Company’s Commission Policy Could Be Time Bomb 

February, 2009 -

Many companies’s apply employment terms – either in a general commission plan or in the individual employment contract – which can entail major unforeseen costs in the form of retroactive claims from employees for holiday pay or pension payments. There are certain differences in judgement between companies which are bound by collective bargaining agreements and those companies which are not. The claims can amount to quite considerable sums but it is possible to limit this risk.

The problem

The Annual Leave Act is mandatory. This means that contractual terms, in a contract of employment, which contravene the Annual Leave Act are invalid. Likewise, contractual terms which are in contravention of a collective bargaining agreement are invalid.

A corner stone of the Annual Leave Act is the main principle that all remuneration from the employer is to provide a basis for holiday pay, i.e. fixed salary and commission. This does not, however, apply to all commission because such commission, which is paid as a group bonus or the like and which is not based on the efforts of the individual, does not normally provide a basis for holiday pay. It is relatively common that company’s have addressed the problem by attempting to draft contracts along the lines of, "The employee has 10% in commission on all his/her sales inclusive of holiday pay," or "No holiday pay is payable on commission." Such wording is not, however, legally enforceable which means that the employee can claim, over a three year period before the claim is time-barred, 12-14% in remuneration in addition to commission received.

Where a company is bound by a collective bargaining agreement – primarily for professional employees – the company must also pay a pension under a supplementary pension (ITP) plan. This obligation thus follows from the collective bargaining agreement and deviation from this agreement can only take place pursuant to collective bargaining at a central level. According to the ITP plan, as a principle, all remuneration from the employer is to provide a basis for pension payments, which includes commission payments, regardless of what the parties may have agreed upon

Is there a solution??

Yes, there are a couple of alternative solutions which limit or eliminate the risk of future claims. The solution will depend upon whether the company has a collective bargaining agreement or not, and naturally how the current commission terms are worded.

 


Footnotes:


For further questions, please contact Fredrik Nordlöf or Paula Embro-Hogéus, Delphi, Stockholm

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