United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR I WRIGHT (of Counsel) Messrs Clifford Harris & Co Solicitors P.O. Box 4UA 51 Welbeck Street London W1A 4UA
For the Respondent	THE RESPONDENT IN PERSON


 


JUDGE LEVY QC: By an Originating Application received by an Industrial Tribunal on 15th June 1995, Dr Vladislav Dobrinov Boev ["Dr Boev"] complained of:

"1) Breach of contract/wrongful dismissal - without notice

2) Written reasons for dismissal - without written reasons failed to present them within 14 days

3) Race relations - harassment at work and discrimination on the ground of ethnic/national origin and clash of personalities

4) Transfer of an undertaking - change for the worst of conditions of employment. Actions and pressure to resign."

He alleged he had been employed by Lins Computing Limited from 10th January 1994 to 5th April 1995. The dates of his employment were not in dispute but the Notice of Appearance of the Company put everything else in dispute.

There was a preliminary hearing of Dr Boev's complaint by an Industrial Tribunal headed by Mrs Calvert QC on 22nd January 1996. That tribunal ruled that Dr Boev had been dismissed from his employment by the Company through their manager, Mr Karkinsky; and the issue of whether than dismissal constituted a breach of contract was left to be decided by another Industrial Tribunal together with the question of whether Dr Boev had been racially discriminated against.

All his claims other than the breach of contract were withdrawn before there was a hearing before a differently constituted Industrial Tribunal which sat at London (North) on 15th May 1996. That tribunal unanimously decided that Dr Boev was wrongfully dismissed and that he was entitled to damages for breach of contract totalling £4,250.72.

The decision was promulgated on 5th June 1996. From it the Company appealed by a Notice dated 11th July 1996. There was a preliminary hearing of their appeal on 14th January 1997 when leave was given for the appeal to come on for a full hearing.

The issue on appeal is whether the Industrial Tribunal was entitled to include a figure of £1,500.00 net of tax for a bonus payment in the figure awarded.

Before turning to the issues, it is necessary to comment on the form of the extended reasons. The paragraph numbering seems to have gone sadly awry. The extended reasons commences with an unnumbered paragraph. We have numbered that 1. There is a paragraph numbered 4 on page 3 and a further paragraph numbered 4 on page 4 of the decision. We have numbered the second paragraph numbered 4, 5. The paragraph which we have numbered 5 is in two sub-paragraphs and runs to well over a page, we have thought it helpful to number the second full paragraph 6, within that second full paragraph it appears that there is a further breakdown needed, on page 5 of the decision, we have numbered the sentence which commences "On that basis how is that the Respondents decided to pay bonuses to Mr Karkinsky and the translators" 7. We have inserted the number 8 before the sentence which commences "We therefore conclude ...".

The facts behind the appeal are that Dr Boev was employed by the Company as a Project Manager pursuant to a written contract of employed dated 16th February 1994. Clause 3 of that contract provided that his basic salary would £24,000 per annum payable in arrears. Clause 10c) of the contract reads as follows:

"10. Other Conditions

...

c) The company is in the process of preparing a bonus plan based on performance of the current project. It is therefore our intention to pay Project Managers a one time monetary bonus on successful implementation of the software package at the client's site."

The current project was to supply and installation of a software system for a Ukrainian customer. The Industrial Tribunal found that at a meeting held on 12th December 1994 attended by Dr Boev and a director of the Company, Mr Gatti, that Dr Boev was told that his bonus which was said to be £500.00 was to be withheld until successful completion of his part of the work on the project. At the same meeting three other project managers were told that they would receive bonuses. The tribunal found as a fact that the current project was not successfully implemented. That is at paragraph 6 of its decision. The other employees, specifically another project manager and two translators working on the project did receive bonuses, despite their contracts containing no provisions for them to receive bonus payments at all. The Industrial Tribunal found that the decision to pay the bonuses to the other employees was because the Company had changed its intentions as permitted by Clause 10(c). One does not quite find how they found that, but that is what they said. In those circumstances they held that the bonus should also have been paid to Dr Boev.

We have been referred to the appropriate law which is now found in s.13(1) of the Employment Rights Act 1996, which sets out that an employer shall not make a deduction from wages of a worker employed by him unless certain circumstances apply which are irrelevant to the matters which are the subject of this appeal.

S.27(1) of the 1996 Act provides that

" "wages" means any sums payable to the worker in connection with his employment, including-

(a) any fee, bonus, commission, ... referable to his employment whether payable under his contract or otherwise."

Mr Wright has submitted that the bonus referred to in Clause 10(c) is discretionary, and that it was a one-off payment depending on the successful performance of the particular project. He further submitted that the payment could not be expected or that it was within the reasonable contemplation of the parties that it would be paid if the contract was not successfully implemented as the tribunal held it was not. He therefore submitted that it was not a sum payable to the worker in connection with his employment, though as a matter of contract, though the words "or otherwise" in the section he accepted might enable Dr Boev to recover a bonus payment. He referred us to the decision in Kent Management Services Ltd v Butterfield [1992] ICR 272, where Wood J giving the judgment of a panel of the Employment Appeal Tribunal, where he held that a commission was payable to an employee said this at page 274 having looked at the particular contract in question:

"There was before the tribunal no issue as to the amount of commission payable, it was simply said that it was not contractually payable. There was no legal obligation and therefore the company was perfectly entitled to say that the sum would not be paid. It is only necessary to say this about the calculation, that the commission was payable on fees already received by the company, so that there was no question of payment for commission on fees or consideration that had not yet been received by the company.

The sole issue therefore for the tribunal, the claim being for commission partly unpaid under the Wages Act 1986, is whether that commission was payable under the Act. ..."

And after reading sections of the Act, the contract in question and referring to Counsel's submissions, Wood J said this at page 276C:

"It is first of all necessary for us to look at paragraph 8 and to see what its true meaning is as we construe it. It seems to us that there are various parts of that paragraph which are identifiable and that the paragraph is in fact fairly clear. The intention first of all is set out: "Whereas the intention of the commission and bonus schemes is to stimulate motivation and provide a fair return for additional effort" pausing there, it refers to "schemes" and the purpose of the schemes is to stimulate motivation and provide a fair return for additional effort. it then goes on: "there are circumstances, however unlikely, when payment may be either not justified or not possible. An extreme example would be bankruptcy!!"

It is clear from that there are unlikely circumstances when payment would be impossible. That is one thing, it is not suggested it is impossible here, or not justified. But normally by inference the circumstances will be such that commission when earned, will be paid. An extreme example would be bankruptcy. That indicates to us, construing that paragraph, that the circumstances referred to are extremes, or tend to be extremes and certainly unusual. Then the paragraph continues:

"Consequently, for legal purposes the schemes will be defined as discretionary and ex gratia and will not constitute a contractual arrangement with the employees concerned."

This must be a form of agreement or clause which is to be found in many situations in employment. If reasonable notice is given, clearly these schemes can be varied and altered and might be abolished, but whilst the schemes are in being the anticipation will be that in normal circumstances commission will be paid on work which had been carried out and on which the calculation is based; the anticipation of both parties is clearly that it will be payable. There may be circumstances such as breach of the terms of the contract of employment or other circumstances where it may be said "No, there is a good reason why it should not be paid." But it is anticipated that in the ordinary circumstances if it is earned, it will be paid. Mr Gow [Counsel for the employer in the case, the appellant] suggests that it would not be possible to mention every single possible reason for not paying it. During submissions we pointed out that a very simple wording could have been indicated such as "all payments of commission and bonus are dependent upon satisfactory performance and compliance with the contract of employment to the date of the payment." Something of that nature. That is not so here.

Therefore looking at the definition of "wages." First of all was this a sum payable to the worker by his employer in connection with his employment? It seems to us, reading the documentation that this was clearly a sum payable "in connection with his employment." It was within the reasonable contemplation of both parties that in ordinary circumstances, and there is no suggestion on the documentation nor in front of the Industrial tribunal that there were any special circumstances for non-payment, it was payable."

Now that is a case where commission had been earned and there was no reason for it not to be paid and there was no special clause in the contract. Here, there is a special clause in the contract. Further the clause provided "On successful implementation of the software package at the client's site." That had not happened, and there was therefore the sort of clause preventing a bonus or commission being automatically payable to Dr Boev as Mr Wright submitted.

Dr Boev has submitted to us that looking at other documents in the bundle such as the Company's internal documents about bonuses, it is clear that bonuses were payable to other parties and therefore should have been payable to him. It seems to us that Dr Boev's entitlement to bonus must corner on the appropriate construction of his contract. In our judgment, the Industrial Tribunal in giving its extended reasons, paid insufficient attention to his own particular contract. If they had been referred to Kent Management Services v Butterfield, the decision which they reached is one which they could not have reached. They have, in our judgment, misdirected themselves in law when they looked at the payments to other people to decide that a bonus could and should have been paid to Dr Boev.

In our judgment, therefore, the appellant is right on this appeal when he says that the conclusion that the bonus payment was to be paid is a wrong one. He asks us in the circumstances of the case to reduce the sum of money payable to Dr Boev from £4,250.72 ordered, by £1,500.00, to £2,750.72. We do have power under section 35 of the Industrial Tribunal's Act 1996 to make the amendment sought. It seems to us in the particular circumstances of this case that it is appropriate to make that amendment.

We would thank Dr Boev for his submissions to us which we have felt unable to accept because there has been a clear misapplication of the law by the Industrial Tribunal. In the circumstances we allow the appeal to the extent we have made clear.

Mr Wright on behalf of the appellant makes an application for costs. The application is refused and no order for costs made.