11 March 2016: Splitting Commission:
In Hills v Niksun Inc, reported this week the Court of Appeal held that the High Court was entitled to increase the level of commission awarded to a salesperson by the employer.
Generally when consider employer’s contractual discretion to give commission, the Court will consider:
- What the relevant employment contract and commission documents provide for.
- Whether what happened in practice created expectations or modified the contractual documents in any way.
- Whether the employer has exercised its discretion in a perverse or irrational way.
In this case Mr Hills was a regional sales manager earning basic pay and commission in the UK. His contract said that commission plans were at Niksun’s absolute discretion and which would be set at rates which were ‘fair and reasonable under the circumstances, and is in the best interest of Niksun’.
Mr Hills negotiated a large deal from the UK office, but the US office also had some input. Niksun decided that only 48% of the commission was attributable to the UK office, the other 52% being payable to the US office. Mr Hills sued, saying 100% should have been allocated to the UK office.
The High Court decided that the UK was in fact the point of influence and that, accordingly, a 48% allocation of commission was not fair and reasonable. It substituted a split of two thirds in favour of the UK office as being contractually “fair and reasonable in the circumstances” on the evidence.
This case will be of worry for employers who pay commission, especially when two or more salespeople are involved in a deal and the company then has to decide how to split commission. Employers should review their commission policies accordingly. Employees in this situation should keep a detailed account of their influence in closing a deal, so that they can argue the point if necessary.
(Hills v Niksun Inc [2016] EWCA Civ 115.) See also commission at work
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