Commission payments and workplace disputes
This guide is about commission payments. It gives examples of the reasons why commission payments often result in disputes between people who receive them and their employers. It outlines some actions that you as an employee can take to help ensure you get paid the commission owed to you and what you can do if you can’t resolve your dispute informally. It concludes with some potential claims you may be able to make to settle your commission dispute.
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What is a commission payment?
A commission payment is a type of payment given to a person for their role in facilitating a sale or business transaction. It’s essentially a form of performance-based compensation that’s tied to the amount of revenue generated by the sale.
For example, imagine you work for a company that sells software. If you’re responsible for making a sale, you may receive a commission payment based on a percentage of the sale price. This is a way for the company to incentivise and reward you for your efforts in driving business growth.
Commission payments are commonly used in sectors such as real estate, insurance, and finance, where employees, agents or brokers receive a percentage of the sale or premium and vary considerably, depending on the sector and the specific agreement between the parties involved.
Examples of disputes about commission payments
Here are some examples of disputes commonly associated with commission payments:
Example 1: Commission plan ambiguity
One of the most common reasons for disputes over commissions is when the commission plan is not clearly defined. If the commission plan is ambiguous, it can lead to misunderstandings about how commissions are earned and paid out.
For example, if the commission plan says that you will receive a commission on all sales made in a given month, but doesn’t specify whether the commission is based on the sale price or the profit margin, it could lead to disagreements about how much commission is due.
Example 2: Failure to pay commission
Another common dispute over commissions is when an employer fails to pay the commission due. This can happen if the employer disputes the amount of commission they owe you, or if they simply don’t want to pay the commission. If an employer fails to pay you the commission they owe you, you may be able to take legal action to recover the unpaid commission.
Example 3: Calculation of commission
One of the most common legal disputes over commission arises when there is a disagreement about how the commission is calculated. This can occur when the terms of the commission plan are not clear or when there is confusion about what is included in the calculation.
If you receive less commission than you have anticipated, you may suffer hardship as a result. If your commission is overpaid, your employer may seek to claw back the overpayment. (See more on clawbacks below.) Either may result in a dispute between you and your employer.
If you are entitled to a commission based on the net sales of a product, there may be a dispute over what expenses are deducted from the sales to arrive at the net amount.
In some cases, the dispute may be over the commission rate itself. For example, if you believe that you are entitled to a higher commission rate than your employer is willing to pay.
Example 4: Timing of commission payment
Another common dispute over commission is when the commission is payable. If the commission plan does not clearly define when commissions are due, it can lead to disagreements about whether the commission is due on the date of the sale or on the date that payment is received.
This can occur when the commission plan specifies a specific timeframe for payment, such as at the end of each month, but the employer fails to make payment within that timeframe, or delays making payment. In such cases, you may be able to take legal action to enforce payment of the commission.
In other cases, a dispute may arise over whether the commission is payable at all. For example, if you were to leave the company before a commission payment is due, there may be a dispute over whether you are entitled to receive the commission.
Example 5: Commission clawback
Another legal dispute that can arise over commission is when an employer seeks to claw back commission payments that have already been made. This can occur when there is a provision in the commission plan that allows the employer to claw back commission if you fail to meet certain performance criteria or if there is a dispute over the sale.
While commission clawbacks can be legal in certain circumstances, they can also be a source of dispute if the commission plan does not clearly define the circumstances under which clawbacks can occur.
Clawback provisions must be clearly defined and reasonable. If the clawback provision is too broad or vague, or if you weren’t given adequate notice of the provision, you may have grounds to make an employment tribunal claim.
Example 6: Commission sharing
In some cases, commission disputes may arise when there are multiple employees involved in the sale, and there is a disagreement over how the commission should be divided among them. For example, if a salesperson and a support staff member are involved in making a sale, there may be a dispute over what percentage of the commission each individual is entitled to.
To avoid such disputes, it is essential to have clear and detailed commission-sharing agreements in place that specify how the commission will be divided among the individuals involved in the sale.
How to ensure you receive your correct commission
It’s clearly the responsibility of your employer to ensure your company has unambiguous commission plans and to keep all employees well-informed about developments affecting commission payments. However, there are also several things you can do to help ensure you receive the correct commission when it’s due, including the following:
1. Understand the commission structure
Make sure you understand how your commission is calculated and what factors affect it. This will help you determine whether your commission payout is accurate.
2. Keep track of your sales
Keep a record of all your sales, including the date, amount, and commission percentage. This will help you track your progress and ensure that you are being paid the correct commission.
3. Communicate with your manager
Keep your manager informed of your sales and ask for feedback on your performance. This will help you identify areas where you can improve and also ensure that your manager is aware of your contributions.
4. Review your commission statement
Take the time to review your commission statement carefully and check for any errors or discrepancies. If you notice any issues, bring them to the attention of your manager or HR department immediately.
5. Follow up unpaid commission
If you are expecting a commission payout and it hasn’t arrived on time, follow up with your manager or HR department to find out why. Don’t assume that it will be resolved automatically.
What to do if you can’t resolve your commission dispute informally
Check your employment contract
If you can’t resolve your commission dispute informally with your manager or HR, check your contract to see if there are any provisions addressing commission disputes. It may provide guidelines for dispute resolution or a process for submitting a grievance (complaint).
Negotiate a settlement agreement
If you’re still not getting anywhere and want to leave your employment, you may try negotiating compensation in the form of a settlement agreement/exit package.
Submit an employment tribunal claim
Your negotiations may be more fruitful if you also submitted an employment tribunal claim, so long as you were still within the very strict time deadlines for submitting such a claim. You might not take your claim right through to an employment tribunal hearing, but the fact that you have started a claim would at the very least act as leverage in settlement negotiations with your employer.
Potential employment tribunal claims for commission disputes
Commission payment disputes may give rise to a number of different types of employment tribunal claims, depending on the circumstances of the dispute. Some potential claims include:
1. Unlawful deduction from wages
If your employer fails to pay you the commission you’re owed, this may be considered an unlawful deduction from your wages.
2. Breach of contract
If you have a contractual entitlement to commission and your employer fails to pay it, this may be a breach of contract.
3. Constructive unfair dismissal
If your employer fails to pay you the commission you’re owed and this amounts to a fundamental breach of contract (ie a very serious breach), you could resign and claim constructive unfair dismissal.
If you believe that you’ve been treated unfairly in relation to commission payments on the basis of a protected characteristic (such as your gender or race), you may be able to bring a discrimination claim.
If you have alleged a contravention of the Equality Act and believe this is the reason for the commission dispute, you may be able to bring a victimisation claim.
If you have raised a specific type of concern in the public interest, and believe you have been penalised for doing so, you may be able to bring a whistleblowing claim.
It’s important to note that the specific circumstances of the dispute will determine which claims are most appropriate.
Get expert legal help to resolve your commission dispute
If you’ve tried to resolve your commission dispute with your employer but have not succeeded, get in touch with Monaco Solicitors. We are experienced specialist employment lawyers dedicated to advising and representing individuals who have issues such as yours. If you’d like our help, get in touch using one of the following:
Phone: 020 7717 5259