Oh what a tangled web or Commission omission

From the Employment Relations Authority recent files…
An employee (Mr B – Sales Manager) raised concerns with his employer (company owned by two shareholder/directors) about unpaid sales commission. After he left the company he raised a Personal Grievance, outlining 18 issues to be determined by the Authority. Whilst Mr B was not successful in all of his claims and because of the complexity of the case, this article will outline some of the key issues raised. 

Commission structure

It was contractually agreed that Mr B was entitled to 1% commission on all “current client” sales and 2% commission on all “new client” sales. As the clients were not specified, it was not surprising that there was disagreement between the parties as to which were “current” or ”new” clients. There were 27 clients who the company claimed were “current”, while the employee claimed there were 14 new clients as he had reactivated them.

The Authority determined that the 27 clients were to be treated as “new” and therefore should have attracted 2% commission; and the reactivated clients were “existing” and the 1% paid was correct.

What is very obvious in this case is the real lack of clarity in the commission structure and agreement between the parties. When entering into commission or bonus arrangements, employers need to take a “what if” analysis and make sure any variations to the agreement are in writing and signed by both parties.

Unilateral imposed change

3 clients were taken away from Mr B and re assigned to another rep. Mr B claimed commission on those sales from when this happened until he left the company.

The Authority found that there was no mutual agreement or in fact discussion about the alteration to the commission structure and therefore Mr B was to be paid 1% commission - the company had imposed a unilateral change – which of course is not permitted.

Breach of Employment Agreement

Mr B also bought a claim against the Directors personally that they aided, abetted or instigated a breach of the employment agreement.

1. After he left, Mr B submitted claims for unpaid business expenses of $13,478. The company at first said these expenses were not authorised, but later accepted these were legitimate expenses which were reasonably incurred.

The Authority ordered these expenses be paid upon supporting receipts – albeit they were claimed late.

2. The company made deductions of $38,173 without Mr B’s consent from his commission for his public holiday, sick leave and annual holiday pay entitlements, and also deducted 2.5% to take into account its own employer ACC levies ($12,173).

The Authority found that these deductions were unlawful and ordered the company to reimburse Mr B.

On top of unpaid commissions and unlawful deductions which the company had to pay, the Authority ordered the Directors to pay a penalty of $5,000 each for breach of the employment agreement, and the company was fined $20,000 as well – “serious, blatant, deliberate” breaches.

Disadvantage / Interest

Additionally, the company had to pay an extra $4,000 for distress compensation to Mr B as well as 5% interest on the unpaid commission over a four year period and the unlawful deductions.

This is a case where a company and its shareholders blatantly ignored legal obligations in many important areas in the employment relationship – costly at over $100,000.

Early advice from a professional source and open communication with the employee could have saved much anguish and legal costs to defend the grievance.

Paddy Battersby, Battersby HR Consulting, www.battersbyhr.com , Phone 838 6338, paddy@battersbyhr.com

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