Dealer’s commission practices too shady for used-car salesman

Commission agreement confusing, says court

A car dealership has come under fire from an Ontario court for the unclear commission agreement it required its sales staff to sign.

In August 1994 Bradley Gallagher was hired by John Bear Pontiac Buick Cadillac Ltd. as a used car salesman. He never signed a formal employment contract, but sales staff were annually shown a “pay packet agreement” that outlined the commission payments they’d earn.

Gallagher said he never paid much attention to the calculation of his commissions. But despite selling just as many cars, his income dropped from 1999 to 2000 and again from 2000 to 2001. He said he spoke to assistant manager James Finley, but that despite several conversations about how commissions were calculated it remained “very confusing” to him.

Gallagher kept asking about it and the relationship between Gallagher and Finley became increasingly strained. Gallagher said at one point Finley told him the “dealer cost” of a used car — which greatly impacted what a salesperson earned on its sale — was “whatever the dealer said it was.”

In January 2003 Gallagher refused to sign the commission plan for the new year. He was told to leave his company car on the lot and take two days off to think it over. He never returned and eventually filed an action for wrongful dismissal. The company claimed Gallagher resigned from his position.

The Ontario Superior Court of Justice said the company’s demand that Gallagher sign the commission agreement or be immediately terminated constituted wrongful dismissal.

Gallagher was employed by the company on a long-term (albeit unwritten) contract. A commission salesperson does not serve at the mercy of his employer. The company had the right to terminate Gallagher’s employment if he refused to sign the 2003 commission agreement, but he is entitled to appropriate notice, the court said.

Gallagher’s gross salary averaged $6,000 per month in the period preceding his termination and he was awarded eight months’ pay less three months for failure to mitigate his damages.

The court said the company should have drafted a commissions agreement that clearly defined “dealer cost” and other deductions. The sheets used by the company to calculate commissions were “confusing in the extreme,” said the court. They gave inadequate and misleading information that needed handwritten notes to reflect the appropriate information.

“It would be impossible for anyone, including a salesperson at the defendant corporation, to properly understand these deductions,” said the court.

Some of the deductions were a trade-in adjustment, reconditioning costs, an “equalization cost,” a “purchase reserve,” a “buyer’s fee,” a “year-end write down reserve” and a “miscellaneous reserve.”

The company also charged sales staff if customers took advantage of a “five months’ no-interest, six months’ no-payment” promotion. It’s debatable whether salespersons were told the cost of the program was deducted from their commissions, said the court.

As such the court ruled Gallagher was entitled to a full accounting of the commissions he’d earned, and ordered the parties to get together to try to agree what that total was.

For more information see:

Gallagher v. John Bear Pontiac Buick Cadillac Ltd., 2006 CarswellOnt 209 (Ont. S.C.J.)

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