Unlawful Deductions from Wages - Whether a commission payment can later be recovered from wages

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13 March 2008

In a decision given on 22 February 2008, the President of the Employment Appeal Tribunal (EAT), sitting alone, provided some useful guidance on the application of the protection of wages rules in the Employment Rights Act 1996 (ERA).

Section 13 of the Act provides workers with the right not to suffer unauthorised deductions from their wages. Section 14 gives a number of situations where deductions can be made by an employer without prior authorisation. In principle, for a deduction to be lawful, it must be authorised in advance, i.e. by means of a statutory provision, or a term in the worker's contract, or in a document signed by the employee in advance. There are a number of exemptions from this rule; the relevant provision in this case is where the deduction is made by the employer to recover an overpayment of wages.

In this particular case, Key Recruitment v Lear, Mr. Lear received a commission payment of £1,831 in June 2006 for introducing a new client. When Mr. Lear left the employment in April 2007, the employer deducted the full amount of the commission from the termination payments, on the basis that the client had subsequently defaulted on payments due to the employer. An employment tribunal agreed with Mr. Lear's claim that the deduction was unlawful because the employer could have recovered the commission payment earlier and the amount deducted meant that he received no monies on termination. The employer appealed the decision, arguing that the tribunal had wrongly applied the provisions of sections 13 and 14 of the ERA.

The EAT agreed that the tribunal had erred in its decision and remitted the case to be heard by a fresh tribunal. The two issues discussed in the EAT's decision are helpful in understanding the application of these provisions.

There is no limitation in the legislation to the amount that may be recovered or to the period of time within which any recovery of overpayment must be made.
A commission payment, if paid at the time in accord with contractual provisions, does not become an overpayment unless there is also a contractual provision allowing it to be recovered in defined circumstances and, in fact, those circumstances have arisen.

With respect to the second of these points, it appeared in this case that a commission payment could only be recovered by the employer if and when the client's debt was written off. That did not, in fact, occur until some months after Mr. Lear left the employment.

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Source:
Key Recruitment v Lear

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