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Employee on commission had to tolerate changes to product’s terms of sale

17. oktober 2017

The Danish Eastern High Court has ruled that a company did not have to give notice to a sales person paid on a commission basis before changing the terms of sale for the company’s products. The decision to change the terms of sale was based on business reasons and the changes did not go beyond what the employee had to tolerate.

For a number of years, a telecommunications company had had a campaign where two products were offered with a 30 days free trial period. These two products formed part of a wider range of products, which the company’s salesmen were in charge of selling. The company’s sales personnel were partially paid on a commission basis, so they received a fixed, monthly salary and a minimum of 30 % in commission in addition to the fixed salary.

The company had received a number of complaints and refund requirements from customers who had signed up for the free trial period and therefore the company decided to eliminate the trial period. Subsequently, one of the sales persons in the company experienced a decrease in his monthly salary. The employee therefore claimed that the changes to the terms of sale for the products resulted in a material change in his conditions of employment. Consequently, he claimed that the changes should have been introduced with four months’ notice, in accordance with his notice of termination. During the proceedings, the employee demanded compensation equivalent to the difference between the commission he believed he would have received if the free trial period had not been abolished and the reduced commission he actually received during the period.

The Eastern High Court: Changes to the terms of sale had to be tolerated

First of all, the High Court established that an employee working on commission can expect that the company’s business decisions do not materially alter the employee’s chances of earning commission, even if the method for calculating commission remains the same. Therefore, the question in the case was whether the decision to eliminate the free trial period caused such a material change to the employee’s commission entitlement that he was entitled to compensation.

The High Court found that the changes were made due for business reasons and that the employee still earned a salary significantly above the minimum of 30 % stipulated in the commission agreement. Additionally, the High Court found that there had also been a decline in sales before the introduced changes, and there was a presumption that the decline was a result of the competitive market situation. Therefore, it was uncertain whether the change in itself had caused the decline in the employee’s commission.

For these reasons, the High Court did not find that the employee’s chance of accruing commission was reduced beyond what he had to tolerate. The company was therefore exempt from liability.

IUNO’s opinion

The case illustrates that a company’s business-related decisions can affect the income of an employee working on commission to such an extent that the employer must give prior notice of the changes.

IUNO recommends that the commission agreement clearly states to what extent and how the company can change the arrangement. Whether a change is material and therefore requires prior notice will, however, always depend on a specific assessment, regardless of any contract terms on possible changes. In the event of changes to a commission agreement which affect the employee’s potential earnings, the changes will quite often be considered a material change. Additionally, the companies should be aware that business decisions which affect the possibility of earning commission may also be considered material changes of the terms and conditions.

[The Danish Eastern High Court’s judgment of 4 July 2017 in case B-1990-16]

For a number of years, a telecommunications company had had a campaign where two products were offered with a 30 days free trial period. These two products formed part of a wider range of products, which the company’s salesmen were in charge of selling. The company’s sales personnel were partially paid on a commission basis, so they received a fixed, monthly salary and a minimum of 30 % in commission in addition to the fixed salary.

The company had received a number of complaints and refund requirements from customers who had signed up for the free trial period and therefore the company decided to eliminate the trial period. Subsequently, one of the sales persons in the company experienced a decrease in his monthly salary. The employee therefore claimed that the changes to the terms of sale for the products resulted in a material change in his conditions of employment. Consequently, he claimed that the changes should have been introduced with four months’ notice, in accordance with his notice of termination. During the proceedings, the employee demanded compensation equivalent to the difference between the commission he believed he would have received if the free trial period had not been abolished and the reduced commission he actually received during the period.

The Eastern High Court: Changes to the terms of sale had to be tolerated

First of all, the High Court established that an employee working on commission can expect that the company’s business decisions do not materially alter the employee’s chances of earning commission, even if the method for calculating commission remains the same. Therefore, the question in the case was whether the decision to eliminate the free trial period caused such a material change to the employee’s commission entitlement that he was entitled to compensation.

The High Court found that the changes were made due for business reasons and that the employee still earned a salary significantly above the minimum of 30 % stipulated in the commission agreement. Additionally, the High Court found that there had also been a decline in sales before the introduced changes, and there was a presumption that the decline was a result of the competitive market situation. Therefore, it was uncertain whether the change in itself had caused the decline in the employee’s commission.

For these reasons, the High Court did not find that the employee’s chance of accruing commission was reduced beyond what he had to tolerate. The company was therefore exempt from liability.

IUNO’s opinion

The case illustrates that a company’s business-related decisions can affect the income of an employee working on commission to such an extent that the employer must give prior notice of the changes.

IUNO recommends that the commission agreement clearly states to what extent and how the company can change the arrangement. Whether a change is material and therefore requires prior notice will, however, always depend on a specific assessment, regardless of any contract terms on possible changes. In the event of changes to a commission agreement which affect the employee’s potential earnings, the changes will quite often be considered a material change. Additionally, the companies should be aware that business decisions which affect the possibility of earning commission may also be considered material changes of the terms and conditions.

[The Danish Eastern High Court’s judgment of 4 July 2017 in case B-1990-16]

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Anders

Etgen Reitz

Partner

Søren

Hessellund Klausen

Partner

Kathrine

Skøtt Jespersen

Senior associate

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