ADJ-00019405

Complainant

Respondent

Anonymised Parties

A technology consulting manager

A consultancy

Representatives

None

Mason Hayes & Curran Solicitors

Act

Complaint Reference No.

Date of Receipt

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

CA-00025335-001

26/01/2019

The complaint relates to a bonus payment for the 2018 financial year, which the complainant asserts she is entitled to. The respondent denies this as the complainant had left its employment at the relevant time.

The complainant outlined that she worked for the respondent between 23 May 2016 and 22 November 2018. There is a bonus scheme for the whole financial year. The financial year ended at the end of August 2018 and the bonus was normally payable to December. There was no issue with her performance or the company’s performance. She was employed until 22 November 2018 and was in employment when the “tell day” took place (the conclave to determine bonus). The complainant was told after this that she was not entitled to a bonus. Her bonus for the previous year was €8,000, but the complainant anticipated a lesser bonus for her last year. The complainant outlined that there is also a bounty scheme, which is explicit that you must be in the company when it is paid. She said that the principles relating to the bonus were not explained to her. During her notice period, she worked hard on bids which were not chargeable. She submitted that discretion should be earned backwards. She said that nowhere was it written down that you must be in employment to be paid a bonus.

The respondent submitted that it operates a discretionary bonus scheme, as set out in the contract of employment. There are two schemes: one is company-wide and the other is based on the employee as an individual. If the employee is in employment on the payment date, they might receive payment of a bonus. This, however, is not based on a pre-determined formula and there is no entitlement to a bonus. In 2017, the respondent outlined that complainant received a bonus of 4% on company scheme and 5% on the individual scheme. The respondent outlined that the complainant’s chargeability rate was 12.9% in 2018, lower than her peer group. Colleagues with a higher chargeability rate did not get a bonus. Nine peers also did not get the bonus as they are leaving. There are reward principles are set out in the ‘End of Year Conversations’, which states ‘individuals who have tendered their resignation or have resigned will not receive any variable pay’. This document is used by the career counsellors to assess eligibility for a bonus. The respondent submitted that the bonus scheme is entirely discretionary so even a performing staff member is not guaranteed a bonus. The right is only to be considered for a bonus and there is no entitlement to one. A principle was always that an employee would not be paid if they were not employed on the payment date. The respondent submitted that the bounty scheme is a guaranteed payment, so the explicit requirement was that you must be in employment. In relation to the individual performance, the respondent said that chargeability is a massive factor and the complainant’s rate was six times lower than the previous year, so unlikely that there would have been a payment. It is unlikely that a personal performance bonus would have been paid. She was not considered for either bonus as she had tendered her resignation. The respondent outlined that the termination date was the 22 November. Outstanding annual leave and expenses were paid the month after the month the complainant left. The respondent further outlined that the relevant financial year was 1 September 2017 to 31 August 2018. It set out the process to review employees’ salaries and eligibility for bonus payments. There is a ‘Tell Day’ where employees are informed of the outcome of this process. In this case, the ‘tell day’ was 16 November 2018. The complainant was not included in this process as she had given notice on 23 September 2018.

This is a complaint pursuant to the Payment of Wages Act. At issue is whether the complainant is entitled to the bonus accrued for the financial year 2018 (which ended in the respondent’s case in August 2018). Bonus payments fall within the definition of ‘wages’ in the Payment of Wages Act.

Background

The complainant commenced employment for the respondent on 23 May 2016. Her base salary was €90,000. She gave notice to terminate her employment in September 2018 and her employment ended on 22 November 2018. The complainant’s contract of employment provides at 2.9 ‘The Company may at its discretion provide for benefits in addition to benefits set out in this contract from time to time. The Company will notify the employee of such benefits as appropriate and the employee may be entitled to avail of such benefits in accordance with their terms.’ Clause 2.10 provides for a once off sign on bonus, repayable on a pro rata basis should the employee voluntarily terminate her employment within the first year. Clause 2.11 states ‘The Company reserve the right to make changes to any benefits or schemes provided in connection with the Employee’s Employment, including the right to discontinue them at any time in accordance with their terms.’ The respondent ‘Total Rewards’ policy provides ‘[the Global Annual Bonus Plan for Managers] is based on the company’s financial performance and also individual performance. The target accrual rate for Managers is 8%.’ The ‘End of Year Conversations’ document states that variable pay is personalised and focused to those with the highest levels of ‘achievement and contribution.’ It provides for three scenarios of reward outcome in respect of variable pay: ‘bonus reflects achievement of expected outcomes’, ‘bonus reflect distinctive achievement’ and ‘needs to improve performance (no bonus paid)’. In an email of 3 December 2018, the respondent outlines ‘employees are eligible for their variable pay however it is not guaranteed. In Ireland, companywide, there is a reward principle applied that if an employee has tendered their resignation they will not be allocated variable pay.’ It cites that this reward principle was signed off by the entire leadership team.

The legal position

Section 5(6) of the Payment of Wages Act provides that the non-payment of part or all the wages ‘properly payable’ to an employee shall be treated as a deduction by the employer of wages due to the employee. In Cleary v B & Q Ireland Ltd [2016] IEHC 119, the High Court considered the claimants’ entitlement to a 3% bonus and a zone allowance. The relevant contract provided that the bonus ‘may be reviewed or withdrawn at any time’ and the Court held it was ‘clear and unambiguous’. The High Court held that the bonus clause should be ‘interpreted in the overall context of the contract’ and that the bonus was not contingent on performance, profitability or other event. The High Court held that the respondent was required to exercise discretion reasonably and ‘if the discretion is exercised unreasonably the employer will be in breach of contract if no reasonable employer would have exercised the discretion in that way.’ The Court held that the discretion to withdraw a bonus scheme could not be exercised when the employee had accrued the entitlement and ‘crystallised once it was earned in accordance with the terms of the scheme as operated.’ The High Court held that the EAT had ‘sufficient evidential basis’ to make the finding that the zone allowance was an expense and therefore, outside the definition of ‘wages’. In An Employer v Worker PWD 1921, the Labour Court held that the contract of employment and the letter of acceptance both referred to the Rules of the bonus scheme, which held ‘no claim whatsoever on any commission payments that would otherwise have been generated and paid, if they are not in employment on the date when they would normally have been paid’. The Court concluded that the bonus was, therefore, not ‘properly payable’ and also that the claimant consented to the deduction. In Bord Gais Energy v Thomas PWD 1729, the Labour Court placed “considerable weight on the fact that the complainants contract sets out the eligibility requirements for payment of the PRA and that the Complainant confirmed in evidence that he was aware that one of the criteria of the scheme required that he be in employment on the date of payment.” In Boston Scientific v Cotter PWD 1919, the Labour Court held that the employer had not “exercised its discretion in calculating his bonus for 2016 in an unfair, unreasonable or capricious manner that gives rise to a breach of the Act.” In Commerzbank Ag -v- Keen [2006] EWCA Civ 1536, the Court of Appeal held that ‘as a matter of construction, it is clear that Mr Keen is not entitled to a bonus if, on the date of payment, he is not employed by the Bank’. This authority was relied on in ADJ-00010061, which held that terms of the scheme stated that commissions due cease on the date of the employment ends. It held that this applied whether or not the claimant received the rules of the scheme.

Application of the law to the facts

The above case law sets out that a departing employee’s eligibility to a bonus is determined by any contractual terms as well as any bonus scheme rules. There is the further question of when eligibility for the bonus crystallises. The case law provides that discretion must be exercised in a reasonable fashion. As set out above, the contract provides for a discretionary bonus scheme, which can be changed or discontinued by the respondent. In this case, there was a bonus scheme applied for the financial year 2018 (which ended on 31 August 2018). There are no standalone rules for the bonus scheme, although the respondent asserts that it is a principle that employees who serve notice are not considered for a bonus. The complainant stated that she was not aware that the effect of serving notice in September would exclude her entirely from consideration for a bonus. The respondent points to the ‘End of Year Conversations’ presentation, which includes both the reference of not paying variable pay to employees who have given notice and the rationale of ‘use to redistribute various pay across eligible groups.’ Crucially, under the terms of the bonus scheme, it is based on performance over the financial year, for example chargeability. The respondent stated that the complainant’s bonus entitlement would have been impacted by, inter alia, her reduced chargeability. The complainant accepted that her bonus for the 2018 financial year would be lower than the previous year because of an extended period of jury duty and other reasons. Taking these factors together, I find that the bonus for the 2018 financial year was properly payable to the complainant. First, the contract of employment is silent whether an employee who has worked through a financial but who has subsequently given notice shall be excluded from the terms of a bonus scheme. Second, there are no bonus scheme rules which provide for such an exclusion. Third, the complainant completed the financial year 2018 and would otherwise have been entitled to a bonus, even a reduced one. Fourth, the bonus is based on past performance, including chargeability, so is something that crystallises at the end of the relevant financial year. Fifth, the End of Year Conversations document was generated as part of the process of explaining the level of bonuses; the complainant had already been excluded from the process at this stage. The document does not extinguish an employee’s already accrued right to participate in the bonus scheme. Similarly, once the bonus scheme is applied to staff who completed the financial year, the accrued right to participate in the scheme cannot be removed by the discretion, or the reasonable exercise of discretion, afforded to the employer. It follows that the complaint is well-founded. I find that the complainant was eligible to participate in the respondent bonus scheme for the 2018 financial year and that non-payment of the bonus due to her under the terms of the bonus scheme was an unlawful deduction per the Payment of Wages Act. I find that the complainant is entitled to redress for this amount.

CA-00025335-001

I decide that the complaint is well-founded, and that the complainant was eligible to participate in the bonus scheme for the financial year 2018. I decide that the respondent shall pay to the complainant the amount as calculated per the bonus scheme for the financial year 2018.

Key Words: Payment of Wages Act / eligibility for bonus

Cleary v B & Q Ireland Ltd [2016] IEHC 119