The Court of Appeal in Mark Hills -v- Niksun Inc 2016 has held that a company failed to demonstrate it had determined a fair and reasonable level of commission, as required by the contract in question.

Mr Hill entered into a commission plan which gave Niksun the right to determine “a fair and reasonable” level of incentive compensation, and referred to a ‘Point of Influence’ in split commissions which would be the location where the major account control resided. Niksun allocated 48% of the commission on an international sale on which Mr Hills had worked to the UK office, with the rest going to the US. Mr Hills brought a claim against Niksun claiming the ‘Point of Influence’ was in fact the UK. The Winchester County Court ruled in favour of Mr Hills. The Court of Appeal upheld this decision.

The main issue to be determined was whether the first instance judge had been right to interfere with Niksun’s “broad discretion” set out in the contractual documents. The Court of Appeal accepted Niksun had discretion but held that such discretion had to be exercised in accordance with the detailed process for the award of commission set out in the commission plan. In this regard, Niksun had failed to produce any evidence to show that the decision it had made regarding the ‘Point of Influence’ was a rational one. The Court of Appeal dismissed Niksun’s appeal and upheld the decision of the Winchester County Court that Mr Hills had been underpaid commission of £6,701.75.

Employers should be careful when drafting commission clauses or contracts to ensure the contractual processes will not limit their discretion when awarding commission. Similarly, where existing contracts provide a process for awarding commission, employers must ensure these are adhered to.