Commission-Based Employees and Termination: What You Need to Know About Commissions and Reasonable Notice

When commission income makes up part of your compensation, losing your job can raise complicated questions. Are you entitled to commissions after termination? What happens if a deal closes after you’re let go? And can your employer deny unpaid commissions if you’re no longer “actively employed”?

These are common issues that Toronto employment lawyers and severance package lawyers regularly handle. Understanding how courts approach these questions can help both employees and employers avoid costly disputes.

This guide explains how commissions are treated under Canadian employment law (especially when employment ends) and what you can do to protect your rights.

When Is a Commission Considered “Earned”?

Under Ontario employment law, a commission is generally considered “earned” once the employee has completed the work required to bring about the sale or deal. But determining exactly when that moment occurs can depend on:

• The terms of the employment contract or commission agreement

• The employer’s established pay practices or policies

• Industry norms and past conduct between the parties

For example, if an employee’s job is to close sales, a commission may be “earned” once the customer signs a contract or when the sale is finalized, even if the client’s payment is received later.

Once a commission is earned, the employer has a legal obligation to pay it, even if the employee is terminated before payment is processed. Failure to pay earned commissions can lead to a claim for unpaid wages or breach of contract.

If the employment contract does not clearly define when commissions are earned, courts will look to the real-world facts, such as what the employee did, what the employer agreed to, and how payments were handled historically, to decide what’s fair.

Commissions and Termination: What Employees Are Entitled To

When an employee is terminated without cause, they are entitled to two key things:

1. Commissions earned before termination (even if paid after); and

2. Commissions that likely would have been earned during the reasonable notice period, had the employee continued to work.

Let’s look at each in more detail.

1. Commissions Earned Before Termination

Many commission payments are delayed, such as employees may complete the work, but the payment does not come through until weeks or months later. If you are let go from your job that gap, you are still legally entitled to commissions on sales that were finalized or substantially completed while you were employed.

Example

A sales representative closes a major deal in March, but the client does not pay until April. The company terminates the employee in late March. Even though the payment came in after the termination, the commission must still be paid, since the work was done while the employee was still on the job. In fact, the courts have confirmed this principle, typically finding that an employee was entitled to post-termination commissions because the sale was made while the employee was still employed. Even though the commission was payable later, the employee’s efforts led directly to the deal.

In short: if you earned it before you were let go, you may still entitled to be paid.

2. Commissions During the Reasonable Notice Period

If you are terminated without cause, you’re also entitled to reasonable notice (or pay in lieu of notice). This is sometimes called severance. The goal is to compensate you for what you would have earned if you had continued working through the notice period, including commissions.

How Courts Calculate Commission-Based Severance

When calculating lost commissions during the reasonable notice period, courts look at your average historical earnings. For example:

• If you typically earned $6,000 in monthly commissions,

• And you’re entitled to 6 months of reasonable notice,

• You may be owed around $36,000 in commission-based severance.

Each case depends on the facts—such as how consistent your commissions were and whether you were likely to keep earning similar amounts. Keeping accurate sales and income records can make this process much easier if your employment ever ends.

A wrongful dismissal lawyer in Toronto can help assess your likely notice period and calculate how much severance (including commissions) you should receive.

Employment Contract Clauses That Limit or Forfeit Commissions

Some employers include clauses in employment contracts or commission plans that say commissions are forfeited if the employee is not “actively employed” on the payment date. These are sometimes called “forfeiture” or “active employment” clauses.

However, courts often strike down these termination clauses if they are unclear, unfair, or inconsistent with employment standards laws.

Why These Clauses May Not Hold Up

• Courts interpret employment contracts in favour of employees when the wording is ambiguous.

• Employers cannot contract out of minimum employment standards, such as paying wages that have already been earned.

• A clause that denies commissions you’ve already earned is usually unenforceable.

In other words, even if your employment contract says you must be “actively employed” to get your commission, that clause might not be valid if the commission was already earned before your termination and there is no clear and unambiguous removal of your common law entitlement.

A Toronto employment contract lawyer can review your agreement to see whether such clauses are legally valid and enforceable.

Practical Steps for Employers

Employers who use commission-based pay structures should take steps to avoid disputes and ensure compliance with employment law:

1. Define “earned” clearly.
   Specify in writing when a commission becomes payable—upon signing a deal, upon delivery, or upon payment by the client.

2. Use consistent pay practices.
   Regularly follow your stated policies and document commission calculations to prevent confusion or inconsistency.

3. Avoid overly broad forfeiture clauses.
   Courts are quick to strike down unclear language. Keep any post-termination restrictions narrow and precise.

4. Plan for terminations.
   Before ending employment, review the employee’s sales pipeline and determine what commissions may already be owed or are likely to accrue.

Getting legal advice from an employment lawyer in Toronto can help ensure your employment contracts comply with current employment law and reduce the risk of wrongful dismissal or unpaid commission claims.

Key Considerations for Employees

If you are a commission-based employee who’s been terminated, here’s what to keep in mind:

1. Review your employment contract carefully.
   Even if it says commissions stop after termination, the clause may not be enforceable. Courts often side with employees when language is vague.

2. Track your sales and payments.
   Keep documentation of deals you closed, client communications, and commission records. These can be critical in proving what you earned.

3. Consider your reasonable notice rights.
   You may be entitled to additional pay for commissions you would have earned during the notice period. A severance package lawyer in Toronto can calculate this for you.

4. Act quickly if you are denied commissions.
   There are deadlines for filing employment claims or wrongful dismissal lawsuits, so don’t delay in seeking legal advice.

How a Toronto Employment Lawyer Can Help

A skilled Toronto employment lawyer can help you understand your full rights and entitlements. This includes:

• Reviewing your employment or commission agreement

• Calculating unpaid commissions and potential severance pay

• Negotiating a fair severance package

• Filing a claim for wrongful dismissal or unpaid wages, if necessary

Lawyers who focus on wrongful dismissal and severance negotiations know how courts interpret commission-based pay and can often recover compensation that employees didn’t realize they were owed.

Conclusion

Commission-based pay adds complexity when employment ends. The key questions are:

• When was the commission earned?

• What does the contract actually say?

• And how would the employee have been compensated during the reasonable notice period?

For employees, it is critical to understand that commissions earned before termination (and even some commissions during the notice period) can still be payable. For employers, clarity and fair drafting are essential to avoid costly disputes.

If you’ve been terminated and believe you’re owed commissions or severance, speak with an experienced Toronto employment lawyer or severance package lawyer in Toronto. They can review your situation, explain your rights, and help you recover what you’re legally entitled to.

Call Toronto Employment Lawyer Now

It is important for an employee (or an employee) to obtain a legal consultation before taking any action that could affect the situation at workplace. Sezar has experience advocating for both employers and employees, which allows him to anticipate the other side’s arguments and develop an effective strategy, including termination of employment.

If you are looking for a wrongful dismissal lawyer in Toronto, call us today at 647-822-5492 for a case evaluation with an experienced employment lawyer.

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