EMPLOYMENT APPEALS TRIBUNAL
Ivo Meekel -employee UD653/2013
PW265/2013
Delmec Engineering Limited -employer
under
UNFAIR DISMISSALS ACTS, 1977 TO 2007
PAYMENT OF WAGES ACT, 1991
I certify that the Tribunal
(Division of Tribunal)
Chairman: Ms D. Donovan B.L.
Members: Mr J. Horan
Mr S. Mackell
heard these appeals at Carlow on 9th May 2014 and 19th June 2014 and 29th October 2014
The appeal under the Unfair Dismissals Acts, 1977 to 2007, came before the Tribunal by way of the employer appealing against a Rights Commissioner Recommendation (reference: r-127051ud-12/JT).
The appeal under the Payment of Wages Act, 1991 came before the Tribunal by way of the employee appealing against a Rights Commissioner Recommendation (reference: r-127052-pw-12/JT).
Representation:
Employee: Mr. Michael McNamee B.L. instructed by Mr Kevin McNulty,
Richard Black Solicitors, Beechfield House, Clonee, Dublin15
Employer: Ms. Audrey Coen B.L. instructed by Mr. Conor B Cahill,
Sheehan & Company, Solicitors, 1 Clare Street, Dublin 2
Background:
The employee in this case commenced employment as a Business Development Manager with the employer on 1st September 2010 pursuant to a written contract of employment. He was interviewed for his position within the company by KD, CEO for the company, ID, Managing Director and head of Irish Operations and PO’B Production Manager. His contract provided that he would be paid an annual salary of €50,000plus 5% commission on all paid invoices for international sales.There is a dispute between the parties regarding the conclusion of a second contract in or around April 2012 providing for an annual salary of €64,000 and commission paid at the rate of 10% on profits from international sales. From in or about June 2012 to August 2012 a third contract was sought to be negotiated which provided that commission would be paid at the rate of 10% on the combined profits from the Irish market and international sales. The parties failed to reach any agreement on this said third contract. On the 8th August 2012 the employee was verbally informed that his contract with the employer was being terminated and which termination was confirmed by letter dated 14th August 2012 the reason given for the termination being “the company is not in a financial position to continue as was previous.”
Two claims were lodged with the Rights Commissioner, one under the Unfair Dismissals Acts 1977-2007 for unfair dismissal and one under the Payment of Wages Act 1991 in respect of the failure to pay commission.
The Rights Commissioner upheld the claim under the Unfair Dismissals Acts and awarded an amount of €60,000.
The Rights Commissioner did not uphold the claim under the Payment of Wages Act 1991 because of difficulty reconciling the financial information provided by the parties at the hearing and because of the dubious legality of the commission contract.
The employer appealed the recommendation of the Rights Commissioner under the Unfair Dismissals Acts and the employee appealed the recommendation of the Rights Commissioner under the Payment of Wages Act 1991.
The claim under the Unfair Dismissals Acts 1977-2007
The Employer’s Case:
KD for the employer gave evidence that the employee was taken on in September 2010 to set up and manage international sales because business had decreased as a result of the recession and the employer saw international business as the way forward and as a way of securing the viability of the company.
The company provided services to the telecoms sector. At the time the employee was employed as well as manufacturing and selling products such as towers for the telecoms sector the company also installed the products on site. The employee was responsible for sales and for organising the installation.
The employee in addition to an annual salary of €50,000 was to be paid 5% commission on foot of paid invoices for international sales. For the first year the employee was paid commission of €12,393.00 on foot of this agreement.
In September 2011 six people were let go from the company and the fabricating staff were put on short-time.
Also in September 2011 the employee was promoted to international business manager and it was the evidence of KD that a further agreement was concluded in or about April 2012 providing that the employee be paid a salary of €64,000 plus 10% of commission on profits of international sales as opposed to 5% of paid invoices. Staff of the company were informed that the employee had been promoted to manage international sales. Evidence was given that the employee was not paid any commission on foot of the second agreement as no profits in the relevant sector were made for the material year. In order for the employee to earn some commission KD said they sought to negotiate a third agreement regarding commission which would pay the employee commission, in common with ID and PO’B, of 10% of profits of the Irish and international operations. Documents, being letters and minutes of meetings, showing communications between the parties regarding both the second agreement and third agreement on commission from April 2012 up to July 2012 were opened to the Tribunal.
Around March 2012 the company was experiencing cash-flow problems because customers were not paying and as a result the company could not pay its debts. Significant delays being experienced in international operations and the fact that many of the international contracts were running considerably behind time particularly the Ghanaian project did not help matters. In an effort to control this KD appointed ID, manager for Irish operations, and PO’B to international operations.
By May/June 2012 it was evident that there were serious financial problems for the company. In June KD met with the rest of the management and the directors and they devised a series of cutbacks. As part of this they looked at roles in the business. As a result the employee and four important but non-core members of staff were made redundant and others had their salaries reduced by 10%. KD and his wife took no salary and lived off savings
On 8th August 2012 KD made a telephone call to the employee and informed him that due to financial difficulties in the company his contract was being terminated. This was confirmed in writing on 14th August 2012.
In cross-examination KD accepted that the employee was not happy about ID becoming involved particularly as he was now signing off on invoices for the international operations.
It was put to KD in cross-examination that the profits of the company were affected by the setting up of Company S, a development company in the UK in which the company had a capital relationship and that this absorbed some of the profit of the company. KD said that no profits were lost in in the company because of Company S and that they had contributed €400,000 to the debts of Company S from assets of the appellant company and that this loan from one company to the other had nothing to do with profit and loss.
It was put to KD that the company employed SC in December 2012. SC had been a former employee of the company in 2010 and had left to set up his own business offering fibre tech services in south England. KD said that SC had contacted them in October 2012 as his business was not going well and there was an opportunity for the appellant company to get involved. The company employed SC in December 2012 but he ceased to be a salaried employee six months later.
ID gave evidence that he commenced as Managing Director in 2005 and has responsibility for operational issues, has a degree in engineering and an MBA. He interviewed the employee for the position in African sales and he had drafted the contract. He said that the majority of the international projects over-ran and this was causing difficulties.
PO’B said he was the Production Manager and had 25 years’ service with the company. He orders the materials, organises the factory floor and the day-to-day running of the plant. He has responsibility for efficiencies, quotations and pricing. Regarding the Ghanaian project it took three months to manufacture the product and it took eight weeks for shipment. He said he had weekly conversations with the employee regarding cash-flow but he did not get involved in sales. He said they wanted to grow the business in Africa. His commission was reduced to one-third, he took two pay cuts in 2010 and was paid no bonus for 2011/2012. He recalled that staff were put on short-time during 2012. In or about May/June 2012 he had discussions regarding the employee in this case being made redundant.
The Employee’s Case:
The employee told the Tribunal he commenced work with the company on 1st September 2010 with responsibility for international operations. This involved liaising with governmental organisations in the various countries regarding setting up a local company, registration and hiring of local staff.
His contract provided for commission of 5% of paid invoices for the international market – (the first agreement). During the first year on foot of paid invoices he earned commission in the amount of €12,393.00. He estimated paid invoices for the next year to be considerably higher. He said the reason for the lower figure for paid invoices for the first year was because it was a start up and it takes time to ramp up business and that the international business had gained some traction in the market by the second year of operations.
He said his salary was increased in August 2011 by KD and an announcement was made that he was responsible for international operations including financial responsibilities. He said he found the new role challenging – he identified three different markets other than Ghana being Sierra Leone, Tanzania and Uganda and he spent significant time abroad. He expected to generate much more business in the future.
ID was responsible for the Irish operation. Around March 2012 at a board meeting it was announced that ID would take over profit and loss, signing off of invoices, general operations and management of people in the overseas locations. ID started to quote customers for work.
Regarding the second agreement that provided that commission would be paid at 10% of the profits on international sales, the position of the employee was that negotiations regarding this agreement were on-going, that it had not been concluded and it had never been reduced to writing. In support of this he opened minutes of meetings where the commission negotiations appeared as an ‘action point.’ He also opened letters and emails between himself and KD.
Regarding the third agreement the position of the employee was that he had informed KD that this was not acceptable.
In cross-examination he accepted that there were delays particularly in the Ghanaian project but he said these delays were due to the length of time it took to register the local company and regulatory matters. Whereas the employee accepted that ID and PO’B were assigned to assist with minimising delays and that there was a need for them he nonetheless felt he was being manoeuvred out.
He was unhappy about the changes the employer sought to make regarding the basis for earning commission. In particular he felt the third agreement made the earning of commission contingent on matters outside his control.
On the 8th August 2012 he received a telephone call from KD informing him that his contract was being terminated for financial reasons and he was shocked.
He attended a meeting on the 14th August 2012 but the meeting did not discuss redundancy but rather dealt with the handing over of his customer list and his mobile phone. He requested and was furnished with a reference. On the 14th August 2012 he received a letter confirming his termination and stating that the termination was due to financial reasons.
The employee disputed the need to make his position redundant. He said that after he left SC had been employed by the company and was listed on the company website as sales representative. He accepted that there were financial challenges but said there was no financial panic. He disputed that the company made a loss for the year ending March 2013 and said that the accounts lodged with the Companies Office in March 2013 shows a profit. Also it was put to the employee in cross-examination that no profits were made internationally up to March 2012 which was end of the financial year. The employee replied that the Irish work may not have but that the international work did and that KD had made an announcement at a board meeting that the company would make a profit of somewhere between €200,000 to €300,000. In response to this KD for the company said that if this remark was made it did not come to pass and the company made a loss. However, the employee said there was a profit for the international business and that it was the inclusion of the Irish business that caused the loss.
In cross-examination the employee said he was unaware of other staff being made redundant and that the names of some staff put forward as having been made redundant were incorrect and that some of these staff had left. He said that MB, the receptionist left because she had found another job and that GC was let go because he was not performing particularly well in Ghana. He said that LD, a director and employee of the company, was back working with the company. He said that if other staff were made redundant he was unaware of it and was unaware of staff on short-time and was unaware of any pay cuts.
The employee gave evidence of mitigation of losses by way of oral testimony. He obtained a new position inFebruary 2013 with a similar salary but the commission was less than with the company.
The claim under the Payment of Wages Act, 1991
This claim was in relation to the failure of the employer to pay the employee commission.
Determination:
Having considered the evidence adduced at the hearing the Tribunal accepts that the employer because of financial difficulties had a need to cut costs and was entitled to so do either by way of redundancies, putting staff on short time or making salary cuts.
However, the Tribunal does not accept that the termination of the employee’s employment was mainly and wholly by reason of redundancy. Rather the Tribunal, on the balance of probabilities, finds that the termination of the employee’s employment was in the main attributable to the failure of the parties to conclude a revised agreement regarding the calculation of the employee’s commission. This finding is supported, inter alia, by the following:-
- Documentary evidence up to 10th June 2012, just two months’ prior to the decision to terminate the contract of employment, of efforts to agree a new basis for the calculation of commission.
- A letter dated 9th July 2012 from the employee in response to a request from the employer setting out a summary of his paid and due commission indicates that there were on-going negotiations regarding the basis for the calculation of commission up to at least one month before the termination of the contract of employment.
- The employer’s letter of termination dated 14th August 2012 which does not specifically refer to redundancy but recites termination is due to the fact that “unfortunately the company is not in a financial position to continue as was previous” suggests that the termination may have been because of the failure to replace the previous agreement on the calculation of commission.
The Tribunal further finds that even if there was a genuine need to make the employee redundant the redundancy was not effected in a reasonable manner in that there was an absolute failure to follow procedures, fair or otherwise, and as is required in effecting a redundancy.
Accordingly, the Tribunalupholds the decision of the Rights Commissioner dated 18th April 2013 under the Unfair Dismissals Acts 1977-2007 save to vary the award of compensation to an amount of €35,000. In calculating the award the Tribunal took the annual salary of €50,000 and had regard to the fact that the employee secured alternative employment six months after termination of his employment.
The Tribunal finds that commission formed part of employee’s remuneration or wages. In so deciding the Tribunal had regard to the definition of remuneration in section 7(3) of the Act of 1977 and the definition of wages in section 1 of the Payment of Wages Act1991.
Section 7(3) of the Act of 1977 and section 1 of the Act of 1991 provide as follows:-
Section 7(3) "remuneration includes allowances in the nature of pay and benefits in lieu of or in addition to pay”
Section 1 “wages, in relation to an employee, means any sums payable to the employee by the employer in connection with his employment, including –
(a) any fee, bonus or commission, or any holiday, sick or maternity pay, or any other emolument, referable to his employment, whether payable under his contract of employment or otherwise …”.
In the absence of clear evidence on actual figures and taking into consideration the dubious legality of the commission contract the Tribunal estimated the employee’s commission for the relevant period as 5% of profits of €200,000. For the avoidance of doubt the amount in respect of commission is included in the sum of €35,000.
The Tribunal upholds the decision of the Rights Commissioner dated 18th April 2014 that the claim under the Payment of Wages Act 1991 fails but in any event the Tribunal took the employee’s commission into account as part of remuneration in the claim under the Unfair Dismissals Acts.
Sealed with the Seal of the
Employment Appeals Tribunal
This ________________________
(Sgd.) ________________________
(CHAIRMAN)