Underpaid commissions: ERA rules on uncommunicated agency fee increase

The Employment Relations Authority (ERA) recently dealt with a case involving a dispute over commission payments between a worker and their employer.

The worker argued that they were entitled to higher commission payments based on an increase in agency fees that had not been passed on to them.

This case raised questions about verbal agreements, the interpretation of employment contracts, and the obligations of both employers and employees in communicating about remuneration changes.

Worker’s alleged commissions

The worker had been employed by a trotting club since 2005 as a manager of a TAB betting outlet. Their remuneration package included a base salary of $45,000 per year and a quarterly bonus calculated as a percentage of the agency fee paid to the employer by TAB New Zealand.

In 2015, the employer renegotiated its agency fee with TAB to a flat rate of four percent across all revenue streams, up from the previous 2.5 percent for racing fixed odds betting and a variable rate for sports fixed odds betting. However, this increase was not passed on to the worker in their bonus payments.

The worker's employment agreement, signed in 2013, stated that their performance incentive would be:

"50% of the commission payable to us by the NZ Racing Board in respect of turnover in the TAB (excluding on course turnover during Alexandra Park race meetings) in excess of $90,000 per week averaged over each quarter, with such performance incentive to be paid at the end of each quarter."

In April 2022, the worker started a wage arrears claim with the ERA, saying that the employer had not used the correct rate to calculate their bonus payment since the increase in 2015.

The main points of disagreement in this case were:

1. Whether there was a verbal agreement between the parties to not apply the increased agency fee to the worker's commission calculations.
2. If the worker was estopped from claiming that the agency fee increase applied to their commission calculations.
3. Whether the worker had waived their contractual rights to claim the increased agency fee in their commission calculations.

Commission calculations and worker’s alleged waiver

The employer said there was a verbal agreement with the worker to not apply the increased agency fee to their commission calculations.

They also argued that the worker was estopped from making the claim or had waived their contractual rights.

The employer's position was that if they had known they needed to calculate the bonus based on the full agency fee of four percent, they would have restructured or possibly ended the worker's employment earlier.

They claimed that the worker's silence on the issue over several years indicated agreement with the existing payment arrangement.

The worker said there was no agreement to forgo the increased agency fee in their commission calculations. They argued that they had not waived their entitlements and that there was no basis for estopping them from making their claim.

The worker maintained that they were entitled to the higher commission rate based on the increased agency fee, as per their original employment agreement.

Determining the worker’s entitlements

The ERA found in favour of the worker on all key issues. The Authority decided that:

1. There was no verbal agreement between the parties to not apply the increased agency fee to the worker's commission calculations.
2. The worker was not estopped from claiming that the agency fee increase applied to their commission calculations.
3. The worker had not waived their contractual rights to claim the increased agency fee in their commission calculations.

In making its decision, the ERA emphasised the importance of clear communication and proper documentation in employment relationships. The Authority noted:

"To allow [the employer] to rely purely on its belief, particularly one generated by silence, would essentially be to allow circumvention of the provisions of the Act. This would be inconsistent with the objects of the Act, which includes such provisions to address the inequality of power in employment relationships."

The Authority also addressed the issue of unconscionability, stating:

"Unconscionability relates to the party against whom the estoppel is asserted. It is not directed at some general assessment of impact on the company. Such impact will always be suffered (to a greater or lesser extent) by an employer where an employee has delayed (for whatever reason) in pursuing their legal entitlements..."

Regarding the employer's argument about the worker's silence on the issue, the Authority said:

"[The worker's] decision not to 'protest too loudly', in particular in March 2015, does not amount to a representation."

This case reminds employers of the need to clearly communicate and document any changes to employment terms and conditions. It also shows the importance of following proper procedures when trying to change employment agreements.