Non-Payment of Commission due to COVID-19

The Tribunal has recently dealt with a case relating to non-payment of commission due to COVID-19 in Sharma v Lily Communications. The employee concerned had a basic salary and then commission based on 15% of profit that the business made. This was paid upfront and agreed at interview.

The clause in the contract, followed the common wording that “in addition to your salary the Company may pay you commission of such amount as shall from time to time be determined by the Company in its absolute discretion. Any commission payments will be paid at such intervals and subject to such conditions as the Company may in its absolute discretion determine from time to time. Any commission payment to you shall be purely discretionary and there is no contractual entitlement to receive it and it shall not form part of your contractual remuneration or salary for pension purposes or otherwise. If the Company makes a commission payment to you, it shall not be obliged to make subsequent bonus payments in respect of subsequent financial years of the Company. The Company reserves the right in its absolute discretion to terminate or amend any commission scheme without notifying you”. Do you think the employer were keen to make sure the commission scheme was discretionary with their three mentions of it?

Later the employer tried to change the position, imposing a new commission structure but the judge found that this hadn’t been communicated to or agreed with the Claimant. This is the first important point: an employer cannot just move goal posts – any change has to be agreed with the affected employees.

When COVID hit, the employer realised it was at risk of non-payment by its customers so changed to paying commission only when it had been paid not upfront, reducing the earnings of the Claimant. The Claimant was furloughed and challenged why he wasn’t receiving commission on deals he knew had been signed and paid. He was told during furlough commission was deferred. The Claimant didn’t return to work – he was made redundant in August 2020.

The Claimant brought a claim for over £5,000 commission he said he should have been paid during the period April to August 2020 and was successful. The Tribunal found that the scheme was discretionary but noted that even where a scheme is discretionary there is still a contractual obligation to exercise that discretion rationally and in good faith. The judge found that the uncertainty over the pandemic was a paradigm example of a situation where the employer would want to exercise discretion in a different way so deferring payment was OK. However, when his employment was terminated, the accrued commission should have been paid.

Refreshing Law Ltd

4 August 2021