Commission-Based Employees and Reasonable Notice: Understanding Entitlements Upon Termination

Array

May 5, 2025

Many employees receive compensation that includes commissions. When those employees are let go, it raises important questions for both employers and employees. How are commissions handled if the employment ends before a sale is paid for? What happens to potential commission income during the reasonable notice period? And how do courts approach these issues when there is no written agreement?

This blog post explores how Alberta courts have addressed these questions and what both employers and employees should consider when commissions form part of the compensation package.

When Is a Commission Considered “Earned”?

Commission-based employees are generally entitled to receive commissions earned up to their final day of employment. However, determining when a commission is “earned” can depend on the specific facts and the employer’s compensation practices.

Key factors may include:

whether the employee has completed all necessary work related to the sale;
whether the customer has paid for the goods or services; and
how the employment contract, commission agreement, or organizational policy defines when a commission is earned.

What matters most is determining the moment the employee has fulfilled their side of the bargain. If the employee has met their obligations (however they are defined in the contract or agreement), the commission is considered “earned,” and the employer has a legal obligation to pay the employee, irrespective of whether the employee has been terminated. A failure to do so may give rise to a claim for unpaid wages or breach of contract.

In the absence of clear language in a contract or agreement, courts may look to industry norms, past practices, or the specific facts of the employment relationship to determine whether a commission has been “earned.”

Post-Termination Commission Entitlements and Reasonable Notice

At termination, employees are entitled to:

Commissions they earned before being let go, even if the employer receives payment after the termination; and
Commissions they likely would have earned during the reasonable notice period if they had continued working during that period.

Earned Commissions Prior to Termination

Often, employees are not paid their commissions as soon as they are earned. Typically, employers pay commissions sometime after they are earned. If an employee is terminated, the employer is generally required to pay commissions for sales that were initiated or completed before termination – even if the sale is finalized or the payment is received after the employee has left.

Consider this example: an employee closes a sale before being let go, but the customer does not pay the employer until a month after the employee’s termination. In this situation, the employee is still entitled to that commission because the work was completed while they were still employed.

What if there’s no employment contract, or the contract doesn’t mention post-termination commissions? In that case, courts may step in and imply a term requiring the employer to pay. In Carroll v. Purcee Industrial Controls Ltd., 2017 ABQB 211, the Alberta Court found reasonable to assume, even when an employment contract or agreement is silent, that commissions must still be paid for sales completed after termination if the employee was responsible for making the sale while employed.

In other words, if an employee’s efforts led to a deal being made – even if the money came in later – the employee may still have a right to the commission.

It is important to note that these commissions are different from compensation owed during the reasonable notice period. However, an employee can be entitled to both.

Commissions Earned over the Reasonable Notice Period

Employees dismissed without cause are entitled to reasonable notice of termination or pay in lieu (often called “severance”), which includes compensation for all forms of earnings they would have received during that time. This includes commissions.

Commission structures can vary, and each case should be assessed on its own facts. The key consideration is whether the employee likely would have earned the commissions during the notice period had their employment continued.

When calculating and paying out commissions over the notice period, courts will often estimate the amounts based on an average of past commission earnings. Therefore, it is important to keep reliable data and records to simplify commission-based earnings calculations when an employee’s employment ends.

Contractual Clauses and Forfeiture Provisions

Some employment contracts or commission plans contain clauses that attempt to limit post-termination entitlements, such as stating that commissions are forfeited if the employee is not “actively employed” when the commission is paid.

However, courts may not enforce such provisions if they are ambiguous, overly broad, or inconsistent with basic legal principles.

Therefore, the wording of your commission agreement matters. Employers should ensure that any limitations are reasonable and clearly stated. Employees should not assume that just because a clause appears to deny post-termination commissions, it is automatically enforceable.

Key Considerations

1. For Employers:

Ensure that employment contracts, commission agreements, and/or organization policies clearly define when commissions are considered “earned” and what happens upon termination.
Maintain consistent practices regarding commission payments and document them clearly.
Understand that courts may imply contractual terms where none are stated, particularly if the employer receives post-termination benefits or payments from the employee’s work.

2. For Employees:

Commissions that were earned before termination – especially when a sale was completed – may still be payable after your employment ends.
You may also be entitled to compensation for commissions you would likely have earned during the notice period or as part of your severance payment.
Forfeiture clauses may not be binding if they are ambiguous or overly broad. It is worth having your situation evaluated by an employment lawyer.

Conclusion

Commission-based compensation can raise unique challenges when employment ends. Whether a commission is payable after termination depends on multiple factors such timing, contract language, and the factual circumstances of each case. For both employers and employees, clarity and documentation are key.

Authors

Anita Nowinka

Associate
T: 403.705.3662
E: [email protected]

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Jahaan Premji

Associate
T: 403.705.3337
E: [email protected]