Greenland v GX Networks Ltd

A contractual commission scheme is enforceable according to its terms where commission forms part of the employee’s agreed remuneration. A contractual discretion to cap or reduce commission must be exercised rationally and by reference to relevant considerations. The existence of a discretion does not make its exercise immune from review. An employer cannot use a cap to avoid paying commission already earned merely because the resulting payment is unexpectedly high or reflects targets which the employer itself set too low. A decision based on irrelevant financial considerations, while disregarding the contractual basis on which commission was earned, is irrational.

The claimant, an account manager, claimed unpaid commission under her employment contract. The 2007 commission plan changed the basis of calculation from orders to billed revenue and provided for performance commission, accelerated commission for over-performance, target reviews and a discretion to cap an individual’s fourth-quarter bonus.

The claimant substantially exceeded her revised target. The defendant did not further revise the target, but capped her commission at 130 per cent. The central issue was whether the contractual capping provision authorised that reduction and whether the discretion had been lawfully exercised.

1. Judgment for the claimant. The claimant was entitled to £126,812 commission, together with agreed interest of £12,757.60. The claimant was awarded her costs, subject to detailed assessment if not agreed.
2. The commission provisions formed part of the claimant’s contract and commission was an integral part of her remuneration, rather than a discretionary bounty. On the agreed calculation, the claimant had earned commission substantially exceeding the capped amount.
3. The capping clause gave the Sales Director a discretion to cap an individual’s fourth-quarter bonus. The discretion could produce a cap at a figure other than 100 per cent, since the greater included the lesser. The phrase “by exception only” did not clearly impose a separate requirement of exceptional circumstances, but capping remained an exception to the contractual default of paying commission calculated under the plan.
4. The discretion had to be exercised for proper purposes and by taking relevant factors into account. The defendant’s wish to avoid paying an unexpectedly large commission, and its desire to correct the consequences of targets which it had set too low, were not relevant reasons for withdrawing commission already earned. The company could have reviewed the target earlier but did not do so.
5. The decision to impose the cap therefore took account of irrelevant considerations and failed to take account of relevant considerations. It was irrational. Permission to appeal was granted on the largely contractual construction issue. The judgment directed that £50,000 be paid to the claimant, with the balance paid into court pending any appeal.

This was a first-instance decision. Permission to appeal was granted, but no appellate decision is stated in the judgment.