The ramifications of COVID-19: Is an employee entitled to full commission that had been deferred during the period of furlough.
There are an increasing number of cases trickling through the courts which are starting to give some guidance as to how “traditional” employment principles should be treated in considering issues during the COVID period. Although we have faced a systemic challenge to the relationship between work providers and work deliverers - the law has not been placed on ice. An interesting example of this can be seen in the case of Sharma v Lily Communications Ltd ET/1900437/21)
Commission arrangements are often governed by employer discretion and this case held that where an employer has any form of discretion it must still be exercised in a rational, fair, transparent manner and in good faith.
Mr Sharma was employed as a Business Development Manager by Lily Communications Ltd. At the commencement of employment, the principles governing the commission scheme were discussed and he accepted the job on the basis of the incentive of the rewarding commission scheme. Mr Sharma was told that he would earn 15% commission on all profit. From 19th March 2020 to 12th August 2020 (when his employment terminated), Mr Sharma was furloughed as a result of the COVID-19 pandemic. His employer, some would argue understandably, decided that during that period entitlement to commission would not automatically accrue but that employees might receive payments at a later stage.
Following the termination of his employment, Mr Sharma brought claims for breach of contract and unauthorised deduction from wages in respect of unpaid commission payments. Interestingly the employment tribunal found that Mr Sharma was not contractually entitled to be paid commission and that the actual decision to defer commission payments for furloughed employees was rational and in good faith, given the prevailing economic conditions. However, when the employer did actually (and eventually) exercise its discretion it was required to do so by acting rationally and in good faith. Furthermore, there was no requirement for Mr Sharma to meet actual targets to get commission as the scheme did not provide for this.
The lessons for employers are clear:-
- The Courts will take into account the economic impact of COVID on the employment relationship and the payment of commission (and potentially bonuses)
- There is still a requirement to act reasonably and in good faith in coming to decisions involving discretion
- Those decisions should be clearly articulated to employees and the decision making process must be documented and consistent
- When looking at commission schemes, employers should make it very clear when, how and when they will operate and any requirements that must be met to trigger entitlement
If you require any advice and support on this please contact our Employment & HR team at email@example.com or 01228 552222.