It may seem trite to state that commission from the sale of property forms an important part of the overall remuneration of a real estate salesperson.
In an incentive-driven industry like real estate, agencies have long considered how to best reward a salesperson for contributions to business productivity.
So it was with great interest that many watched on as one of the most common incentive systems used in our industry to reward productive salespeople (commonly referred to as debit/ credit) was placed under legal scrutiny.
Simply put, debit/credit is a formula used to calculate the productivity of a salesperson and, in doing so, determine if an entitlement exists for the salesperson to share in the agency’s sales commission.
While the debit/credit system has been a feature of the real estate industry for many decades, a salesperson in South Australia recently claimed that the arrangement was unlawful (Clarke v Playford Real Estate Pty Ltd  SAIRC 49). The salesperson (Clarke) asked the South Australian Industrial Court to order that the debits in the amount of $48,513 made against his commission credits be paid back to him.
In essence, the Court had to decide whether the debiting of Clarke’s salary and allowances (as well as other agreed amounts) from sales commissions credited to him, was a contravention of either the Real Estate Industry Award or the Fair Work Act 2009 (Cth). It is important to note that the employer and employee had signed an agreed commission structure that set out the basis of how the salesperson’s entitlement to commission would be calculated.
In its decision on 9 November 2012, the Court dismissed the salesperson’s claim. The Court accepted that in each week of employment, the salesperson was paid at least the minimum weekly wage, car allowance and superannuation.
The magistrate observed: “In my opinion clause 15.1 [of the Award] must be read as a whole. On this basis the amount of an employee’s entitlement [to commission] is clearly made subject to the agreed written method or formula of calculation.
“The clause qualifies the concept of the ‘commission that will be payable to the employee’ by acknowledging that there must be a written ‘method of calculation’ or a ‘formula for calculating’ the amount of commission that will become payable … there is nothing in [the Award] as a whole which prevents the agreed method or formula [for commissions] from taking into account the employee-related overheads of wages, car allowance and sales expenses.”
The magistrate also rejected the salesperson’s claim that the debiting of amounts against commission credits was in contravention of sections 324 and 326 of the Fair Work Act. These sections of the Act proscribe certain deductions from an amount payable to an employee.
The magistrate concluded: “Nor do sections 324 and 326 have any relevance in my opinion. That is because nothing is being deducted from or debited against an amount that is payable to the employee.
“The agreed starting point of 45 per cent of the employer’s net professional fee is not an amount that is payable to the employee, in accordance with the agreement. It is a calculation point only.”
Good outcome for industry
Most real estate practitioners will see the decision as positive news for the industry, not just in South Australia but throughout Australia.
This article was first published in the February 2013 edition in the REINSW Real Estate Journal.
Had Clarke succeeded with his claim, the industry would have been forced to reassess the maintenance of this long-established incentive arrangement for sales representatives.
The industry can now rest more easily knowing that the debit/credit commission structure has survived a vigorous judicial review.