THE INDUSTRIAL TRIBUNALS
CASE REF: 2795/16
CLAIMANT: Colin Graham
RESPONDENT: Larmour Estates Ltd, t/a Ulster Property Sales
It is the decision of the tribunal that the claimant's contract of employment entitles him to a 20% pro rata share of the respondent's annual profits in his final year of employment. The respondent is therefore ordered to pay to the claimant the sum of £16,293.17.
Constitution of Tribunal:
Employment Judge (sitting alone): Employment Judge Browne
The claimant was represented by Mr Stuart Magee, Barrister-at-Law, instructed by RJW Law.
The respondent was represented by Mr Mark Mason of Mark Mason Employment Law.
ISSUES AND EVIDENCE
1. The claimant was employed from 1 April 2012 until 8 September 2016 as an estate agent and valuer in the respondent's estate agency business, a franchise, whose principal is Mr Keith Larmour. The claimant and Mr Larmour were on good personal terms, and, initially, that friendship worked well in the business environment.
2. The strength of their good working relationship resulted in a mutual agreement in December 2013 that the claimant would be entitled to receive 20 per cent of the respondent's annual profits after tax. The agreement was reduced to writing, albeit only on an unsigned sheet of paper, but both parties accepted in evidence that the document was valid.
3. The actual wording was "We agree starting 1st year April '14 - April '15 20% profits after tax confirmed by Gavin [the respondent's independent accountant]".
4. It is worthy of note that the claimant did not otherwise receive a written statement of the terms and conditions of his contract of employment, although such omission is not the subject of formal complaint in this case.
5. The parties disagree as to the status of that agreement. The claimant's case, in broad terms, is that it ought properly to be viewed as a term of his contract, and that he consequently is entitled to 20% pro rata of the annual profits for the tax year 2016-2017, calculated by him to be £16,293.17.
6. The respondent's case, in broad terms, is that the agreement of December 2013 was never intended to be a term of the claimant's contract, but merely had the status of an informal arrangement as consideration of the claimant's contribution to the business.
7. The respondent also asserts that it was always subject to the claimant being employed for the whole financial year, resulting in the claimant not being entitled to any share of the profits for 2016-2017, because he left in September 2016.
8. The respondent accepted in evidence under cross-examination that, if he had known then what he knew now, he would have stipulated at the time that the profit sharing was conditional upon the claimant working a full year. He further stated that the claimant had never been made aware of any such condition.
The respondent, in email correspondence between himself and the claimant on
6 September 2016, when the claimant's acrimonious departure was imminent, stated "I agreed to pay you 20% of my profits after salary, taxes, etc., which I have honoured."
10. This statement was made by the respondent in full knowledge that the status of the profit sharing arrangement was a live issue between them, so the tribunal attaches particular weight to the way in which the respondent couched his wording.
11. Whilst exercising caution to avoid an over-literal interpretation, it is the view of the tribunal that his words in that exchange tend to support the claimant's contention. Such arrangement was much more formal and more clearly understood as a term of the claimant's contract of employment than the respondent's contention that this was a discretionary bonus, subject at any time to his unilateral variation or disposal.
12. The respondent also argues that any assertion of the existence of a contractual term is fatally undermined by a lack of certainty in the arrangements. Such flaws are, on the respondent's case, exemplified by the ad hoc method of payment, primarily the reduction of the figure of Mr Larmour's "notional" salary from one year to the next in 2014-15. The first year, he stated that his salary was around £50,000, but agreed after protest by the claimant to correct that figure to £29,373, being accurate, and equal to that of the claimant.
13. The figure of £50,000 meant that the final profit figure substantially reduced the amount the claimant then would receive as his share of the profits. Such action by Mr Larmour was viewed by the claimant as financial chicanery, and would not be conducive to enhancing relations between them.
14. The tribunal has had regard to the guidance in Harvey, section A11D and to the relevant case law, including Albion Automotive Ltd v Walker  EWCA Civ 946,  All ER (D) 170 (Jun) . The Court of Appeal usefully listed relevant factors as follows:
(a) whether the policy was drawn to the attention of the employees;
(b) whether it was followed without exception for a substantial period;
(c) the number of occasions on which it was followed;
(d) whether payments were made automatically;
(e) whether the nature of communication of the policy supported the inference that the employers intended to be contractually bound;
(f) whether the policy was adopted by agreement;
(g) whether employees had a reasonable expectation that the enhanced payment would be made;
(h) whether terms were incorporated in a written agreement;
(i) whether the terms were consistently applied.
15. Whilst there are factual differences between the Albion case and this, the guidance contained in Albion provides a sound basis for reaching a decision in this case.
16. The tribunal concludes that, in the absence of any independent evidence to the contrary, there is a compelling inference from the verbal evidence and written agreement that this was, and was intended by both parties at the time of making it, to be a permanent, structural addition to the claimant's contract of employment. Indeed, it might be said that, given the absence of a written contract of employment, this element was the only one of which there was any tangible evidence, thereby reinforcing the validity of close consideration of the admittedly sparse contents, to determine its intended status as between the parties.
17. Similarly, in the absence of contractual agreement as to early termination of the contract of employment by either party, the tribunal must examine the parties' proposed alternatives, to determine the one more likely to have been agreed and incorporated, in the event that the contracting parties had anticipated such a situation emerging.
18. The tribunal considers that such a scenario probably did not occur to either party as sufficiently likely to warrant action when they agreed the fact and terms of the profit sharing. In the circumstances of this type of commercial enterprise, as in so many others, the unexpected departure of key staff such as the claimant ought readily to be anticipated as at least a possibility.
19. Mr Larmour expressed regret under cross-examination, stating "if I had known then what I know now", that the agreement had not included any stipulation as to the profit sharing being based upon the claimant working for the full year. From the available evidence, however, it seems to the tribunal that the mutual understanding of both parties at the time of making the agreement and during its operation did not include any such express or implied condition, or any intention during its currency to insert it.
20. The respondent sought to assert that that the claimant was premature in bringing his claim. This was based upon the argument that, because the entitlement to any profit sharing amount (which was denied as part of the respondent's case about working a full year) could only be calculated at the end of the financial year. In that circumstance, the respondent argued that the claimant ought to have waited until after the end of April 2017 to bring his claim.
21. The respondent also argued that the claim for a share of the profits is outside the jurisdiction of the tribunal, since it is for an unliquidated sum.
22. The claimant's response is that his entitlement to his share of the profits crystallised upon termination of his contract in September 2016, from which time started to run.
23. Weighing the merits of the respective arguments, the tribunal finds those of the claimant to be more persuasive when viewed against the objective evidence.
24. The claimant's complaint relates to the denial by the respondent in correspondence on 3 October 2016 of any entitlement to a share of the annual profits. On the respondent's case, such a pro rata calculation would be impracticable before the end of the financial year, as reflected in the initial agreement that it was payable upon certification by the respondent's accountant. That method of calculation was an inherent part of the agreement from the outset.
25. As such, the claim brought was for a determination of the right to such a contractual right. The validity of the claim in those circumstances is not undermined by the fact that it was not possible, or in compliance with the terms of the agreed profit sharing, at the time the parties parted company, then to determine the amount owed. It is not the case that the amount was incapable of ever being calculated; nor was such calculation discretionary upon the health of the final figures, or complicated by a need for apportionment as between others in the scheme.
26. The tribunal accepts the claimant's analysis of the case of Coors Brewers Ltd -v- Adcock  EWCA Civ 19, in that the employee in this case was no longer employed by the respondent when he brought the claim. It is also worthy of note that the Coors case involved more than five hundred employees, and, in its scale and structural complexity, was very different from the present case.
27. It is the conclusion of the tribunal that the claimant's case comes within its jurisdiction under the Industrial Tribunals Extension of Jurisdiction Order (Northern Ireland) 1994 ('the 1994 Order"), which states:
"Extension of jurisdiction
3. Proceedings may be brought before an industrial tribunal in respect of a claim of an employee ,for the recovery of damages or any other sum (other than a claim for damages, or for a sum due, in respect of 'personal injuries') if -
(a) the claim is one to which Article 57(2) of the No. 2 Order applies and in respect of which a court in Northern Ireland would under the law for the time being in force have jurisdiction to hear and determine an action;
(b) the claim is not one to which Article 5 applies; and
(c) the claim arises or is outstanding on the termination of the employee's employment."
28. In view of the tribunal's finding that it has jurisdiction, Article 7 of the 1994 Order establishes the time limits for bringing a complaint:
"Time within which proceedings may be brought
7. An industrial tribunal shall not ente rtain a complaint in respect of an employee's contract claim unless it is presented-
(a) within the period of three months beginning with the effective date of termination of the contract giving rise to the claim; or
(b) where there is no effective date of termination, within the period of three months beginning with the last day upon which the employee worked in the employment which has terminated; or
(c) where the tribunal is satisfied that it was not reasonably practicable for the complaint to be presented within whichever of those periods is applicable, within such further period as the tribunal considers reasonable."
29. It therefore is the conclusion of the tribunal that the claimant was obliged to bring his complaint within three months of the effective date of termination of his employment. That date is found by the tribunal to be 8 September 2016; the claimant's complaint was received by the tribunal on 2 December 2016, namely, within three months of the effective date of termination.
30. The tribunal therefore concludes that there was a contractual right to twenty per cent of the certified annual profits, that such right was not dependent upon working for a full year, and that the respondent was in breach of that contractual term by refusing to pay any or all of that share.
31. In assessing the amount due to the claimant, it concludes that the appropriate remedy is the amount owed to the claimant in its failure to pay him the twenty per cent of the net profits of the business. The appropriate method of calculation is that suggested by the claimant, namely, a pro rata calculation from the annual profits.
32. The tribunal has been presented with figures by the respondent which purport to show its profit and loss to the period ended 31 August 2016. Included in those figures is a redundancy payment of £30,006, challenged by the claimant. The respondent in evidence was unable to give any credible details about such a payment, and the tribunal is not satisfied that it is correct. The tribunal therefore is disregarding that figure for the purposes of assessing the amount owed to the claimant.
33. The tribunal considers that the figure of £16,293.17 calculated by the claimant is correct, and the respondent is ordered to pay such amount to the claimant.
34. This is a relevant decision for the purposes of the Industrial Tribunals (Interest) Order (Northern Ireland) 1990.
Date and place of hearing: 22 November 2017, Belfast.
Date decision recorded in register and issued to parties: