Mr A Birtwistle v Northside Truck and Van Ltd: 1804751/2019 and 1807259/2019
EMPLOYMENT TRIBUNALS
Case No 1804751/2019, 1807259/2019
Between
Mr A BirtwistleClaimantNorthside Truck and Van LtdRespondent
Before
Employment Judge LancasterIn person for claimantMr R Hutchison (instructed by solicitor) for respondentDate 29 April 2020
JUDGMENT
[1]The claim for all unauthorised deductions from wages from payments made before 10th September 2017 is struck out because the Tribunal has no jurisdiction to hear it under section 23 (4A) of the Employment Rights Act 1996.[2]The claim for an unauthorised deduction from wages due in respect of commission properly payable for May 2019 is well founded, and by consent the Respondent is ordered to pay to the Claimant compensation in the sum of £1250.[3]The Respondent’s contract claim is struck out because the Tribunal has no jurisdiction to hear it under article 4 (d) of the Employment Tribunals Extension of Jurisdiction (England & Wales) Order 1994
REASONS
Issues
[1]The Claimant’s complaints are all of unauthorised deductions from wages.[2]His first claim is in respect of the sum of £10,569.88 which the Respondent accepts was an amount of commission the Claimant had earned up to the termination of his employment on 14 June 2019, but which was withheld from his final payment. The Respondent’s position is that the Claimant was not entitled to this sum and that the deduction was made to recover an overpayment in wages. This overpayment depends upon whether there was an agreement with the Claimant that an ongoing (pro rata) deduction could be made from commission payments in the sum of £15,000 per annum to reflect an “increase” in basic salary in that amount, which had been agreed to assist the Claimant in showing a higher basic salary when applying for a mortgage.[3]The Claimant also claims commission on a category of vehicles which he says were registered and paid for before 14 June 2019. The Claimant has revised this claim downwards to the sum of £2161 in circumstances where he now accepts that he did receive payment in respect of commission for some of the relevant vehicles.[4]Finally, the Claimant is seeking the sum of £8850 in respect of a category of vehicles sold to Hexagon Leasing Limited which were registered before or on 14 June 2019 but which had not yet been paid for. Applicable law[5]Section 13 of the Employment Rights Act 1996 provides that an employer shall not make a deduction from wages unless the deduction is required or authorised to be made by virtue of a relevant provision of the worker’s contract or if the worker has previously signified in writing his consent to it. In accordance with Section 13(3), where the total amount of wages paid is less than the total amount of the wages properly payable to a worker, any shortfall of pay is to be treated as a deduction. Section 13 does not, however, apply where the purpose of the deduction is the reimbursement of the employer in respect of an overpayment of wages. Under Section 27, wages include any bonus or commission payments. Evidence[6]This hearing was initially conducted by Skype, the Tribunal having before it an agreed bundle of documents consisting of 83 pages and the parties’ witness statements. The Tribunal also had an additional document emailed by the Claimant to the Tribunal the previous day which was a service contract schedule in respect of a customer, Expect Distribution Ltd. During an adjournment the Claimant also sent to the Tribunal and the Respondent email correspondence between him and Mr Russell Hallowes on 31 May and 3 June 2019. This was accepted by the Tribunal as evidence without any objection on behalf the Respondent.[7]Having briefly identified the issues with the parties the Tribunal heard firstly from the Claimant. Unfortunately, due to a problem with the Skype link for the Respondent’s solicitor, the Skype hearing was effectively abandoned partway through the Claimant’s evidence and the remainder of the evidence was heard through a telephone conference call set up by the Tribunal. The Tribunal then heard, on behalf of the Respondent, from Mr Timothy Ward, group CEO. After a brief adjournment it then heard both parties’ closing submissions.[8]Having considered all of the evidence the Tribunal makes the following findings of fact. Facts[9]The Claimant was employed by the Respondent with responsibility for fleet sales of trucks and vans although he remained involved in retail sales after acquiring this new role in January 2017.[10]He had reported to Mr Timothy Ward as Managing Director although from 1 January – 9 August 2017 and from 1 May 2018 on a continuing basis, Mr Ward relinquished that role to become Group CEO. In the first period, Mr Ben Sowersby undertook the role of Managing Director and from 1 May 2018, Mr Russ Hallowes.[11]The Claimant met with Mr Ward in early August 2017. Following a divorce, the Claimant explained to Mr Ward that he had been struggling to obtain the level of mortgage he was seeking due to lenders focusing on the level of his basic salary rather than accepting the reliability of additional earnings he received through commission on sales and bonuses. Mr Ward agreed with him that, to assist with his mortgage application, the Respondent would increase his basic salary from £37,000 per annum to £52,000. The Claimant, before the Tribunal, was clear that the increase in basic pay was due to his mortgage difficulties. He did not suggest that it was a promotional increase pay.[12]The Claimant’s evidence was that from January 2017 he had been talking to Mr Sowersby regarding a revised package to reflect his new responsibility for fleet sales which the Claimant certainly regarded as a promotion, not least in circumstances where he was responsible for two additional members of staff. However, nothing was ever agreed.[13]The agreement now with Mr Ward (on account of his mortgage difficulties) was reflected in a letter from Mr Ward dated and countersigned by the Claimant to signify his acceptance on 3 August 2017. This provided: “The sum of £15,000 will be deducted from your yearend bonus. Your commission and bonus scheme for 2018 and onwards will be changed to reflect this alteration in salary.” The £15,000 indeed was a reference to the increase in basic salary to assist with mortgage applications. Whilst in the Claimant’s grounds of complaint he maintained that the increase was to coincide with his promotion and in his witness statement that Mr Ward offered him promotion at the August 2017 meeting (with the pay increase a recognition of that), that was not the case, nor the case advanced by the Claimant at this hearing.[14]A commission and bonus scheme was already in place for the calendar year 2017 which included an entitlement to commission on sales of vehicles and ancillary products as well as the ability to earn a yearend bonus dependent and based upon volumes of annual sales.[15]Since 28 May 2013 the Claimant had worked under the terms of a written contract of employment which provided for an annual salary and referred to a commission scheme. It provided that: “(b) Commission shall not be payable for any sales not fully completed, paid and delivered prior to any team member leaving the company. (c) Any bonus scheme or commission scheme in place is discretionary and is subject to review on a regular basis. (d) Entitlement to bonus or commission for any period is subject to the staff member being employed on the last day of that period. Pro rata payments are not made to any staff member leaving part way through a bonus or commission period.”[16]The Claimant’s employment was also subject to the terms of an Employee Handbook, the terms of which the Claimant agreed to be bound by on his signature on 19 June 2013. The matters covered in the Handbook were expressly said to constitute part of the Claimant’s contract of employment and to be in addition to the statement of terms and conditions. They included a section headed “bonus and commission” which went on to provide: “Certain employees, as part of normal remuneration receive bonus and or commission. As per normal practice in the motor industry, all schemes are discretionary and subject to review on a regular basis and may be varied or replaced as determined by the changing economic or organisational conditions. IMPORTANT: Entitlement to bonus or commission for any period is subject to the employee being employed on the last day of that period. Prorata payments are not made to any employee leaving partway through a bonus or commission period.”[17]The Claimant agreed that there was nothing within the wording in his statement of terms providing an entitlement to commission once a sale had been registered.[18]On 11 January 2018 Catherine Cook of the Respondent emailed the Claimant, copied to Mr Ward, stating: “Just a reminder that £15,000 will be deducted from your yearend bonus as agreed in August 2017.”[19]The Claimant responded 16 minutes later stating: “The agreed basic salary was increased by 1245.72 per month since August. That therefore totals 6228.60 by the end of December (five months). The agreed basic is the same for 2018 but the amount is then deducted from my commission balance every month throughout 2018. We should therefore only remove 6228.60 from this month’s year-end bonus.”[20]The intention of the Claimant’s response was to make it clear that he had only enjoyed an increase in basic salary for part of the year 2017 (five months). Therefore, the reduction of £15,000 per annum was to be pro rated to give an actual deduction from his year-end bonus of £6228.60. The Claimant’s basic salary continued during 2018 at the increased level but he, by this communication, recognised (certainly as at 11 January 2018) that the amount (i.e. £15,000) was then to be deducted from his monthly commission.[21]This was in circumstances where by the time the Claimant wrote this email he was aware that commission and bonus arrangements were changing. In particular, there would no longer be, for the calendar year 2018, any entitlement to a year-end bonus. All additional earnings would be based on a new commission scheme running throughout the year.[22]When Mr Ward received the Claimant’s reply to Ms Cook, he responded that that sounded correct and the Claimant thanked him for that in a further email that day.[23]The Claimant accepted in cross examination that there had been an agreement that, after the calendar year 2017, the increase in basic salary would be deducted from bonus or commission on a monthly basis. He accepted that this monthly deduction was to apply through 2018 and beyond. As of 11 January 2018, he said his email was consistent with what the Respondent now contends was the position regarding its right to make deductions.[24]There is no dispute that in fact no deductions were then made from monthly salary and commission payments made to the Claimant during 2018 and again during the next calendar year 2019 for the period during which the Claimant remained employed. Mr Ward’s evidence was that this had been an administrative error and a straightforward mistake/omission. He pointed to the Claimant being aware of the mistake, but not having raised it. Mr Ward had seen the Claimant’s monthly commission sheets for at least part of the time (until Mr Hallowes joined the Respondent), but he said those were accurate – the deduction was to be performed at the later stage in the monthly pay run.[25]The Claimant’s position is that it is not credible for such an error to have been made. He says the lack of monthly deduction reflects the outcome of an annual review he had with Mr Ward in early February 2018. He said that by the end of January 2018 he was aware of the terms of the new commission scheme. There is no dispute that the way in which commission was calculated was to be different in 2018. The year-end bonus was to disappear and the Respondent sought to drive up profits by a scheme which incentivised salespeople to maximise the gross profit on each vehicle sold. A flat rate commission was to be paid per vehicle sold (known as a bonnet fee) with further commission (at enhanced rates) if Mercedes-Benz finance was taken out and if ancillary products were purchased including repair and maintenance contracts.[26]The Claimant’s evidence was that he was concerned that the loss of the year-end bonus would significantly lower his overall earnings and in that context Mr Ward agreed that the Claimant would continue to enjoy his increased basic salary with no deductions from commission. The Claimant’s evidence before the Tribunal was that the new commission scheme introduced at the end of January 2018 replaced the August 2017 agreement. Mr Ward had no recollection that anything of the sort was discussed. He said that changes to the way commission was earnt in 2018 had no bearing on what had been previously agreed (the deduction from basic salary). The change in commission structure was driven by a change in the way Mercedes paid the Respondent. At the start of the year he accepted that it was unclear how the changes would affect individual earnings, but the change was necessary for the profitability of the Respondent’s business. The August 2017 agreement had been purely to help the Claimant to get a mortgage and was separate to how commission would be paid. It was “news to me” for the Claimant to now say that the agreement regarding the repayment of the £15,000 was null and void. As the year end bonus had ended, the Respondent was going to have to take it back monthly.[27]The Claimant’s commission earnings were lower in 2018 than previously. He said that this was despite him having sold more vehicles than the previous year. The Respondent maintained this was due to a difficult market for vehicle sales rather than how the new scheme was structured.[28]The Claimant was told that the commission scheme would be periodically reviewed although no formal review took place with the Claimant.[29]The commission structure remained the same for the calendar year 2019. The Claimant gave notice of the termination of his employment in May 2019 and his employment ended on 14 June 2019. The Claimant then left to work for a competitor of the Respondent.[30]The Claimant was concerned that he might lose out on commissions in respect of work carried out during his notice period. He therefore emailed Mr Hallowes on 30 May 2019 saying that he had invoiced a large number of vehicles and was trying to ensure that they were all delivered by a deadline date in June which coincided with a change in the law regarding the type of tachograph installed. He sought confirmation that he would receive any commissions due for vehicles invoiced in June. Mr Hallowes responded on 3 June stating: “We will honour any monies due as normal within the T & C.”[31]The Claimant had outstanding commission earned but not yet paid to him at the date of the termination of his employment in the sum of £10,569.88. This was withheld by the Respondent as a partial recovery of the sum of £15,000 per annum which it believed ought to have been deducted from monthly commission payments from January 2018 but in circumstances where those deductions had not been made.[32]The Tribunal has seen internal email correspondence within the Respondent dated 14 October 2019 where Catherine Cook asked Lucy Watson if the £15,000 had been deducted from the commission in 2018. Lucy Watson replied: “No sorry I forgot to deduct it for 2018”.[33]The Claimant also claims entitlement to be paid commission on 2 categories of vehicle. The first of those were vehicles which he maintains had been paid up before his employment ended. The second group relate to vehicles which he accepts were paid for by the customer after he had left.[34]The Claimant clarified that he was now seeking the sum of £2161 in respect of the first category. This was a reduced amount in circumstances where he now accepted, on the basis of evidence provided by the Respondent, that he had been paid in May commission for the vehicles sold to A Clarke & Co.[35]He still maintained an entitlement to commission in respect of a vehicle sold to a customer called Utranazz. His position was that the vehicle had been paid for prior to him leaving employment and any additional amount billed was for separate warranty cover which couldn’t be paid for by the customer in any event until after the vehicle had been registered. The vehicle spreadsheet produced by the Respondent indicates a vehicle invoiced on 11 June 2019, with payment made on 12 June 2019 and the vehicle being registered on the last day of the Claimant’s employment. The Respondent’s position is that additional payments remained outstanding for the road fund licence and third year warranty in the sum of £904.80 which were paid on 22 July 2019. The Respondent relies on electronic entry showing such payment in respect of the relevant vehicle stock number. Mr Ward explained that whilst a warranty could not be put in place before vehicle registration it could be invoiced and paid for upfront. The Claimant accepted that he would not be entitled to commission if road licence fees remained unpaid.[36]It is accepted by the parties that if any additional commission had been due to the Claimant in respect of that vehicle it would have been limited to the sum of £200 in respect of the bonnet fee.[37]The Claimant then refers to commission on 2 vehicles sold to Bury Van Hire. The Respondent made a profit of £1930.68 on one vehicle but a loss of £3013.46 on the other. The Respondent’s position is that commission was not paid on loss-making deals and that its ordinary practice was to deduct the negative commission from the positive commission on the profitable deal. Otherwise a bonnet fee of £200 would have been payable on each vehicle and the £50 for each relating to Mercedes finance. Mr Ward’s evidence was that this and the bonnet fee would ordinarily have been paid “no matter what” i.e. regardless of profitability.[38]The Claimant next refers to a vehicle sold to Expect Distribution which was shown in the Respondent’s schedule as having been paid for on 29 April and registered on 14 June. The Respondent’s position was that this was an error on the schedule, in circumstances where the vehicle was not even invoiced for until 3 June and therefore payment cannot have been made at the earlier April date. Respondent produced a further spreadsheet showing a payment in the sum of £90,074.20 dated 19 July 2019, referencing the same vehicle stock number. Mr Ward explained that in certain circumstances a vehicle might be registered without cleared funds, for example if a deferred payment was agreed or the finance documents from Mercedes were accepted in lieu of payment. He could not explain why the vehicle in this case was registered before payment, but said that it was almost certainly to avoid the application of the new tachograph laws.[39]The second category of vehicles (those not fully paid until after the Claimant left) were all supplied to Hexagon Leasing Limited. There was clearly a rush to register these vehicles by 14 June to avoid extra costs associated with the change in tachograph regulations. Registration on that day also triggered a manufacturer’s bonus for the Respondent. The Claimant said that he worked to achieve that on the basis that the Respondent had agreed a deferred payment date with the customer. This was the subject of his email referred to above to Mr Hallowes, where the Claimant maintained he had been given an assurance that he would be paid commission on these vehicles. He said that the Respondent had always had a special deferred payment arrangement for this particular (fleet) customer.[40]Applying the legal principles to the facts the Tribunal reaches the following conclusions.
Conclusions
[41]The Tribunal addresses firstly the complaint relating to the deduction of £10,569.88 arising out of the non-payment of commission. The Respondent accepts that this amount of commission had been earnt and that payment was withheld. The question as to whether or not this deduction was unauthorised depends upon whether an agreement was in place that pro rata annual salary of £15,000 be deducted from commission. Alternatively, was the deduction was made to recover an overpayment of wages in circumstances where the Respondent had omitted to make deductions on a monthly basis. There is no dispute that, if the Respondent was entitled to deduct the previously agreed increase in basic salary of £15,000 from commission, the Claimant had, by the date of his termination been overpaid, indeed, in excess of the sum of £10,569.88.[42]The 3 August 2017 agreement was to artificially increase overall remuneration and not to provide any actual increase beyond existing basic salary and commission/bonus entitlements. If the Claimant had been promoted in January 2017, there was in any event no agreement to increase his pay at that point or any future point.[43]The increase in basic pay in August 2017 had nothing at all to do with bonuses or commissions. It was made, as the Claimant accepted in evidence, to enable him to show to any prospective mortgage lender that he had a higher basic (guaranteed) salary.[44]The Tribunal notes and rejects the Claimant’s contrary assertion in his grounds of complaint that the increase was to coincide with a promotion and, in his witness statement, that at a meeting on 3 August 2017 Mr Ward offered the Claimant promotion and a £15,000 increase in salary. If that had been the case, it makes no sense that the £15,000 be deducted from the year-end bonus as was agreed in the letter of 3 August 2017 to compensate, as the Claimant put it, for an increase in basic pay. Again, the increase in basic pay was an artificial device in the sense already described and intended to be so at the time it was agreed.[45]The letter of 3 August 2017 envisaged an agreed deduction being made from the year-end bonus of the additional basic salary paid (and on an ongoing basis recognising that the commission scheme might change). The Claimant as at 11 January 2018 clearly understood that on an ongoing basis the deduction would be made monthly from commission payments otherwise due in each month. He confirmed in evidence that, at the time of his email correspondence of that date, that was what he had agreed and what was to happen. It is clear that at that point in time the Claimant was already aware that the commission/bonus structure and methodology was changing and in particular that there would be a loss of the lucrative yearend bonus. That is the very reason why he clarified himself in the email correspondence of 11 January that the future deductions would be from monthly commission.[46]The Claimant’s contention that he was not overpaid and that he has not received all the money properly payable to him depends upon his contention that there was a new agreement with Mr Ward which he says occurred at their review meeting in early February 2018. There is obviously conflicting evidence from the Claimant and Mr Ward about the content of their discussion. Certainly nothing was confirmed in writing thereafter regarding any change in arrangement. At the time of the meeting the new commission scheme was in place, but no one knew how it would turn out in terms of impact on individual earnings and it was to be reviewed. The Claimant’s case is that the Respondent effectively increased the Claimant’s salary by the sum of £15,000 at this meeting, but on balance the Tribunal cannot accept that there was any such agreement.[47]Again, the basis for the £15,000 increase in basic pay had nothing at all to do with commission earnings and it is more likely than not that, given the uncertainty in future commission earnings, the most the Respondent undertook to do was to review the operation of the commission scheme. The Tribunal does not find that the Claimant and Mr Ward addressed the previous 3 August 2017 agreement or the January 2018 correspondence. There was no intention to vary their agreement.[48]The Claimant’s strongest evidence of a change is the fact that the Respondent did not make continuing deductions during the calendar year 2018, nor beyond it into 2019. On balance, however, the Tribunal accepts that this was in error. There is no evidence that Mr Ward was aware of the failure to make deductions. The after the event correspondence between Ms Cook and Ms Walton reflects an omission, rather than any recognition of a change in arrangement. There was no deduction from commission in January 2018 in circumstances where that predates the variation the Claimant contends for arising out of his meeting with Mr Ward in early February.[49]The Claimant’s account before the Tribunal, in his written witness statement and in his grounds of complaint are not, as already recognised, consistent and the evidence of Mr Ward is to be preferred.[50]In failing to pay to the Claimant the sum of £10,569.88 in commission earnings, the Respondent was indeed acting lawfully in seeking to recover an overpayment of wages in circumstances where the commissions were not properly payable - they ought to have suffered a deduction to reflect the previous artificial increase in basic salary agreed with the Claimant.[51]The Claimant’s complaint in respect of the non-payment of the sum of £8850 in respect of the vehicles sold to Hexagon Leasing Limited must fail. The Claimant accepted himself that, whilst registered before his employment ended, payment was not received for these vehicles until sometime thereafter. The Claimant’s contractual terms regarding commission are clear in that commission was not due unless and until the vehicles had been paid for prior to the employee leaving employment. Indeed, employment must also continue until the end of the commission period.[52]The Claimant’s entitlement depends upon a separate agreement having been reached that he would still be paid commission on these vehicles despite the deferred payment. He relies in this regard on the email correspondence he exchanged with Mr Hallowes. Clearly the Claimant recognised in his email of 31 May 2019 that he was in difficulties in that all of his work in completing these sales would mean nothing in terms of commission entitlement and he sought assurance that, in circumstances where he was working his notice period, the commissions would be honoured despite the deferred payment. He took Mr Hallowes’ response as confirmation that he would receive commission and that is perhaps understandable. However, Mr Hallowes response did not provide such straightforward confirmation. Instead it amounted to no more than a reiteration that the Respondent would pay any commission monies due as normal in accordance with the terms and conditions of employment. That of course meant that there would be no contractual entitlement in respect of this group of vehicles where payment would be made after the Claimant had left.[53]The Claimant’s final claim is in respect of a group of vehicles which he said were fully paid for prior to him leaving on 14 June 2019. His claim is unsustainable in respect of the vehicle sold to Expect Distribution. The Tribunal accepts that the evidence shows that this vehicle was not paid for until 19 July 2019 and indeed that the spreadsheet provided by the Respondent is in error in suggesting payment made for the vehicle prior to any invoice having been raised. The Tribunal accepts that this would not in practice have occurred.[54]As regards the Utranazz vehicle, the Claimant accepted in evidence that he would not have an entitlement to commission if the road fund license had not been paid as at the date he left employment. The evidence is that there was an outstanding amount in this respect and in respect of a warranty such that no commission was properly payable on this vehicle.[55]The situation is, however, different in respect of 2 vehicles sold to Bury Van Hire. The Tribunal accepts that no commission based on profitability was due on these vehicles in circumstances where this was a two-vehicle deal and the loss of profit on one vehicle outweighed the actual profit on the other. However, the vehicles were fully paid up prior to the Claimant leaving his employment such that, as Mr Ward accepted on being questioned, a bonnet fee of £200 and Mercedes finance commission of £50 was payable in respect of each vehicle. That gives a total gross amount due to the Claimant of £500.[56]The Tribunal accepts that the deduction already made from the Claimant’s final commission payment was insufficient to fully reimburse the Respondent for the overpayment of the Claimant’s wages due to the error in not making monthly deductions to claw back the increase of £15,000 in basic salary. However, the withholding of the commission in respect of the Bury Van Hire vehicles was not done for the purpose of recovering an overpayment - it arose quite independently out of the Respondent’s belief that no entitlement to commission arose in the first place due to the losses made on the vehicles.[57]In the circumstances, the sum of £500 represents an unauthorised deduction from the Claimant’s wages.