Act

Complaint/Dispute Reference No.

Date of Receipt

Complaint    seeking adjudication by the Workplace Relations Commission under Section 39    of the Redundancy Payments Act, 1967

CA-00011656-001

30/05/2017

Complaint    seeking adjudication by the Workplace Relations Commission under section 27    of the Organisation of Working Time Act, 1997

CA-00011656-002

30/05/2017

The complainant established the respondent company in   1994. At the hearing, he said that for   20 years, in addition to being the managing director and main shareholder, he   spent about 75% of his time generating sales and the remainder supervising   staff. In 2015 and again in 2016,   following a process of significant financial re-structuring, his shareholding   was reduced to 10% and he relinquished the role of managing director. In October 2016, he entered into   discussions with his fellow-directors with regard to his exit from the   company and he left on November 30^th 2016.

The complainant argues that this termination amounted to a   redundancy and that he is entitled to redundancy pay.

The complainant represented himself at the hearing. The managing director and a finance manager   attended on behalf of the respondent.

Background

In his submission, the complainant said that in 2013, he   was recommended by Enterprise Ireland to take on the services of a business   mentor. In 2014, the mentor suggested   the creation of a new role of Head of Finance and recommended a colleague who   was appointed to the job.

In December 2014, it emerged that the monthly accounts had   been reported incorrectly all year and rather than a profit, there was a   short-fall of €200,000. By way of   support, the mentor and the head of finance offered to provide loans in   return for a shareholding in the company plus interest and other fees. The complainant said that he reluctantly   agreed to this arrangement and the mentor and the head of finance were   appointed as directors in February and April 2015 respectively. Over the next 18 months, with the input of   further loans from the two new directors, the complainant’s shareholding was   reduced to 10% and he relinquished the role of managing director. He said that during this time, he wrote off   loans of €80,000 that were owed to him and he borrowed €30,000 from a his   brother in law to lend to the company.

Issues Arising from   the Change of Leadership in the Company

At the hearing, the complainant described the difficulties   he experienced leading up to his departure.   He said that he was concerned about the fees being paid to the new   directors and the consultancy costs being paid to a brother of one of   them. He said that as he was a   minority shareholder and no longer the managing director, he was not in a   position to support the business. He   said that he felt distressed and upset and that the other directors treated   him and the staff with disrespect. The   complainant’s submission states that, at a meeting on October 7^th   2016, he was voted out as a director, with the result that, from then on, he   was confined to his sales role.

Discussions about   the Complainant’s Departure from the Company

The strategy being developed by the new directors was   focussed on “growth marketing” rather than design.   From the minutes of the board meetings   which took place on October 5^th and 7^th, it seems   apparent that the directors considered that the complainant wasn’t a good fit   for the business as they intended to develop it. At the meeting on October 7^th,   it was made clear to him that he would need to deliver sales of €50,000 per   month. At the same meeting, a   discussion was initiated about severance terms. The minutes show that the head of finance   stated: “If you are considering an exit, it would be respectful for your   tenure in the company.” The   minutes also note that the complainant responded, “If there is a path to an exit.   Open to hearing it.” At the   hearing, the complainant said that he agreed to consider an exit package as   he understood that this statement from the head of finance meant that his “input into the company and the sacrifices I   had made over 22 years would be taken into account including redundancy.” In his written submission, he stated as   follows:

“I had little   influence in the company I had given my life to for 22 years, the directors   had no respect for staff, clients or suppliers. I would be going against my principles and   values so I felt my position in the company was untenable. The   directors had stated that they did not see a role for me in the new set-up   and it appeared they wanted me out and were making my role redundant.”

At the time of this discussion, the complainant said that   he had concerns about the loan from his brother in law and the loans to the   company on which he had provided personal guarantees.

In support of his claim for a redundancy payment, the   complainant said that as he relinquished the role of managing director in   2015, he was an ordinary employee and therefore had an entitlement to a   redundancy payment. When asked about   his PRSI status, he said that he was a class S PRSI contributor up until the   date of his departure.

Agreement on   Severance Terms

On behalf of the respondent, the current managing director   stated that the prospect of the complainant’s departure was first raised at a   board meeting on October 7^th.   Negotiations commenced on October 10^th and concluded on   October 28^th. An e mail   from the complainant on October 10^th begins with a proposal   setting out how he could add value to the company but it concludes with the   following statement:

“I am not asking to   leave the company but if the directors believe that this is in the best   interests of all concerned I would be open to hearing your suggested exit   path.

“Any exit plan would   need to cover the following:

“Repayment of   €30,000 interest-free loan;

“Repayment of   €80,000 approx director’s loan to the company which I was asked to write off   after the €200,000 error in the financial accounts for 2014 was discovered;

“Repayment of the   money owed to (named individual) (€6,000 approx to be confirmed)….

“3 months’ notice;

“A contribution to   acknowledge my input into the company for over 22 years and I give up the 10%   share equity in the company;

“Removal of my name   as signatory on the bank account and the PG (personal guarantee).”

The respondent’s submission states that “it took 18 days to negotiate the   settlement” as the complainant was seeking “an unaffordable and unreasonable exit package given the very poor   financial status of the company….”

On October 18^th, in a further e mail, the   complainant sets out his feelings about leaving the company. Included in the commentary is the following   paragraph:

“I would have liked   to continue on as an employee but I feel that in the current situation that   my position is not tenable and that it is in the best interest of myself and   the company that I move on.”

In an e mail to the respondent on October 21^st,   the complainant set out his disappointment with the company’s offer and   concluded:

“I will over the   coming days consult my family and legal advisors (name of solicitor and legal   firm) to ascertain the best course of action to protect myself, the   organisation that I built and the wonderful and loyal employees who are still   with the company.”

He concludes by saying:

“Thank you for your   personal efforts in trying to resolve this matter. I note your point that you wish to reach a   reasonable compromise that will allow all parties to move on.

“That is my   objective also but to reach a resolution the compromise has to be on both   sides.”

A compromise agreement was concluded on October 28^th   and provided as follows:

“(The company) will   pay you a lump sum settlement equivalent to 3 monthly salary payments for   November 2016, December 2016 and January 2017 plus your outstanding holiday   entitlements carried forward from 2015 – 2016.

“(The company) will   endeavour to pay the above tax free, but it is the employee’s responsibility   to manage their tax affairs.

“This payment will   be made as soon as you surrender your shareholding of 10% in November to (the   managing director).

“(The company) will   pay the outstanding €30,000 loan in full at the end of November.

“(The company) will   remove you from the Ulster Bank guarantee and it will be underwritten by the   other directors instead.

“You are required to   sign over your remaining shares of 10% in (the company) to (the managing   director) once the final repayment of your salary is completed by November.

“You are required to   finish up your employment by Wednesday 30^th November 2016.

“You are to liaise   with (the managing director) to affect (sic) a smooth handover of clients and   prospects up until the 30^th November 2016, coming into the office   when agreed with him.

“Please indicate   your acceptance of this offer by signing below.”

Difficulties   Executing the Agreed Terms

The respondent concedes that it was late making the   severance payments to the complainant and states:

“Under the terms of   the agreement signed on 28^th October, we had planned to pay (the   complainant) three months’ salary, 14.5 days’ holidays and the €30,000 loan   all in one go on 30^th November.”

This was predicated on the company receiving 50% of a   deposit on a project funded by the European Commission. Due to concerns on the part of the   commission, the deposit was re-structured into three tranches with the first   tranche transferred on January 27^th 2017. Evidence to this effect was provided at the   hearing.

The respondent’s submission states:

“In the first eight   months of 2017 we have struggled to repay over €100,000 of (the   complainant’s) personal debt including €30,000 he borrowed from his brother   in law as a loan into the business, €65,000 Ulster Bank overdraft taken out   by (the complainant) during his tenure as managing director and we have taken   over finance repayments on equipment purchased and personally guaranteed by   him in the order of €25,000.”

The Respondent’s   Position

The respondent’s position is that the complainant was not   made redundant, but that, having taken legal advice, he agreed to leave the   company on the terms set out in the signed document of October 28^th. They also argue that, as a class S PRSI   contributor, associated with the fact that he was a majority shareholder and   managing director for the majority of his tenure with the company, he is not   covered by the provisions of the Redundancy Payments Act.

The Complaint in Context

The context of   this complaint is the break-down in relations between the former managing   director and his fellow directors. The   difficulties came to a head in October 2016 and negotiations commenced on   severance terms, concluding with an agreement on October 28th. Regrettably, the payment of the amounts   agreed between the parties was delayed and this exacerbated the fractious   relationship between the parties.

Agreement on Exit Terms

From the   information presented at the hearing and from the minutes of the board   meetings and the e mails between the complainant and the respondent in the   days leading to his departure, there is no evidence of any discussion about   redundancy. It is clear from the   documents that the intention on both sides was to reach an agreement on “exit   terms.” In a mail to his colleagues on   October 10^th 2016, the complainant said:

“I am not asking to leave the company but   if the directors believe that this is in the best interest of all concerned I   would be open to hearing your suggested exit path.”

On October 18^th,   following discussions about terms, he wrote again to his co-directors setting   out his response to their offer:

“I would like a meaningful offer to reflect   my contribution to the company and to acknowledge the €80,000 director’s loan   which I was induced to write off.”

The document   titled “Heads of Agreement – Severance   Package” records the final agreed terms and was signed by both parties on   October 28^th. The   complainant consulted his solicitor before he finalised the agreement and   there is no reference in the document to a redundancy payment. The terms include a sum of €10,000,   equivalent to three months’ salary and the repayment of a loan of €30,000 to   the complainant’s brother in law. It   also provided for the repayment of a bank loan of €80,000 to Ulster Bank so   that the complainant could be freed from a personal bank guarantee.

It is clear to me that the complainant was not made   redundant, but reached an agreement on terms according to which he would   leave the business and transfer his remaining shareholding to another   director. He reached this agreement   freely and with the benefit of legal advice.  

Conclusion

The complainant was the managing director until the last   few months of his tenure in the company and a director until shortly before   his departure. He was the majority   shareholder for 20 of the 22 years of his association with the business. During all this time, he paid class S PRSI   contributions, the class of contribution which is appropriate to   self-employed persons. On the basis of   all of these facts, I have to conclude that he was an employer and not an   employee.

The inaccurate accounting problem that emerged in December   2014 and the difficulties that followed resulted in the breakdown in   relations between the complainant and his co-directors. It is clear from the evidence presented to   me that the intention of both sides in October 2016 was to reach an agreement   on terms that would be acceptable to the complainant in return for his   agreement to leave the business. There   is no evidence of any reference to redundancy and the terms that were finally   agreed are in excess of what he would have been paid if he had been entitled   to a statutory redundancy payment.

Having considered the evidence presented at the hearing,   and the written submissions of both parties, I have decided that the   complainant is not entitled to a statutory redundancy payment and this   complaint is not upheld.

The agreement reached between the complainant and the   company on October 28^th states that he would be paid his “outstanding holiday entitlements carried   forward from 2015 – 2016.” The   complainant said that he was entitled to 20 days’ holidays each year and he   produced a document with a holiday schedule that showed that 18 days were   carried over from 2015.

Accepting that his entitlement for 2016 was reduced to   18.5 days due to the fact that he did not work for the full year, he claimed   that his total entitlement in 2016 was 36.5 days. The schedule shows that, up to the time of   his departure, he took 13 days’ holidays, leaving a balance of 23.5 days not   taken. He was paid for 14.5 days. In his written submission, he said that the   head of finance refused to pay him his full outstanding holiday entitlement   because he asked the company to take up the guarantees on loans for office   equipment.

The company disputed the complainant’s entitlement to the   days that were carried over from 2015.   The finance manager who attended the hearing said that out of his 20   days’ holidays in 2017, the complainant took 13 days, leaving him with an   outstanding balance of seven days. She   said that this was increased to 14.5 days, and that in her view, he had been   paid more than he was entitled to in holiday pay.

Leaving aside the 2015 holidays, the complainant said that   he was entitled to 20 days in 2016, less 13 days that were used up. For 2016, this leaves seven days’ holidays   due to be paid at the time of leaving.   The final payment of 14.5 days’ holidays is arbitrary and not related   to leave taken or not taken and I have to conclude that the company decided   not to pay for all the leave that the complainant expected to be paid for, as   set out in the holiday schedule.

However, the complainant’s entitlement to annual leave   under the Organisation of Working Time Act 1997 is in question. Section 19 of the Act provides than “an employee shall be entitled to annual   leave” equivalent to four working weeks in a leave year. Section 2 of the Act defines an employee   as,

“…a person of any   age who has entered into or works under (or, where the employment has ceased,   entered into or worked under) a contract of employment…..”

As the complainant was the managing director of the   respondent company in 2015, I have to conclude that he was not an employee,   and therefore he was not entitled to annual leave in accordance with the   manner in which this benefit is intended for employees in the Organisation of   Working Time Act.

At the time he left the business, the complainant was paid   for holidays not taken 2016, plus an additional 7.5 days. He claims that there is a shortfall of   eight days from 2015. As he was not an   employee, he is excluded from making a claim under the Organisation of   Working Time Act and, on this basis, I have decided that this complaint is   not upheld.

Company director, agreed severance terms, redundancy,   holidays.