Court increases employee's level of commission despite it being labelled discretionary

In Hills v Niksun Inc [2016] EWCA Civ 115, the Court of Appeal held that the courts were entitled to interfere with and increase the level of bonus under a discretionary bonus scheme where an employee was not happy with the amount received.

Mr Hills was employed by Niksun and part of his salary consisted of commission, which was referred to in his contract of employment and other documents as follows:

- "You may from time to time be eligible to participate in such commission plan(s), if any, as [Niksun] may in its absolute discretion determine. Participation will be on such terms, and subject to such events, as [Niksun] may from time to time determine at its absolute discretion."

- "All disputes in compensation and commissions, and in any interpretations of this letter or Niksun's policies, will be solely decided by Niksun management."

- "Niksun reserves the right to determine what level of executive compensation, if any, is fair and reasonable under the circumstances, and is in the best interest of Niksun."

Despite these terms the Court of Appeal has held that the courts were entitled to increase the level of commission awarded to Mr Hills. Once an employee had shown there were grounds for concluding that the employer's decision was not reasonable, it was for the employer to show that its decision was reasonable, which it had not done in this case.

The Court rejected the argument that the employer had "broad and untrammelled discretion" when determining the level of commission despite the terms of the contract of employment and subsequent correspondence relating to the bonus. The case illustrates that the courts will look beyond signed documents when there is evidence of irrational behaviour on the part of an employer.

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