October 20, 2014
The Employee worked as a mechanical engineer for the Employer. The Employer agreed to pay commissions for products the Employee sold to the government of Iraq in accordance with terms set out in an agreement (“Commission Agreement”).
In early December, 2006, the Employee successfully sold products to the government of Iraq. On December 12, 2006, the Employer unilaterally changed the Commission Agreement, advising the Employee that it would be paying a lower rate of commission, thereby breaching the original Commission Agreement.
The Employee promptly took the position that he was entitled to compliance with the Commission Agreement, and retained a lawyer who wrote a demand letter to the Employer in August, 2007, insisting that it comply. By letter dated September 7, 2007, the Employer reiterated its position that it would not abide by the Commission Agreement. In November, 2007, the Employer paid commissions to the Employee at the lower rate. A Statement of Claim was issued on September 16, 2009, seeking damages for breach of contract and quantum meruit, alleging that the Employer failed to honour its contractual obligations to pay commissions in accordance with the Commission Agreement.
On a motion for summary judgment, the Employer persuaded the court to dismiss the claim on the basis that the applicable two year limitation periodhad expired. The lower court held that the Employee did not bring the action within two years of the date that the commission structure was changed on December 12, 2006, and that the breach of contract at that time was sufficient to trigger the commencement of the limitation period. Since the action was not commenced until September 16, 2009, the Employer successfully argued that the action was dismissed as statute barred.
The Court of Appeal unanimously overturned the lower court’s decision, finding that the limitation clock only started to run from the date that the Employer remitted the reduced commission payment in November, 2007. As the lesser commission was tendered within two years of the Statement of Claim being issued, the claim was not statute barred.
The Court of Appeal held that in response to the Employer’s anticipatory breach of the Commission Agreement by unilaterally decreasing the commissions payable, the Employee treated the contract as subsisting and continued to press for performance and was only required to bring the action when the promised performance (i.e. the proper commission) failed to be paid. Further, the Court held that the Employee did not “discover” his claim for outstanding commissions until the date that he first knew that damages had occurred, namely the date that the deficient commissions were paid.
Employees should seek legal advice in a timely manner to ensure that claims are brought within any statutory limitation periods. The complexities of this case reinforce the need for ongoing legal advice when an employee believes that the employer is depriving him or her of a material contractual right.
Ali v. O-Two Medical Technologies Inc., 2013 ONCA 733