PW550/2011

EMPLOYMENT APPEALS TRIBUNAL

APPEAL OF: CASE NO.

PW550/2011

Jim Devlin

- appellant

against the recommendation of the Rights Commissioner in the case of:

Jim Devlin

-v-

Electricity Supply Board

- respondent

under

PAYMENT OF WAGES ACT, 1991

I certify that the Tribunal

(Division of Tribunal)

Chairman: Ms K.T. O'Mahony B.L.

Members: Ms M. Sweeney

Mr J. Flavin

heard this appeal at Cork on 28 August 2013 and 22 January 2014 and 24^th March 2014

Representation:

Appellant: Ms Laura Tennyson BL instructed by Mr. Daniel Quinn Solicitor Beauchamps, Solicitors, Riverside Two, Sir John Rogerson's Quay, Dublin 2

Respondent: Mr. Maurice Dowling BL instructed by Ms Eve MacPartlin Solicitor,

BSC Legal Services, ESB, 27 Lower Fitzwilliam Street, Dublin

Background

This case came before the Tribunal by of an employee’s appeal of the Decision of a Rights Commissioner ref: PW 108394/11/MR, under the Payment of Wages Act 1991. The appellant’s claim under the Act is for payment of a performance related bonus owing and due to him for the period 1 January 2010 to 6 December 2010.

Summary of Evidence

The appellant commenced employment with the respondent/ESB in the Power Generation division at the first level of management in 1971 and from 1992 he worked as a professional engineer in middle management until his retirement by way of voluntary severance on 6 December 2010.

Under the 1993 Agreement between the appellant’s union MSF2 (now ESPA) and the ESB, the claimant opted to have a personal contract of employment, which for his grade code 328 provided for:

(a) a salary increase of 6% on all points of scale

(b) a performance related non-pensionable bonus in a range from 0%-10% of basic salary. This bonus will be dependent on the achievement of performance targets on an annual basis. The appropriate targets will be decided by ESB following discussions with an individual and senior management in his/her directorate.

In line with the agreement the series of personal contracts (P&MM Contracts) into which the appellant entered contained a clause similar in effect to (b) above and is found at clause 7 of the appellant’s 2008 contract of employment.

“PERFORMANCE RELATED BONUS: Under arrangements currently in operation you are entitled to be considered for a performance related bonus (non-pensionable) in a range from 0% to 10% of your basic salary. The bonus is dependent on the achievement of performance targets each year which are decided by ESB following discussions with you.ESB in consultation with your union may vary, amend or withdraw the bonus scheme or introduce other arrangements at any time.”

The “discussions” referred to in above clause took the form of the appellant’s manager discussing with him projects related to the business plan for the year and agreeing targets, Later on in the year they reviewed progress to ascertain whether they were on schedule and in December they had a “wrap-up” meeting to review the performance of the year. Before the January payroll was finalised the manager informed the appellant of his rating, his performance related bonus and his salary increase, which would apply from 1 January; the bonus was also paid in January/February. The appellant’s bonus was consistently between 8% -10%, with an average of 9.3% over the 16 year period since the 1993 Agreement. In November 2009 the managers were notified that the 2009 bonus was being deferred.

In late 2009 the appellant applied for voluntary severance, with an employment termination date of 31 December 2010 but he later changed the termination date to 6 December 2010 for reasons connected with his AVCs. On 25 January 2010, in light of the respondent’s deferral of the year end salary and bonus review, the appellant wrote to the respondent seeking to reserve the right to revisit his acceptance of the package. In a response dated 12 February 2010 the respondent’s solicitor indicated that his acceptance of the package could not be revisited. By e-mail dated 12 November 2010 the appellant accepted the severance package.

It was the appellant’s position that he had the usual discussion on targets with his manager in January 2010. The discussion was more informal and ongoing in 2010 as he was sharing an office with his manager at the time and the “wrap up” meeting had not taken place as he retired on 6 December 2010. It was his understanding that the respondent normally paid the bonus based on average pay if an employee retired before the end of the year. There had been no indication throughout the year 2010 that the respondent was in any way dissatisfied with his performance.

The appellant was not paid his 2010 bonus in January 2011. On enquiring about the bonus, shortly prior to the termination of his employment, he was told that a bonus for 2010 had not been approved. In reply to his repeat enquiry by way of e-mail of 14 February 2011, his manager informed him that the respondent had decided not to pay the 2010 bonus. The appellant’s position was that this was the first he had heard about the non-payment of the 2010 bonus. In cross-examination the appellant was adamant that he had no recollection of being told about it prior to the termination of his employment.

The HR manager (HRM) for Power Generation, who had 10 years’ experience in industrial relations with the respondent, told the Tribunal that the respondent’s pension fund was in serious deficit and the cost base of the company had to be substantially reduced to enable the respondent to remain competitive and survive. In 2009 senior managers took a 5% pay cut. Cost savings of €140 million were required from a €650 million spend on costs and this included a payroll saving of €40 million in Power Generation’s €128 million payroll spend. Over 2009 and 2010 the respondent was in negotiations with the unions. The respondent was trying to introduce pay cuts as part of the pension solution. It was HRM’s evidence that there had been a constant series of interactions with various senior union officials whose views, contrary to those of the company, were that the payment of bonuses should continue.When the pension negotiations broke down it was decided to separate the pension talks from the payroll talks. The pension negotiations concluded with a landmark pension agreement in mid 2010. The 2009 bonus was ultimately paid in September 2010 under the cover of the pension agreement. The idea that bonus payments should be made to managers was toxic at the time.

In December 2010, the respondent took the decision that the 2010 bonus would not be paid. HRM set out a plan for the communication of the decision to the unions and as part of the plan he communicated the respondent’s decision over the phone to the Unite official on16 December 2010. He also informed JD and AB of ESPA of the position. The issue of bonuses in future years was to be considered as part of a much wider engagement across the company during the negotiations on pay costs beginning in early 2011.

ESPA (the claimant’s union) does not have a negotiating licence but operates under the UNITE licence. The first the ESPA staff representative (SR) heard about the non-payment of the 2010 bonus was shortly before Christmas when members of the union came “en masse” to his office about it. The respondent had not informed him about the non-payment of the 2010 bonus. On 20 December SR sought an urgent meeting with the respondent. At a meeting held on 9 February 2011, the 2010 bonus was discussed and the respondent was reaching out to SR/ESPA hoping to get the managers to understand that savings had to be made. Ultimately both sides in the dispute prepared a joint statement but it was never submitted to the Industrial Council, which issues binding recommendations.

The negotiations and consultations between the respondent and the unions concluded in a payroll agreement in May 2012, which included voluntary severance packages, immediate pay reductions and the cessation of all bonus payments. Close to the end of the negotiations the unions raised the issue of the 2010 bonus. The CEO reluctantly agreed to a settlement payment of €4,500 in favour of each of those managers in the employment at that time. This concession was delivered on the back of the pay cuts achieved in the negotiations. Of the 800 managers seeking payment of the 2010 bonus 350 were members of ESP. The appellant, having retired (on a generous severance package) could not avail of the settlement payment. In HRM’s opinion it was reasonable that only those in the employment could avail of the settlement as they took a substantial pay cut due to the pay agreement and pensions are now based on an employee’s average salary over his time in the employment rather than 50% of salary at retirement. No bonus was paid in 2010.

Determination

Section 1 of the Payment of Wages Act, 1991 (the Act) defines wages as follows:

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,

Section 5 (6) of the Act provides:—

(a) the total amount of any wages that are paid on any occasion by an employer to an employee is less than the total amount of wages that is properly payable by him to the employee on that occasion (after making any deductions therefrom that fall to be made and are in accordance with this Act), or

(b) none of the wages that are properly payable to an employee by an employer on any occasion (after making any such deductions as aforesaid) are paid to the employee

then, except in so far as the deficiency or non-payment is attributable to an error of computation, the amount of the deficiency or non-payment shall be treated as a deduction made by the employer from the wages of the employee on the occasion.

The appellant contends that under this statutory provision the 2010 performance related bonus is properly payable to him and that its non-payment constitutes an unlawful deduction under subsection (6) of section 5 of the Act.

To reach its decision the Tribunal must consider the nature of the bonus which is found in clause 7 of the claimant’s 2008 contract of employment. Clause 7 states:

Whilst noting the second sentence of the clause the Tribunal in focusing on the phrase “you are entitled to be considered” and on the final sentence of the clause which states that the respondent “may vary, amend or withdraw the bonus … or introduce other arrangements at any time” leads the Tribunal to the conclusion that the bonus is discretionary in nature and not a contractual entitlement. The fact that any such change must be done in consultation with the union does not alter this conclusion. A discretionary bonus loses its discretionary character once it is declared (Atrill and others v Dresdner Kleinwort Limited and another [2013] EWCA 134. In the instant case there was no evidence that a bonus was declared for 2010; indeed the manager had not returned to the appellant with his ratings and bonus for the year. However a discretion, although it may seem absolute, is not unfettered and must be exercised reasonably and in good faith Horkaluk v Canntor Fitzgerald [2004] 1 ICR 697 and Lichters & Haas v Depfa [2012] IEHC 10. The Tribunal is satisfied that in light of the financial circumstances in which the respondent found itself that its decision not to pay the 2010 bonus was not an unreasonable exercise of its discretion.

The Tribunal notes that the contractual requirement, regarding the payment of the bonus is to “consult” and not to ‘consult and agree’. The evidence before the Tribunal was that the respondent advised the unions of its decision not to pay the bonus in December 2010 and thereafter discussed it at meetings and during negotiations with the unions. In the circumstances the Tribunal is satisfied that consultation took place. Furthermore, the Tribunal notes that although the parties had prepared a joint statement on the issue of the non-payment of the bonus it did not submit itto the Industrial Council, which is the final stage of the respondent’s internal industrial relations machinery and which issues binding recommendations on industrial relations issues.

For the above reasons the Tribunalfinds that the non-payment of the bonus was not a contravention of section 5 of the Payment of Wages Act, 19951. Thus, the appeal fails and the Tribunal affirms the decision of the Rights Commissioner.

Unusually in this case, the effect of a waiver clause was raised in the course of the hearing rather than as a preliminary issue at its commencement. The implicit agreement by the appellant in his e-mail of 12 November 2010 that he cannot revisit his severance agreement once accepted can be distinguished from the more general type of waiver, which refers to other statutory employment rights, which an employee may not have in his contemplation at the time of agreeing to the waiver. Thus, the Tribunal finds that waiver also has the effect of precluding the appellant from seeking payment of the bonus.

Sealed with the Seal of the

Employment Appeals Tribunal

This ________________________

(Sgd.) ________________________

(CHAIRMAN)