Can Redundancy Affect Commission Payments?

Commission is a common form of variable pay in UK employment, particularly in sales, recruitment, financial services, and account management roles. When redundancy occurs, commission payments can become a major area of dispute between employers and employees.

In England and Wales, redundancy does not automatically cancel commission entitlement. Instead, the outcome depends on the employment contract, commission scheme rules, and whether the commission has already been earned at the point employment ends. The legal distinction between “earned” and “unearned” commission is central to determining entitlement.

What Is Commission in Employment Law?

Commission is typically a performance-related payment linked to measurable outcomes such as:

• Sales completed
• Contracts signed
• Revenue generated
• Deals successfully closed
• Customer accounts managed

Commission may be:

• Contractual, where entitlement is legally enforceable
• Discretionary, where payment is optional
• Hybrid, where entitlement depends on conditions being met

The classification is critical in redundancy situations because it determines whether commission survives termination.

Does Redundancy Cancel Commission Payments?

Redundancy does not automatically remove entitlement to commission. The key legal question is whether the commission was already earned under the terms of the contract before termination.

Commission disputes typically focus on:

• Timing of the sale or transaction
• When commission is “earned” under the scheme
• Whether payment is conditional on continued employment
• Whether the deal completes after termination

If commission has been earned prior to redundancy, employees may still be entitled to payment even after dismissal.

When Commission Is Usually Still Payable

Commission is often payable after redundancy where:

• The sale was completed before termination
• The employee was the effective cause of the transaction
• Contractual conditions for earning commission were satisfied
• The commission relates to completed performance periods

Courts and tribunals generally interpret earned commission as part of wages, meaning it may be recoverable as an unlawful deduction if not paid.

When Commission May Be Lost After Redundancy

Commission may be withheld where contract terms state that:

• The employee must be in employment at the payment date
• Commission is only payable once payment is received from the client
• Commission is conditional on continued employment during a “vesting” or “cooling-off” period
• The deal is not fully completed before termination

These clauses are common but can still be challenged if applied unfairly or inconsistently.

“Earned” vs “Unpaid” Commission

A central legal issue is whether commission is:

Earned commission

This refers to commission where all contractual steps have been completed. It is more likely to be protected as part of wages.

Unpaid or contingent commission

This refers to commission dependent on future events, such as:

• Client payment
• Completion of a probation period
• Continued employment

Unpaid commission is more vulnerable to being lost on redundancy if conditions are not met.

Commission During Notice Period

Where redundancy involves a notice period, commission entitlement depends on contract wording.

Possible outcomes include:

• Commission continues to accrue during notice
• Commission is frozen at the date notice is given
• Commission is paid only if employment continues until payout date

If an employee is placed on garden leave, commission schemes often pause accrual, although this depends on the contract.

Post-Termination Commission (Tail Commission)

Some contracts include “tail commission” or “post-termination commission” clauses. These may provide payment after employment ends if:

• The employee introduced the client
• The deal completes within a set period after termination
• The employee was materially involved in securing the sale

In redundancy situations, tail commission clauses can significantly affect final entitlement.

Legal Principles Governing Commission Disputes

Commission disputes in redundancy cases are governed by:

• Employment contract terms
• Commission scheme rules
• Principles of contractual interpretation
• Implied duty of trust and confidence
• Law on unlawful deductions from wages

Tribunals typically focus on whether commission was sufficiently “earned” before termination and whether conditions were clearly communicated.

Unlawful Deduction of Wages Claims

Where commission is contractually due but not paid, employees may bring a claim for unlawful deduction of wages.

This may apply where:

• Commission was earned before redundancy
• Employer refuses payment due to termination
• Contract does not clearly exclude entitlement

Successful claims can result in recovery of unpaid commission plus interest.

Common Redundancy Commission Disputes

Typical disputes include:

• Whether a deal was “completed” before termination
• Whether commission depends on client payment
• Whether “active employment” clauses are enforceable
• Whether commission should be pro-rated
• Whether employers manipulated timing of redundancy to avoid payment

These issues often require detailed review of contractual wording and sales records.

Practical Examples

Example 1: Completed sale before redundancy

A salesperson closes a deal before being made redundant. Even if payment arrives later, commission is likely payable if the contract recognises the sale as completed.

Example 2: Deal signed but not completed

An employee is made redundant after a contract is signed but before client payment. Commission may be lost if the scheme requires payment receipt.

Example 3: Commission during notice period

An employee works through a notice period and continues closing deals. Commission entitlement depends on whether the scheme allows accrual during notice.

Employer Risks and Legal Exposure

Employers managing commission during redundancy must ensure:

• Clear and consistent application of commission rules
• Transparent communication of entitlement conditions
• Avoidance of arbitrary withholding of earned commission
• Proper documentation of when commission is earned

Legal risks include:

• Breach of contract claims
• Unlawful deduction of wages claims
• Disputes over implied terms and fair dealing
• Tribunal findings of unfair dismissal linked to financial loss

Commission disputes can significantly increase redundancy costs.

Employee Steps When Commission Is Withheld

Employees may consider:

• Reviewing commission and sales documentation
• Checking contractual definitions of “earned commission”
• Requesting written breakdown of withheld payments
• Raising a grievance internally
• Bringing a tribunal claim for unpaid wages or breach of contract

Strict time limits generally apply, usually three months less one day from the payment dispute.

Key Takeaways

Redundancy can affect commission payments, but it does not automatically remove entitlement. The key issue is whether commission has already been earned under the contract before employment ends. Contractual terms, timing of sales, and conditions such as continued employment or client payment all play a decisive role. Where commission is earned but unpaid, employees may still be able to recover it through contractual claims or tribunal proceedings.