Modification of the commission plan: Legal obligations

According to employment law and labor regulations, an employee's commission agreement structure—whether individual, collective, or hybrid—and all calculation parameters and payment terms must be explicitly detailed in the written employment contract from the moment of hire. Under no circumstances can commission-based compensation and its conditions be established through verbal agreement alone.

However, once a commission structure is formalized in each beneficiary's employment contract, can the variable compensation plan, commission rates, and its associated criteria be legally modified? Don't forget to consult our sales commission plan guide to go further.

The straightforward answer is yes. Employers frequently need to adjust their commission remuneration agreements for various strategic, operational, and market-driven reasons.

The data demonstrates this reality:

• 46% of organizations believe their current commission structure and payment framework fails to retain top-performing talent. (Primeum, commentremunerer.com and MeteoJob survey)
• 2/3 of sales professionals and commissioned employees consistently miss their annual revenue targets. (Aberdeen Group study)
• 88% of survey participants consider their commission pay system and performance-based compensation requires substantial improvement. (Primeum, commentremunerer.com and MeteoJob survey)

But what legal framework and contractual obligations govern the modification process for commission compensation agreements? Under what circumstances can these contract changes be implemented?

To address these critical questions, Qobra's compensation and employment law experts have compiled a comprehensive guide detailing all mandatory steps and legal requirements for modifying commission structures on a going-forward basis. Throughout this article, we'll also examine the legal risks and breach of contract consequences companies face when failing to comply with these procedures, as well as employees' contractual rights and legal remedies when disagreeing with proposed commission plan changes. Discover our comprehensive commission plans resources for more insights.

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1. When can a commission pay plan be changed?

Historically, employers were prohibited from unilaterally modifying employee commission structures without explicit written consent, as commission-based remuneration constitutes a fundamental element of the employment contract and represents a contractual obligation.

However, legal frameworks and employment regulations have evolved. Today, when the contract clause explicitly permits modification, employers can adjust commission targets, rates, and variable compensation objectives on a prospective basis, provided these modifications meet strict legal criteria:

Achievable and realistic based on current market conditions and sales performance expectations

Fixed and communicated to commissioned employees with reasonable notice at the beginning of the fiscal year

Critically, organizations cannot require employees to accept commission plan changes retroactively or in advance without full transparency and written agreement regarding the specific modifications to commission rates and payment terms.

Nevertheless, when an employment contract stipulates that any commission structure modification requires mutual agreement between employee and employer, the company cannot unilaterally implement changes—even if the new commission objectives are achievable, predetermined, and communicated with reasonable notice at year's start.

📌 Please note:

If an employment contract or commission agreement includes commission remuneration without defining specific terms, conditions, and payment structure, any modification to the variable compensation structure requires the employee's explicit written agreement to avoid breach of contract claims.

Following these legal principles and contractual obligations, here are common scenarios where employers may legitimately need to modify employee commission agreements on a going-forward basis:

Reorganisation of a team

The commission remuneration component and payment structure of employment contracts may require contractual revision through written amendments when organizational restructuring affects team members' earning potential and commission rates, particularly when the company cannot guarantee maintaining equivalent total compensation levels.

Internal mobility

Contract amendments and commission agreement modifications may be necessary when commissioned employees transfer internally to positions with significantly different revenue potential and commission opportunities, whether higher or lower, than their current commission structure and payment terms account for.

Market developments

Companies can propose commission plan modifications on a prospective basis in response to market evolution and competitive pressures, provided they secure employee agreement through written consent and provide comprehensive details about the changes to commission rates and payment structure. However, without employee consent and written agreement, employers cannot unilaterally adjust variable compensation structures based solely on market conditions.

📌 Please note:

Employers retain the contractual right to award discretionary bonuses to employees. This means companies can distribute performance-based bonuses without incorporating them into employment contracts, creating formal amendments, or executing contract riders, provided they can justify the payment rationale and maintain compliance with wage laws.

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2. Modification of the commission remuneration plan: What are the risks in case of non-compliance with legal obligations?

When a company modifies commission plan objectives and payment terms without ensuring they meet legal requirements and contractual obligations, specifically being achievable, predetermined, and communicated to commissioned employees with reasonable notice at the fiscal year's beginning, the organization violates employment law and commits breach of contract, exposing itself to significant legal and financial risks.

In practice, such non-compliance and breach of contractual obligations can result in constructive dismissal claims where affected employees terminate their employment contract citing employer fault. Additionally, companies face potential legal liability for commission remuneration reimbursement, either covering earned wages and earned commissions from previous years or maximum contractual amounts, plus substantial damages, legal fees, and penalties under labor law.

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3. Changing commission pay: the steps to follow

When an employer decides to modify employee commission structures and payment agreements, they must provide reasonable notice in writing at the beginning of the fiscal year while ensuring all new commission objectives and rates remain realistically achievable.

These commission plan modifications and contract changes should be incorporated into written employment contracts for all new hires whose compensation includes a variable commission component or performance-based pay.

Regarding commission remuneration changes for current commissioned employees, companies must prepare formal contract amendments reflecting the modified commission agreement and obtain written signatures from all affected beneficiaries to establish mutual agreement and avoid breach of contract.

📌 Please note: 

Employees possess the legal right and contractual protection to refuse signing amendments that modify their commission compensation structure or payment terms. In such cases, the employee continues benefiting from their existing commission pay system and contractual rights. While refusal doesn't constitute grounds for dismissal or wrongful termination, employers may pursue alternative legal remedies.

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4. Changes to the commission pay plan: what are the possible reactions as an employee?

When employers fail to comply with the previously outlined legal requirements and contractual obligations for commission plan modifications and contract changes, commissioned employees can pursue several legal remedies and breach of contract claims.

Specifically, if commission structure changes negatively impact an employee's total remuneration or earned commissions, the affected individual has the contractual right to:

• Submit their case to the employment tribunal (industrial tribunal) or labor board requesting reinstatement of their original compensation structure and recovery of earned wages.
• Exercise constructive dismissal rights and legal remedies by terminating their employment contract or requesting judicial contract termination based on employer breach.

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The final word...

Organizations can legally modify commission compensation plans and payment agreements on a prospective basis provided the revised targets, commission rates, and payment terms meet achievability standards and are communicated transparently to commissioned employees with reasonable notice at the beginning of the fiscal year.

For modified commission structures and contract amendments to maintain legal validity and contractual enforceability and protect companies from potential litigation and breach of contract claims, all changes must be formally accepted by beneficiaries through written agreement and signed contract amendments establishing mutual consent and legal compliance. Learn about common sales commission mistakes to avoid when implementing these changes.