In Sharma v Lily Communications Ltd, the Employment Tribunal considered commission payments which had been deferred during an employee’s furlough leave.
Mr Sharma was employed by Lily Communications Ltd from 2019 as a Business Development Manager. He had accepted the role on the basis that he would earn 15% commission on all profit. However, the contract he signed stated that any commission was payable at his employer’s “absolute discretion”.
From March 2020, Mr Sharma was furloughed and then laid off. In this period, Lily Communications decided that commission payable to furloughed employees would be deferred. They would not receive any commission payments while on furlough leave, but they may receive them when furlough ended.
Mr Sharma never returned to work as he was made redundant. He made Employment Tribunal claims for breach of contract and unlawful deduction from wages for unpaid commission payments.
The Tribunal found that Mr Sharma was not contractually entitled to be paid commission. There were unambiguous contractual terms that made clear that the commission was discretionary. Mr Sharma did not question them.
As the payment of commission was discretionary, Lily Communications was required to “act rationally and in good faith” when exercising its discretion in respect of commission payments. Employment Judge Davies found that the decision not to pay commission to furloughed employees was rational and in good faith. The COVID-19 pandemic gave rise to uncertainty and was “perhaps a paradigm example of a situation in which an employer would want to exercise its discretion as regards commission payments in a different way”.
However, the decision was not to cancel the commission payments of furloughed employees, but to defer them. Mr Sharma had received some of his commission payments after his furlough leave ended, but not all of them. In the absence of any “rational basis or other explanation for paying some but not all of the outstanding commission at that stage”, the decision was held to have been made irrationally and not in good faith. Mr Sharma was awarded outstanding commission payments.
