Which case won?

casea
The case for the employer
  • The employee is not entitled to any more commission than we have already paid her.
  • The employment contract clearly states that if the content of company policies refers to obligations on us, those obligations are guides only and not contractual terms. The sales program under which the employee was eligible to earn commission was contained in our global sales compensation policy. Therefore, the sales program did not have contractual force and we are allowed, as a principle of employment law, to change that policy at our discretion as and when necessary.
  • Even if the sales program is found to have contractual force, the review process in the sales program envisages that we may change or cancel the sales program at our discretion, even retrospectively, which is what we did.
  • As we legally exercised our discretion to cap the employee’s commission, the court must uphold our appeal.
caseb
The case for the employee
  • The global sales compensation policy referred to by the employer was not in existence at the time that I accepted my offer of employment and its characterisation as a “policy” was not agreed to by me.
  • The commission is a salary component under my employment contract. If I earn that payment based on my performance, then I am contractually entitled to be paid. I cannot be deprived of this payment merely because the method for calculating the amount of the entitlement is contained in a document unilaterally designated as a policy by the employer.
  • It’s true that the employer has a right to conduct a management review. However, this review doesn’t entitle them to unfettered discretion, nor does it entitle them to place a cap on my sales commission retrospectively.
  • After I proved that my sales ability was exemplary, the employer responded by breaching the employment contract to avoid paying me. The court must reject this behaviour and dismiss the employer’s appeal.

So, which case won?

Cast your judgment below to find out
Case A Case B

Case B won. You were right!

How people voted
a16%
b84%

Expert commentary on the court's decision

“In industries that rely on commission payments to retain staff, such as travelling salespeople, vehicle salespeople etc, it is the usual case that employers incorporate commission structures as part of the employee’s contract.

Yet, incorporating commission structures into a contract presents a double-edged problem, highlighted by this case.”
Court dismisses employer’s appeal

In Hewlett Packard Pty Ltd v Subasic [2021] ACTCA 3, the ACT’s Supreme Court, Court of Appeal unanimously dismissed the appeal by Hewlett Packard Australia (HP) to set aside judgment in favour of their former employee, Melinda Subasic. 

Employer contractually bound to observe terms of sales program

The court rejected HP’s argument that the parties had mutually and expressly agreed that the terms defining the sales program were not intended to be binding in contract. 

Rather, HP was contractually bound to observe the terms of the sales program for as long as the sales program remained in existence. 

No discretion to cap sales commission under existing sales program

The court noted that whether the performance of HP’s contractual obligation would result in an obligation to make any payment to Ms Subasic depended on two questions. 

The first question was whether the employment contract limited the method by which the sales commission could be calculated during the review process.  

The court found that the review provisions did not expressly confer a discretion to cap the payments, nor did they grant a general discretion to adjust the commissions in any way the reviewer thinks fit.  

The court was also unwilling to imply a discretion to impose a cap, as it would not serve the stated purpose of the sales program to incentivise high performers.  

The court recognised that sales commissions are discretionary, but held that they are not administrable at the whim of the employer, nor can the employer act arbitrarily.

Employer cannot make changes with retrospective effect to sales plan

The next question the court had to consider was whether it was permissible for HP to make changes to Ms Subasic’s sales plan that have retrospective effect.  

The court concluded that: 

Whilst there is clearly provision to make changes to a Sales Plan for the purpose of addressing unforeseen market conditions… the detailed documents contemplate that the changes are to be made during the measure period, that the changes are to be communicated to the employee during the measure period and that the changes are to operate prospectively for the remainder of the measure period. 

Interest calculation impacted by employee’s substantial delay in notifying employer

In addition to the principal sum of $309,750.39, the trial judge awarded Ms Subasic interest in the amount of $61,568.10. This was calculated from the date proceedings were commenced in June 2016.  

Ms Subasic argued on appeal that the interest ought to have been calculated from the date the debt under the contract arose in 2010. She therefore asked that the interest on the principal sum be calculated as $194,290.84.  

The court referred to the primary judge’s observation that Ms Subasic never made a formal demand for the payment of the commission while she was employed with the employer. Her reasoning was that she did not want to jeopardise the employment relationship while she was still employed. 

The court also referred to the primary judge’s observation that while Ms Subasic’s action was understandable, the substantial delay meant the employer was unaware that Ms Subasic did not accept the capping of the payment to be lawful.  

The court accepted that the trial judge had properly exercised her discretion in calculating the interest owed as she had.  

Challenges of incorporating sales commission into employment contract

In industries that rely on sales commission payments to retain staff, such as travelling salespeople, vehicle salespeople etc, it is the usual case that employers incorporate commission structures as part of the employee’s contract. 

Yet, incorporating commission structures into a contract presents a double-edged problem, highlighted by this case.  

The first problem and most frequently encountered, is that when things get tough for the business, the commission structure cannot be amended without agreement with the employee, if the structure is within the contract. A party cannot unilaterally or arbitrarily change the terms of a contract.  

The second problem, as raised by this case, is that even if your commission structure is outside of the contract, an employer cannot change the policy on a whim, even if the contract provides for the employer to have full discretionary power to amend or cancel the commission structure, particularly if the employer wishes to change the structure retrospectively. 

If an employer wishes to make changes, they must follow a proper consultation process and allow a period of notice to the employee prior to implementing any changes.  

The correct consultation process may differ between industries. It is important that the Modern Award or Enterprise Agreement applicable to the employment is referred to before an employer embarks on commission structure changes.  

A similar process of consultation should be attempted for employees who are not covered by an Award. 

If you are paying employees a sales commission and it needs to be changed, it is important that you obtain independent legal advice before making any changes. 

NOTICE: This article is accurate as at the time of publication and does not constitute legal advice. Please see our legal notices page for more information. Information related to coronavirus can be outdated very quickly.
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