monetary remuneration payable by an employer to an employee under the terms of an employment contract.

[^9]: Ibid, s. 5(1).

[^10]: The Capital One letter noted that “Capital One believes … that Global intentionally sought to inflate its quality and performance scores to obtain bonuses and market share to which it was not entitled.”

[^11]: The plaintiff says that notwithstanding the clear language in the termination letter and settlement agreement, I can still find that Global was actually terminated for cause – that is, for illegal collection activities. I cannot possibly do this on the mainly hearsay evidence that is before me and in the face of compelling documentary and other evidence to the contrary.

[^12]: Bhasin v. Hrynew, 2014 SCC 71.

[^13]: The only wrinkle in this otherwise straightforward analysis is that the Global Chairman on cross-examination suggested that “some portion” of the $5.7 million payment may have been for the post-dated collections. Counsel for the plaintiff did not press this further and did not ask “how big a portion?” or “why was this portion paid?” Both sides agree that Capital One was not contractually obliged to compensate Global for the returned post-dates. So I find the Chairman’s evidence difficult to understand and accept. Nonetheless, for the record, I must acknowledge that it is possible (not probable) that “some portion” of the settlement may well have been paid for the returned post-dates. This still would not result in any monies owing to the class members because none of them “earned” any commissions – because none of them exceeded their assigned breakevens.

[^14]: Fairview Donut Inc. v. The TDL Group Corp., 2012 ONSC 1252.

[^15]: Ibid, at para. 540.