Factual and Procedural Background
This appeal arises from a decision of an employment tribunal in Newcastle upon Tyne concerning a former employee's claim against his employer, Company A, for unpaid commission payments following his resignation. The employee had been employed as a sales executive from October 1998 until July 2001. He claimed that he was entitled to significant unpaid commission under his employment contract, either as damages for breach of contract or as a debt, and alternatively, that the unpaid commission constituted unlawful deductions from wages. The tribunal held in favor of the employee, ordering payment of the commission. Company A appeals that decision, raising five distinct issues.
Legal Issues Presented
- Whether the specific post-termination commission provisions (section B) were incorporated into the employee’s contract of employment.
- Whether those commission provisions were void under the Unfair Contract Terms Act 1977 for failing the reasonableness test.
- Whether the post-termination commission provisions constituted an unlawful restraint of trade.
- Whether the employment tribunal had jurisdiction to entertain the employee’s first originating application for damages or debt.
- Whether the non-payment of commission amounted to unlawful deductions of wages under the Employment Rights Act 1996.
Arguments of the Parties
Appellant's Arguments (Company A)
- The exchange of letters constituted a conditional offer, and the employee was only bound by the standard contractual terms upon signing the relevant documents, which occurred after starting work.
- The post-termination commission provisions (section B) were incorporated into the contract as part of the signed commission scheme document.
- Section B did not fall foul of the Unfair Contract Terms Act 1977 because it defined the limits of the employee’s entitlement rather than excluding or restricting liability.
- The commission provisions did not constitute an unlawful restraint of trade because they did not restrict the employee’s freedom to work elsewhere after termination.
- The tribunal lacked jurisdiction to hear the first claim because the commission claim was not due or outstanding at the time of termination.
- The employee’s signature on the commission scheme document constituted written consent to any deductions, negating claims of unlawful deductions under the Employment Rights Act 1996.
Respondent's Arguments (Employee)
- The post-termination commission provisions were not incorporated because the employee was not given reasonable notice of the onerous terms prior to signing.
- Even if incorporated, the provisions were void under the Unfair Contract Terms Act 1977 as they substantially altered the expected contractual performance.
- The provisions operated as an unlawful restraint of trade by economically discouraging resignation and subsequent employment elsewhere.
- The tribunal had jurisdiction to hear the payment claim because the claim arose or was outstanding at the time of termination.
- The non-payment of commission constituted unlawful deductions as the employee had not given informed written consent to such deductions.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Spurling (J) Ltd v Bradshaw [1956] 1 WLR 461 |
Requirement of reasonable notice for onerous contract terms to be incorporated. |
The tribunal relied on this to find that onerous commission terms were not incorporated due to lack of reasonable notice; the appeal court disagreed, holding signed terms bind even if onerous. |
| Thornton v. Shoe Lane Parking [1971] 2 QB 163 |
Similar principle on notice for unusual or onerous terms. |
Referenced by tribunal to support their view on notice; appellate court found it inapplicable to signed written contracts. |
| Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd [1989] 1 QB 433 |
Requirement for explicit notice of onerous terms in unsigned or referenced documents. |
Tribunal relied on this for non-incorporation; appellate court held it did not apply to signed agreements. |
| Parker v. The South Eastern Railway Company (1877) 2 CPD 416 |
Signed written contracts bind parties regardless of whether terms were read or understood. |
Appellate court cited this to support that signing binds the employee to terms, including onerous ones. |
| Ocean Chemical Transport Inc and Another v. Exnor Craggs Ltd [2000] 1 Lloyd's L.R. 446 |
Application of onerous term principles to incorporation by reference and extreme circumstances. |
Appellate court distinguished this case, noting no extreme circumstances here and that terms were contained in the signed document. |
| Brigden v. American Express Bank Ltd [2000] IRLR 94 |
Whether contract terms exclude or restrict liability or define limits of rights for UCTA 1977 purposes. |
Appellate court found this supported the view that section B defined limits of entitlement, not exclusion of liability. |
| Brennan v. Mills and Allen Limited, 13 July 2000 (unreported) |
Similar commission clause considered not to fall within s.3(2)(b) UCTA 1977. |
Appellate court regarded the judicial member’s reasoning as supportive of their conclusion on section B. |
| Marshall v. N.M. Financial Management Ltd [1997] IRLR 49 |
Restraint of trade principles regarding post-termination restrictions in agency contracts. |
Appellate court found the tribunal misapplied this precedent; no restraint of trade in current case. |
| Miller Bros & F.P. Butler Ltd v. Johnston [2002] ICR 744 |
Jurisdiction under Employment Tribunals Extension of Jurisdiction Order 1994 concerning timing of claims. |
Appellate court applied this to hold tribunal lacked jurisdiction as claim was not outstanding at termination. |
Court's Reasoning and Analysis
The court first analyzed the formation of the contract, concluding that the initial exchange of letters did not bind the employee unconditionally to the standard terms, but rather conditioned employment on subsequent signing of those terms. The employee’s signature on 28 October of the commission scheme document, which included section B, constituted incorporation of those terms into the contract. The court rejected the tribunal’s application of the onerous term notice principle (Interfoto principle) to signed terms, emphasizing the established rule that signing a written contract binds the party regardless of whether they read or understood all terms.
On the Unfair Contract Terms Act 1977 issue, the court found that section B did not exclude or restrict liability but rather defined the limits of the employee’s entitlement to commission. Thus, it did not fall within section 3(2)(b) of the Act and the reasonableness test under section 11 did not apply.
Regarding restraint of trade, the court held that section B did not impose any restriction on the employee’s freedom to work elsewhere post-termination and therefore was not an unlawful restraint of trade. The tribunal’s reasoning that economic disincentive equated to restraint was rejected.
On jurisdiction, the court interpreted the Employment Tribunals Extension of Jurisdiction Order 1994 as requiring the claim to have arisen or be outstanding at termination. Since commission became payable only after termination, the claim was neither due nor outstanding at that time, depriving the tribunal of jurisdiction to entertain the first originating application.
Finally, on unlawful deductions under the Employment Rights Act 1996, the court held that the employee’s signature on the commission scheme document constituted written consent to deductions, regardless of whether the employee had actual knowledge of the full effect at signing. The tribunal’s requirement for “informed consent” was rejected as an unwarranted gloss on the statutory requirement.
Holding and Implications
The court allowed the appeal by Company A and set aside the employment tribunal’s decision that the employee was entitled to the claimed commission payments.
The direct effect is that the employee’s claims for unpaid commission, both under breach of contract and unlawful deduction of wages, fail. The court clarified the application of incorporation principles to signed employment contract terms, the limits of the Unfair Contract Terms Act 1977 in this context, and the scope of employment tribunal jurisdiction under the 1994 Order. No new precedent was established beyond the application of well-settled principles to the facts of this case.