The Court of Appeal had held that the High Court was entitled to increase the level of commission awarded to a sales person by an employer, and did not fail to have regard to the employer’s discretion in the matter.
The claimant, Mr Hills, was employed by the respondent as a regional sales manager. The judge at first instance concluded that he had been underpaid commission in respect of an element of a sale of software to an international business. Niksun had exercised its discretion and allocated 48% of the available commission to the UK office. Mr Hills left his employment, and brought a claim for breach of contract, alleging that his former employer had failed to exercise its discretion reasonably in the allocation of commission. He argued that a decision-maker was required to take only relevant matters into account.
The High Court judge considered the terms of the claimant’s contract, and other contractual documentation pertaining to commission, alongside the evidence of his manager. As a result, the judge concluded that it was not lawful for the UK office to be awarded less than two-thirds commission - this was not considered to be ‘fair and reasonable’ in the circumstances.
The respondent appealed against this decision, arguing that the court should not have interfered with its discretion to award commission as it saw fit. The Court of Appeal disagreed. It found that once the claimant had demonstrated that there were grounds for thinking that the respondent’s decision was unreasonable, the evidential burden shifted to the respondent to demonstrate that its decision-making process was reasonable and rational. The respondent had failed to do that. The court was not persuaded by an argument that references in a contract or other contractual documents to the employer having ‘absolute discretion’ gives the employer ‘broad and untrammelled power’.
Advice to employers
In this case, the employer did not present any or sufficient evidence to the court as to how the decision to award 48% commission was arrived at. It is advisable for employers seeking to exercise discretion to keep records of the thought process, in order to demonstrate that discretion has been exercised reasonably and rationally, and taking into account relevant factors.