Complainant

Respondent

Anonymised Parties

Quantity Surveyor

Mechanical Services Company

Representatives

MJ O'Callaghan & O'Keeffe Solicitors

McInnes Dunne Solicitors

Act

Complaint/Dispute Reference No.

Date of Receipt

Complaint seeking adjudication by the Workplace Relations Commission under section 6 of the Payment of Wages Act, 1991

CA-00020938-001

01/08/2018

The complainant who is a quantity surveyor worked as a commercial manager with the respondent from 6/2/2017 to 22/2/2018. His salary was €80,000 per annum.

The complainant states that he was not paid his annual performance related bonus of €40,000 on 22/2/2018.

He resigned his employment on 22/2/2018.

The complaint was part heard on the 12/11/2018 and adjourned until 14/1/2018.

He submitted his complaint to the WRC on 1/8/2018.

The complainant is a quantity surveyor employed with the respondent’s mechanical services company from 6 February 2017- 22 February 2018. The respondent provides plumbing, heating, ventilation and air conditioning services to the construction industry.

He was invited to meet the respondent managing director with a view to taking up a job as a commercial manager in the construction of a major health facility. On 21 December 2016 he met the managing director, Mr. B, to discuss his proposed role within the respondent’s company and to set out his pay expectations.

The complainant met the respondent managing director, Mr. B, on 3 January 2017, following which he sent Mr B an email concerning salary and a profit share which he set at 7% on the first €40,000 of profit with the profit share for sums in excess of €40,000 to be decided initially by the complainant and the managing director and thereafter at the company’s discretion. The managing director agreed to these proposals.

On 18 January 2018, the complainant told Mr. B of the contingency costs introduced into the profit plan. Mr B confirmed that he would be well rewarded. He emailed the revised profit plan with added contingency costs included and amounting to €813,458 to Mr B on the 19 January. He advised that he chose not to disclose the amount or to include it in the profit plan up to that point so as to prevent ‘soft decisions’ being made. He advised that this is common practice in construction cost management.

On 6 February the complainant met the Mr B and stated that a bonus payment of €40,000 on profit earned to date was due to him.

The complainant emailed the respondent on the 9 February advising that he was due a bonus of €40,000 as had been agreed at a meeting on the 6 February with Mr B. Mr B telephoned him on the 12 February stating that he agreed with the complainant’s email of the 9 February containing the claim for a bonus of €40,000 and asked the complainant to meet him to discuss the profit plan. The complainant met Mr B on 13 February where the respondent asked him if he was intent on leaving the respondent’s employment. He was asked what it would take for him to remain with the respondent. The managing director advised him at the meeting on 13 February that if he stayed and got involved in more projects his bonus would reflect that. There was no mention of withholding his bonus should he leave.

On 13 February the project manager of the health facility, Mr P, attacked the profit plan which he had put in place. This was one day following disclosure of the of the complainant’s probable resignation. The complainant submitted his resignation on 15 February. He asked for the bonus of €40,000 to be included with his final salary. It was not paid

The gains which the complainant secured via reduced costs for the respondent were based on procurement purchases, his knowledge of and expertise in different markets. He sourced the best deal from a UK company for supply of goods for the project. In this way he got lower prices than were originally budgeted for in the profit plan. The reductions which he achieved in the cost of materials increased the profit margin. In relation to the respondent’s criticism of him for withholding the contingency costs, he states that confidentiality operates about contingency costs in the Irish market.

Regarding the contract and his salary, the managing director had stated that he would not put his salary into the contract as he didn’t want other staff knowing what he the complainant was earning.

The complainant argues that the respondent reneged on an agreement to pay him a bonus. He argues that it was implicit in the email of 20/2/18 that the respondent was looking at a bonus and would revert to the complainant.

The complainant in cross examination states that a profit is realised when goods are procured, and they are spec compliant. A profit share should have been given to him at the end of the first year. He should not have to wait for the completion of the health facility.

He asks that his complaint be upheld.

The respondent disputes the complainant’s entitlement to a profit share on 22/2/2018.

The respondent operates a family owned mechanical services company, providing plumbing, heating ventilation and air conditioning services to the construction industry. The complainant’s job was to manage the mechanical quantity surveying elements of the project and to ensure the maximum commercial benefit for the company. The project was the construction of a very large health facility. This was the biggest contract ever secured by the respondent. The complainant was obliged to maintain a profit plan spreadsheet and to inform the respondent and his fellow team members of any upward or downward fluctuations in costings or savings. The complainant failed to retain a transparent record of changes in the costs. At all times before the 18 January 2018, the complainant was projecting a profit of 10% on the project. At a meeting with the managing director on the 18 January, the complainant produced a revised spreadsheet which included other elements- contingencies against certain cost items which had the potential to increase the profit margin from 10% - 15 %. The complainant explained that he had held these savings back so as to ensure that no ‘soft’ decisions were made in relation to the project. The respondent states that the cumulative effect of not disclosing these contingences amounted to a potential saving on the overall project of €813,485. It was inappropriate and indicative of a lack of trust in his colleagues’ ability to act in a prudent manner to withhold these costs.

The complainant was based in the mental health facility and in the respondent’s head office.

The matter of the contested bonus was provided for in the complainant’s contract, signed on the 7 February 2017 which states

X (the respondent) “may pay you a bonus from time to time at its discretion but is not obliged to do so”,

This clearly signifies that it is not an absolute entitlement but is discretionary.

Correspondence and discussions between the parties concerning a bonus or profit share.

In the 22 December 2017, Mr. B, managing director states in an email

“On the profit share I would ask you to consider the following; 5% up to 40k and after that the company’s discretion which would be a conversation between you and I. Initial margin would be agreed between the head of estimation you and I”

Mr. B stated that he agreed in January 2017 to a profit share of 7% on the first €40,000 profit and after that the company would exercise its discretion to decide on the remainder after discussion and agreement with the complainant.

Having heard reports that the complainant was seeking alternative employment Mr. B met the complainant on 13 February 2018 and asked him if he was intent on leaving the respondent’s employment. He was asked what it would take for him to remain. He discouraged the complainant from leaving and let his offer to resign lie for a while. Ultimately the complainant resigned on the 15 February despite the efforts of the managing director to persuade him to remain. With the exception of the bonus all matters were resolved between the parties. The respondent advised the complainant in a letter dated 27 February that no bonus was due to him. In the same letter the respondent advised that the figures on which he was basing his claim for a bonus of €40,000 were hypothetical and withheld from the respondent until recently. There was no consideration of a profit share being applied to any other project other than the health facility project. He states that a bonus is not the same as a profit. The company sometimes pay a bonus at Christmas of €500-€1000, but these are unrelated to projects. No employee in the company has ever received a profit share to date

The email of 9 February which the complainant sent to the managing director set out the complainant’s understanding that based on his performance the bonus would be €40,000. This email containing the complainant’s understanding is not evidence of an agreement. The managing director in evidence states that has no recollection of giving any assurances about bonuses on 6/2/18 as claimed. The respondent did not reply to the email of the 9 February immediately as he had no knowledge until a few days later of the complainant’s pending resignation and the project was 18 months out from completion, so he did not see the matter as something requiring his immediate attention. The respondent confirmed to the complainant on 27 February 2018 that no entitlement to a bonus arose.

The respondent received a letter for the complainant’s solicitor in July 2018 stating that a greater profit margin had been achieved that was originally foreseen. The respondent will not receive any profit, if a profit is realised, until the completion of the project in October 2019.

The reliability of the complainant’s profit plan.

The respondent advised that costs are not fixed and are ever evolving. Ultimately the complainant’s projections have had to be adjusted downward. There is a difference of €1,816, 123 between the complainant’s projected value and the total actual and projected cost of the project. Mr B was open to the possibility that the profit might materialise and took the view that it became real when the money was secured. It is impossible to predict ultimate profit because of unanticipated developments. For example, the sum of €320,000 is not on any spread sheet but is the cost of referring a dispute concerning an element of the project to arbitration. Evidence was presented by the respondent challenging the complainant’s assertion that costs were nailed down. The complainant had included a sum of €130,000 as “slush” – a contingency, yet €100,000 had to be spent on non-compliant temperature monitoring devices. Wage costs have increased due to Sectoral Employment Orders. The respondent identified other alleged savings on products which turned out to be inaccurate as parts had to be replaced for deficiencies and non- compliance with standards. All of these contributed to the underestimation of costs by the complainant. So, it was futile to project a profit on ever changing costs. Mr B states that he never agreed to a profit share on account.

The respondent insists that a profit share cannot be paid until the profit is realised. The health facility commenced in February 2017. At the time of the complainant’s resignation in February 2018, the project had 18 months left to run to completion. The facility is expected to be completed in October 2019. Until then the respondent will not know if a profit is to be realised.

The respondent argues that the contract and the lack of an agreement on the payment of a bonus indicate that the complaint must fail.

The question for determination is whether the respondent in withholding the contested bonus or profit share has infringed section 5(1)(2)(ii) which prohibits a deduction unless the

“deduction is of an amount that is fair and reasonable having regard to all the circumstances”.

Section 5 (6) of the Act of 1991 goes on to identify a deduction as follows:

“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) [….]

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”.

Bonus payments referable to the complainant’s “contract of employment or otherwise” are encompassed within the definition of wages in section 1 (a) of the Act of 1991. The claim is for a bonus of €40,000.

Two issues need to be addressed:

Bonus V Profit Share.

I find that the correspondence between the parties is predominantly about a profit share. The respondent’s email of 3 January agrees to the complainant’s request for a profit share of 7% up to €40,000 and a percentage was to be agreed on a profit over €40,000. On the 6 February the complainant uses the profit earned by his efforts in procurement to identify the sum owed to him. He states that it was his performance in generating an improved profit which underpins his entitlement to the sum of €40,000.

I find therefore that he was seeking a profit share.

Was the non-payment of €40,000 an unlawful deduction?

A deduction refers to circumstances in which an employer pays an employee less than the amount to which the employee has a contractual entitlement. In order for the complainant to succeed in a complaint that the employer has unlawfully deducted a part of his wages, he must demonstrate that the sum withheld from him was “properly payable” -that he had a contractual entitlement or an entitlement on some other basis to the sum of €40,000. The complainant’s contract allows for discretion in relation to the payment of a bonus and is silent on a profit share. A bonus may be paid for a variety of reasons and is not necessarily dependant on the profit earned by the company or employee whereas a profit share is.

I am asked to conclude that his entitlement to a profit share derives from the course of conduct (correspondence, discussions and a reported agreement) between the parties. There is a conflict of evidence as to an agreement to pay the sum of €40,000. There is no reference in the email of 3/1/17 to a profit share on an annual basis. The evidence submitted, and the correspondence illustrate his request for a payment of €40,000 in February 2018 after one years’ service. I do not find that the respondent’s statement of the 20 February 2018 that they would revert back to him in response to his claim for a profit share of €40,000 to be an implicit acceptance of his claim for the sum of €40,000- as argued by the complainant. It is merely a ‘holding’ statement. The bulk of the exchanges refer to a profit share of 7% on the first €40,000 of profit earned, but the evidence fails to indicate that payment would be made after a year or prior to the completion of the mental health facility the target date for which is October 2019. The evidence in relation to a due date of payment for the profit share or for the period during which it would be earned does not support the complainant’s contention that he was due the amount on the 22 February.

I accept the respondent’s evidence concerning the unpredictable nature of the project and the fluctuating profit margin - costs changing, parts having to be replaced, unanticipated developments etc. These developments cause profits to rise or fall. I accept that the profit would have to be shared with the team engaged on the project for the period February 2018 – October 2019 during which the complainant was not employed with the respondent. I accept that a profit does not crystallise until the project is complete unless the period during which it is accrued and the due payment date is identified.

I find therefore that the non -payment of a profit share of €40,000 on 22/2/2018 was not a deduction that was “properly payable” to the complainant and is therefore not an unlawful deduction. I find that the non- payment of €40,000 was not an infringement of section 5(6) of the Payment of Wages Act ,1991.

I do not find this complaint to be well founded.

Non-payment of profit share.