ADJUDICATION OFFICER DECISION
Adjudication Reference: ADJ-00014267
Provider of medical products and services
Respondent HR executives
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
Date of Adjudication Hearing: 09/07/2018
Workplace Relations Commission Adjudication Officer: Maire Mulcahy
In accordance with Section 41 of the Workplace Relations Act, 2015 following the referral of the complaint to me by the Director General, I inquired into the complaint and gave the parties an opportunity to be heard by me and to present to me any evidence relevant to the complaint.
The complainant has been employed with the respondent since 2002 as credit controller. She is claiming that the non- payment of a bonus to her of 10% of her gross salary and amounting to the sum of €3,758 is an unlawful deduction and is a breach of the 1991 Act. The deduction occurred on 15 December 2017.
She submitted her complaint to the WRC on 20/4/18.
Summary of Complainant’s Case:
The complainant works in the finance department on credit control and credit payments. The respondent sells and provides medical products and services to the health sector.
The complainant’s understanding is that her contract entitles her to payment of a bonus of 10% of gross salary subject to having met her targets and achieved agreed objectives. Her contract states
“Participation in the annual bonus scheme. You have the potential to earn up to l0% of your basic gross salary per annum based on successful achievement of agreed objectives. Bonuses are paid bi-annually in June and December each year. On successful completion of your probationary period you will be eligible to begin earning your bonus based on successful achievement of agreed objectives’.
The target which she must reach to earn the bonus is receipt of payment within 44 days of invoicing a customer. The complainant exceeded her target and receives payment within 36 days. She has scored the top mark which is achieving in excess of expectations in appraisals. She has met her targets and achieved her objectives.
However, despite making €7.1 million profit this year, the respondent decided that bonuses should not be paid to the ground staff. The bonus payments have been up and down since 2009 but this is the first year since 2009 that she got no bonus.
She took her complaint through the respondent’s grievance procedure to no avail. She appealed the refusal to grant her the bonus and the appeal was not upheld.
Her contract indicates that she should have received a full bonus every year. She is seeking the bonus for 2017 only.
A presentation was delivered to staff in July 2017 indicating that the respondent was not reaching its profit target. She was never previously advised that there was an additional requirement – meeting of companywide targets.
The first notification to her that bonus would not be paid was in November 2017. Her performance and development review for 2017 does not refer to companywide targets. The company did not reach 90% of its target, was €1.3 m behind their target, and this was cited as a reason to withhold bonuses. Her contract does not specify that her bonus is dependent on organisational -wide meeting of targets. The claimant states that her contract only requires that she meets her own personal targets. She asked why were targets and objectives set for her if no bonus was payable.
From 2002- 2009 she earned a bonus of 10% each year.
The complainant understands that sales staff get commission or a bonus.
Summary of Respondent’s Case:
The respondent HR manager gave evidence.
The claimant is employed as a Credit Controller since 2002. The respondent provides healthcare products and services to the health sector.
The claimant is eligible to participate in the respondent’s bonus scheme which is applicable to all employees within the support services and management cohort, subject to the achievement of both personal and company objectives for the relevant financial year. Payment of a bonus was always contingent on meeting company/ departmental targets in addition to meeting personal objectives and targets. The respondent’s parent company sets the budgeted operating profit target for them. The respondent states that they have full discretion not to pay any bonus.
On the 15th November 2017, an announcement was made to all support and management services employees confirming that due to poor financial performance of the Company for the financial year, the respondent would not be in a position to pay annual bonuses for the year 2017. The HR manager referred to a previous meeting held in July 2017 where it was disclosed that the respondent, as a whole, was €1.3m behind its financial targets for the year to date as at the end of June. Meetings with staff were scheduled for November. An email of the 7 November from the Director noted that
“The division has ended 13% behind our budgeting operating target. Unfortunately, due to A’s poor overall financial performance in FY17, the business will not be able to pay any year-end bonuses this year. This includes all support services and management”.
This message was communicated to all staff.
On 4th December 2017, the claimant lodged a formal grievance with the respondent regarding the respondent’s decision not to pay her an annual bonus in 2017 and asserting a contractual entitlement to same. Neither her grievance nor her appeal was upheld. It was conducted in accordance with the agreed procedure
The respondent operates four separate bonus schemes specific to different categories of employees across its business. The complainant is eligible to participate in the Support Services and Management bonus scheme. All of the respondent’s bonus schemes have a company performance element to them
The respondent submits that the bonus payment sought by the claimant was not properly payable to her on the basis that while the performance objectives of the claimant were achieved, those of the company were not and this was a fundamental element of the bonus scheme. This had been communicated to the claimant earlier in the year. The respondent submitted a framework document in the name of the parent company, dated 19/2/2009, and unsigned, in which it included group / divisional performance as one indicator in a sample score sheet used to calculate the bonus due to the complainant. As the bonus payment was not properly payable, there has been no contravention of the 1991 Act.
In support of their argument that the bonus is not properly payable they rely on the Labour Court determination in the case of Bord Gáis Energy Limited v Thomas (PWD1729). The court stated that” in order for an employee to claim that monies have been unlawfully deducted, it must be established if those monies were “properly payable” to them under their contract of employment and concluded in that case that:
“The question that arises is whether, or not the [bonus] payment was properly payable to the complainant. …The Court was satisfied that the Complainant did not meet the criteria to be eligible for a payment under the scheme. Therefore, the bonus arising from the PRA scheme was not “properly payable” and no contravention of the Act occurred”.
The respondent also submitted the determination in HR Foods and Noel O’ Loughlin, PWD 1815 where there was a dispute about whether the complainant had met the KPIS and his complaint was not upheld.
The respondent respectfully requests that the claimant’s claim be dismissed.
Findings and Conclusions:
The question for determination is whether the respondent in withholding the bonus has infringed section 5 (6) of the Act of 1991 which states
“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
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 are encompassed within the definition of wages in section 1 (a) of the Act of 1991.
Three issues need to be addressed
Did the respondent have discretion not to pay any bonus?
Was the bonus properly payable?
The claim for a bonus of 10%.
Did the respondent have discretion not to pay any bonus?
What is in dispute in this case is the legitimacy or otherwise of importing into frame a criterion which was not stated in the contract.
The respondent asserts that he has discretion not to award any bonus based on their assertion that a companywide performance was always an element of the bonus scheme. There was no flexibility clause in the complainant ‘s contract to vary the obligation to pay up to 10%, no statement about the power to introduce different criteria to decide on whether a bonus should be paid at all.
The matter of discretion to award a bonus was dealt with in the case of Cleary & Others v B&Q Ireland Limited (High Court, 8 January 2016) IEHC 119. This was a judicial review against the decision of the EAT to uphold the employer’s right to withhold a summer bonus from the B and Q employees due to a financial downturn. The High Court, however, stated that while B&Q had wide discretion under the terms of the contract to withdraw the bonus scheme, superimposed on that was the obligation to excise such discretion reasonably even in circumstances where the contact, as in this case, expressly allowed for a withholding of the bonus. The Court did not accept that the terms of the scheme allowed B&Q to withhold the summer bonus, which had already been earned and was due. Mc Dermott J., stated
“The discretion to withdraw the bonus scheme at any time, in my view, was always intended to apply in futuro and attached to the conferring of bonuses, as yet unaccrued, under the terms of the scheme. The payment of the bonus crystallised as a contractual obligation once it was “earned” in accordance with the terms of the scheme as operated.”
McDermott J., in Cleary relied on the conclusions of Smyth J., in Finnegan –v- J&E Davy  IEHC 18, a case concerning the withdrawal of a quantifiable bonus which was a unilateral change in the conditions of employment. Smyth J had observed that
“The plaintiff could reasonably expect as a matter of principle built up from a number of years of consistent conduct in the payment of bonuses and the matter of discretion never having been mentioned to him at any stage that some bonus would be payable – the amount only dependent on the trading activities of the firm and his own performance.”
Mc Dermott J., held it to be unreasonable to retrospectively withhold a bonus whatever about the possibility of the contract allowing for a future withdrawal of the summer bonus.
So also in the instant case, the financial year runs from October to September. It is then that the contractual obligation to pay the bonus is realized- the complainant having met the performance indicators for the financial year 2017. The complainant was only told in November 2017 that the bonus would not be paid in respect of the 2017 financial year which ran from October 2016 – September 2017.
The respondent requests that consideration be given to the fact that no other employee secured a bonus. He submitted copies of contracts of employees in other divisions of the company after the hearing. The contracts of these other employees differ from the unqualified statement in the complainant’s contract. Those other employees ‘contracts have statements such as “the criteria for payment of the bonus will be decided by the company” ; “bonus payments are conditional on the technical service department achieving their annual financial target”; “targets are agreed by the senior management team each year, 2011”; Sales department-the terms of the Scheme may be revised by the company and all bonus payments are contingent on group performance based on successful achievement of agreed objectives “There are statements in these other contracts allowing for a variation .In the instant case the complainant’s contract, a contract different to employees in other divisions, offers a bonus based on agreed objectives which the respondent admits she has exceeded, and on its face permits of no factors external to her own performance to deny her the bonus.
It is a fact that except for 2009 when the company were seeking extensive redundancies because of the advent of the recession, the complainant secured a bonus each year.
Her contract on its face does not provide for a zero-bonus. Her contract makes no reference to any other procedures, policies for determining her eligibility for a bonus
Her contract, the evidence submitted and the decision in Cleary lead me to find that discretion does not lie with the respondent to award no bonus.
Was the bonus properly payable?
For a claim of unlawful deduction to succeed, it is necessary to demonstrate that the payments which have been deducted are “properly payable”
The complainant’s contract allows for a bonus of up to 10% of gross annual salary. The complainant’s contract has no flexibility clause; no power to vary its terms. The contractual guarantee contained in the contract was not linked to the profitability of the company. it’s a stark statement that she has the potential to earn a bonus of up to 10 % subject to meeting agreed objectives. The contract is between the complainant and the respondent and not with the parent company who produce the guidelines and the profit targets necessary for payment of bonuses- an unsigned copy of which was submitted by the respondent. The objectives stated in the contract can only be agreed between the complainant and the respondent. What companywide profit margins will generate a` release of a bonus is not a matter or an objective which the complainant can agree with the respondent let alone influence. As such it is difficult to see how companywide profitability could be an objective to which she could agree in a contract. The operating profit margins are decided by the parent company. Her contract makes no mention of any companywide objectives.
The cases concerning non- payment of bonuses, cited by the respondent in support of their case that the complainant’s bonus was not a properly payable wage element, are distinguishable from the instant case. In both these cases it was the contractual obligations and entitlements which informed the Court’s determinations. The Court in Bord Gais Energy Ltd v Niall Thomas, PWD 1729, gave considerable weight to the contract which stated, “your eligibility for payment in any year shall be considered and determined in accordance with the criteria established by the company.” The complainant’s contract “sets out the eligibility requirements for payment of the PRA and that the complainant confirmed in evidence that one of the criteria was that he be in employment on the date of the payment”.
The complainant had resigned by that time
The complainant’s contract in HR Foods and Noel O’ Loughlin, PWD 1815 stated “a bonus scheme of up to 30 % of salary is dependent on agreed KPIs.” There was a conflict as to how far if at all the complainant had achieved his agreed KPIs. The Court held that it could not retrospectively assess whether the complainant had met the KPIs, but the issue of what the contract stated was what needed to be looked at to see if it was properly payable.
On the basis of the complainant’s contract, the evidence and for reasons stated above I find that the bonus was properly payable.
I find the non-payment of the bonus to the complainant to be an unlawful deduction
Claim for a bonus of 10%.
It is accepted that the complainant exceeded her targets and objectives- a precondition for payment of a bonus of up to 10%.
But the table produced by the respondent demonstrates that since 2009 the custom and practice is that the bonus has fluctuated between 2 and 10%, but never sank to zero. The complainant made only one reference to a personal factor (she did not smile enough), which may have depressed her bonus. Otherwise she submitted no evidence to explain why her bonus dipped below 10%.
The complainant maintains that she questioned the payment every year. The respondent states that she never made a formal complaint until 2017, and neither has any other employee protested. The contracts of other employees allow for a variation on the amount and as to whether they will get a bonus.
I find that she acquiesced in the fluctuating rate of the bonus which was paid to her over a seven-year period.
I do not find that the contract as expressed permits for the non-payment of any bonus based on a absent term in the contract (companywide performance).
I find the non-payment of a bonus to the complainant to be an unlawful deduction.
The remedy allowable under the Act of 1991 provides in section 6 that
“(2) Where a rights commissioner decides, as respects a complaint under this section in relation to a deduction made by an employer from the wages of an employee or the receipt from an employee by an employer of a payment, that the complaint is well-founded in regard to the whole or a part of the deduction or payment, the commissioner shall order the employer to pay to the employee compensation of such amount (if any) as he thinks reasonable in the circumstances not exceeding—
(a) the net amount of the wages (after the making of any lawful deduction therefrom) that—
(i) in case the complaint related to a deduction, would have been paid to the employee in respect of the week immediately preceding the date of the deduction if the deduction had not been made, or
(ii) in case the complaint related to a payment, were paid to the employee in respect of the week immediately preceding the date of payment,
Other decisions cited have dealt with a claim for an agreed or quantifiable sum. In this case I accept that the contract allows for discretion on the amount. The complainant has met her objectives.
In 2011 the respondent states that the company objectives were not met yet they paid the sum of 2% as an incentive to staff.
I decide that the respondent should pay the complainant a bonus of 2% of her salary which equals €750.
Section 41 of the Workplace Relations Act 2015 requires that I make a decision in relation to the complaint(s)/dispute(s) in accordance with the relevant redress provisions under Schedule 6 of that Act.
I find the complaint of an unlawful deduction contrary to the Act of 1991 to be well founded. I decide that the respondent should pay the sum of €750 which represents 2% of her gross salary to the complainant subject to all lawful deductions.
Dated: 18 October 2018
Workplace Relations Commission Adjudication Officer: Maire Mulcahy
Non- payment of bonus. Contractual obligations.