Is reducing sales commission a breach of an employment contract?

SANBOS (MALAYSIA) SDN. BHD. v GAN SOON HUAT [2021] 1 LNS 391

• Gan Soon Huat (“ Gan”) worked as a sales representative for Sanbos (“Employer”) since 1977.

• He was assigned a sales coverage area, paid a monthly salary, and also paid a commission as is the norm with regard to sales representatives.

• The sales commission rate was based on a formula that took into account the revenue collected from sales and the period within which it was collected. It was known as the Sales Commission Scheme.

• The Sales Commission Scheme was revised in 2009 which was accepted by Mr. Gan and carried on as before until 2016 when it was revised again.

• The Employer also removed Negeri Sembilan from the sales coverage area of Mr. Gan in 2016.

• At the same time, the monthly sales target of Mr. Gan was increased from RM1,500,000.00 to RM1,690,000.00.

• Gan wrote a letter to express his dissatisfaction.

• He objected to the revised Sales Commission Scheme that lowered the sales commission rate. He said that it was not in accordance with his employment agreement as it would reduce his monthly sales commission by 42%.

• Furthermore, the removal of Negeri Sembilan from his coverage area would reduce his monthly sales commission by 30%.

• Gan did not resign upon receipt of the letter that notified him of the revision of the sales commission rate and the reorganization of the sales coverage area. He only resigned 9 months later and regarded himself as constructively dismissed.

• Gan then lodged a complaint for constructive dismissal at the Industrial Relations Department. The matter was then referred to the Industrial Court

• The Employer stated at the Industrial Court hearing that the said changes were made to streamline the business operation and to remain competitive.

• Gan claimed that he remained in employment to collect evidence of a reduction in monthly income due to the appellant’s practice of releasing the commission a few months subsequent to collection of monies from sales.

• The Industrial Court dismissed Mr. Gan’s claim.

• However, the High Court found that the Industrial Court erred in finding that Mr. Gan was not constructively dismissed.

The Employer appealed to the Court of Appeal.

• The Court of Appeal allowed the appeal and set aside the decision of the High Court

• The Court of Appeal held that an employee is only entitled to regard himself as dismissed if there is a breach of the fundamental terms of the contract of employment.

• The Court further held that payment of sales commission according to the rate that is stated in the letter of appointment and the change in sales coverage area were not fundamental terms of the employment contract.