ERA ruling shows why bonus schemes must be clearly documented
The Employment Relations Authority (ERA) recently dealt with a case involving a sales and marketing specialist who claimed she was owed a significant amount in unpaid sales commissions. The worker had resigned from her position after being employed for approximately five years.
The worker argued she was entitled to receive over $40,000 in commission payments, while her employer maintained they had correctly paid her just under $3,400. She based her claim on a table provided alongside her employment agreement and her understanding of which sales should be included in calculations.
The dispute raised questions about what makes terms binding in employment agreements, how incentive schemes should be documented, and whether previous payment practices create ongoing entitlements.
The worker was employed as an asian market sales and marketing specialist at a company that manufactures and markets herbal extracts. Her most recent employment agreement was signed in June 2021, with a cover letter stating "the China sales incentive has been reinstated, effective 9 June 2021."
Despite this mention in the cover letter, the employment agreement itself contained no details about how the incentive scheme would function. There were no terms or conditions about the scheme in the agreement, its attached schedule, or the job description.
The employment agreement included an 'entire agreement' clause which stated: "The terms and conditions set out in this Individual Employment Agreement replace any previous agreements and understandings and represent the entire agreement between the Employee and the Employer."
For the year ending 31 March 2023, the employer paid the worker $3,398.85 (gross) under the China sales incentive scheme, providing a letter explaining the calculation method.
The worker disagreed with this amount, claiming she should have received $40,462.00 (gross). She argued that a table showing incentive payments for various sales targets was part of her employment terms, and that sales revenue from two additional clients should have been included in her bonus calculation.
The first client was a New Zealand chain of pharmacies, while the second was a company distributing the employer's products into Vietnam. The worker believed both should count toward her commission totals.
The employer maintained that the table was provided "for illustrative purposes only" and wasn't a binding part of the employment agreement. They pointed out that the table was dated November 2018, supporting their position that it was merely an example.
The ERA examined the physical arrangement of the documents and noted that the table appeared after the signed declaration page. The main agreement and job description were numbered pages 2 to 14, but the table had no page number.
"The main body of the employment agreement, the job description and the declaration page are numbered from pages 2 to 14 (there is no page 1). There is no page number on the table," the ERA observed when assessing whether the table formed part of the contract.
Both parties agreed that for the previous financial year (ending 31 March 2022), revenue from the disputed clients had been included in the worker's bonus calculation. However, the employer claimed this had been done in error.
The chief executive officer stated in his evidence that including these clients in the previous year's calculation was a mistake. However, since the amount was relatively small at $984.00 and already overdue, they decided to pay it.
"[G]iven that the bonus scheme was discretionary and $984.00 was not material, relative to the time to do the necessary research, and given there were more pressing priorities within the business, I advised [the worker] that the Company would agree to pay $984.00 if she agreed with this amount, which she did," the CEO explained.
The ERA found no evidence that the parties had agreed the worker was entitled to incentive payments on sales to these clients. It noted that written evidence only referred to 'China sales', and neither of the disputed clients could reasonably fall into that category.
"Neither [the New Zealand pharmacy chain] nor [the Vietnam distributor] could reasonably be said to form part of China sales. [The pharmacy chain] is a chain of retail pharmacies in New Zealand, and there is no dispute that [the Vietnam distributor's] focus is on sales into Vietnam," the ERA stated.
The worker also claimed the employer wasn't entitled to increase the sales target for the 2023 financial year. The ERA rejected this argument, noting: "It is not unusual for sales targets to be raised over time. The fact that [the employer] set a sales target during the previous financial year does not create an immutable term of [the worker's] employment, which can never be increased."
The ERA ultimately concluded: "The terms of the parties' agreement in respect of the China sales incentive scheme are insufficiently certain to establish [the worker's] claim."
The Authority dismissed the worker's claim, determining that neither the incentive payment made to her for the financial year ended 31 March 2023 nor the calculation was incorrect. Costs were reserved, with the parties encouraged to resolve any issues between themselves.
