Entitlement to the Bonuses and Employers Variation of the Contract - Case Study Example

Introduction The central issues raised by the scenario are Ralph’s payment terms, the attempt to relocate him, Rowena’s misconduct and the sick pay provisions. I shall deal with in turn and conclude with a summary of the legal position. 1) Ralph’s entitlement to the bonuses and his employer’s variation of contract purporting to end the awarding of 2% commission on sales. With regard to Ralph’s entitlement to the bonus at three month intervals, the first point of recourse would be Ralph’s contact of employment with Wainwright. From the facts provided, we are not aware as to whether Ralph’s arrangement with Wainwright is embodied in a written contract of employment or whether any such contract if in place expressly included terms regarding the payment of bonuses at three month intervals. If there is no written contract of employment, as Ralph has been employed since July 2008, section 1 of the Employment Rights Act 1996 (ERA) requires employer to provide employees with a written statement of employment , within one month. Section 1(3) of the ERA asserts that the written “statement shall contain particulars of (a) the names of the employer and employee, (b) the date when the employment began, and (c) the date on which the employee’s period of continuous employment began (taking into account any employment with a previous employer which counts towards that period)”. The written statement is not the same thing as a written contract of employment. Whereas the contract creates the rights and duties of the parties, the written statement merely declares what they are after they have been agreed1. For example, in the case of System Floors v Daniel2 it was asserted that a written statement supplied to meet the employer’s statutory obligation was not an agreed document and solely represented the employer’s unilateral view of the contract. Accordingly, if the written contract of employment between Wainwright and Ralph fails to include provisions regarding the payment of bonuses or states that the bonuses are discretionary, it will be difficult for Ralph to claim that the bonus was a contractual entitlement. Additionally, if Ralph was provided with an employer’s handbook, then the handbook provisions would only be enforceable if the contract of employment expressly provided that they were part of the terms of employment.3 Nevertheless, the written statement often provides the best evidence of the agreement, which will be relevant to Ralph’s legal position. For example, in the case of Gascol Conversions v Mercer4, the employee signed a document headed “non-staff employee’s contract of employment”, which was nevertheless held to be a written contract in the absence of an alternative contract of employment5. Additionally, if the employer handbook was part of the employment contract in the event of any inconsistency between the terms of contract and handbook, there is a presumption that the contract takes precedence6. In the event that there isn’t a written contract of employment and a statement of particulars was not provided, Ralph will be entitled to make an application under section 11 of the ERA for a declaration of what should have been included. However, a problem under section 11 of the ERA is jurisdiction over purely contractual issues7. In Mears v Safecar Security8, the Court of Appeal concluded that the tribunal had the right and a duty to correct a statement which was incorrect as well as to state the terms where no statement had been given. In doing so, it should investigate what the actual agreement of the parties was. However, in the decision of Eagland v British Telecommunications plc9, Parker LJ drew a distinction between mandatory terms (necessary incidents for the contract of employment to exist) and non-mandatory terms (which included disciplinary rules and terms regarding sickness). If non-mandatory terms were not included in the written statement then tribunals could not invent them. With regard to mandatory terms such as payment, tribunals had the power to declare an agreement if one was discoverable, however couldn’t impose terms that were not agreed. If we apply this rationale by analogy to the current scenario, in the absence of a written contract of employment and written statement as required under section 1 of the ERA, Ralph has the option of making a section 11 application to the Industrial Tribunal. As terms regarding payment are required by section 1 and constitute mandatory terms on the Eagland rationale, if Ralph can adduce sufficient evidence to demonstrate that the representations made regarding the bonuses and 2% commission were part of the contract of employment, the Tribunal may imply this into his contract of employment with Wainwright. If the right is contractual, the refusal to pay the bonus in October will constitute breach of contract (unless the right itself is discretionary)10. Alternatively, the removal of the bonus scheme and policy of 2% commission will constitute a variation of contract. Under section 4 of the ERA, an employer has a further obligation to inform employees of any changes in their terms and conditions within a month of the change. However, this does not confer an express right on an employer to change the contract and any variation must be agreed by the parties11. Moreover, a unilateral variation will constitute fundamental breach of contract12. For example, in Burdett-Coutts v Herts County Council13, the Council wrote to the employees to change their conditions in a way which resulted in an overall reduction in pay. They continued to work under protest and then brought an action claiming arrears of pay. They were successful as the variation had not been agreed. The prohibition on unilateral variation was reiterated in Aparau v Iceland Frozen Foods14. Accordingly, the change to the commission payments and bonus scheme amounts to a reduction in pay, which varies the contract of employment with Ralph. In order to be valid, Ralph must agree to the variation. If Ralph refuses to accept the term and Wainwright insist, this will constitute fundamental breach of contract and could potentially entitle Ralph to claim constructive dismissal or unfair dismissal15. Additionally, Wainwright’s variation could also amount to an unlawful deduction of wages under section 13(1) of the ERA. Section 13(1) of the ERA provides that a deduction from wages will be unlawful unless it is authorised in one of three ways; namely statute, term of contract or variation with the consent of the worker. Moreover, Section 27 of the ERA defines “wages” as “any sums payable to the worker by his employer in connection with his employment, including – (a) any fee, bonus, commission, holiday pay or other emolument referable to his employment, whether payable under his contract or otherwise”. Therefore, the bonus and commission payment will be included in the definition of “wages” to fall within the ambit of the section 13 prohibition. However, if an employer wishes to introduce a power to make deductions, then the variation will require employee agreement to become effective16. For example, in the case of Kerr v Sweater Shop17, it was held that displaying a notice in the factory was not sufficient notification of a proposed variation which would reduce the employer’s obligation to reduce accrued holiday pay on termination. The employee had to agree to the variation. Moreover, in the case of Delaney v Staples18, Lord Browne Wilkinson adopted the opinion of the Court of Appeal that any deficiency counted as a deduction when considering unlawful deductions from wages and that the pre-1996 equivalent provisions of the Wages Act 1986 did not distinguish between non-payment, refusal to pay and deduction19. Accordingly, if we apply this to Ralph’s legal position, it is evident that the non-payment of the bonus (if determined to be a contractual right) will constitute an unlawful deduction from wages. Additionally, the removal of the 2% commission policy will also constitute an unlawful deduction in the absence of Ralph’s agreement to the variation. 2) Ralph’s rights regarding relocation With regard to the attempt to relocate him, unless Ralph expressly agreed to a mobility clause in the terms and conditions of his employment at the outset, this again will amount to variation of contract. In order to be come effective, Ralph will have to expressly agree to the clause. For example, in the case of Jones v Associated Tunnelling Co20, the employee was issued with a new written statement including a mobility clause. The employee did not protest until four years later when the employer attempted to move him. The EAT held that agreement could not be implied solely from the failure to protest at the time of the purported variation as at the time, the variation had no immediate practical effect on him and the employee would clearly have wanted to avoid a confrontation with the employer. 3) Ralph’s obligations regarding Rowena’s misconduct An employee is under an obligation not to make a secret profit from the employment relationship and in the case of Boston Deep Sea Fishing v Ansell21 and Devis v Atkins22 it was asserted that this is a fundamental breach of contract. Accordingly, Rowena’s conduct clearly is in breach of contract. With regard to Ralph’s duties to Wainwright regarding Rowena’s misconduct, there is implied into every contract of employment a duty of mutual trust and confidence and that neither side should act in a way as to damage the mutual trust and confidence23. However, in the case of Bell v Lever Brothers24 the House of Lords held that an employee is not under a duty to disclose their own wrongdoing to the employer. However, the decision has been narrowed by the decision in the case of Sybron v Rochem25 where it was held that the manager was in breach of duty to disclose misconduct of his subordinates. Moreover, it was held that the duty to disclose the misconduct of others was not an implied term of every employment contract but existed in the Sybron case as a result of the employee’s position in the hierarchy. If we apply this to Ralph’s legal position, whilst Ralph may not have a legally duty to disclose Rowena’s conduct per se, the fact that he is senior sales person indicates that there are strong grounds on the basis of Sybron to indicate that he should disclose his knowledge of her breach of contract. 4) Ralph’s rights regarding Wainwright’s variation of sick pay provisions. It is unclear whether the promises made to Ralph regarding the sick pay provisions were embodied into a written employment contract or statement of particulars. If part of the contract, then Wainwright’s conduct will amount to a variation of contract. Alternatively, section 1(4) (d) of the ERA provides that details of any terms or conditions of employment relating to sickness or injury, including sick pay should be given in the written statement of particulars of employment. However, if there is no such express term, the court may have to decide whether there is an implied term of the contract that the employee should receive pay while off sick26. In the case of Mears v Safecar Security27, there was no express term regarding sick pay, however it was well known that the employer did not provide it. The employee knew this and made no attempt to claim sick pay and it was held that the issue could be resolved by the application of a presumption. The tribunal and court had to look at all the facts of the case and determine the correct inference in the light of all the circumstances and therefore here nothing was payable. If we apply this to the current scenario, if Ralph were to make a section 11 application in respect of the sick pay provisions, the representations made would count in his favour to demonstrate that sick pay provisions were part of the contract. Employers are now responsible for statutory sick pay schemes however the liability for state sickness benefits does not effect the contractual position28. If an employer does not have a contractual obligation to pay sick pay, this remains the case, even though an employer must pay statutory sick pay. However, if under the contract the employer is bound to pay sick pay, then this must be given in addition to the statutory sick pay. Accordingly, if Ralph can establish that the sick pay provisions were part of his contract of employment, Wainwright’s actions will constitute unilateral variation in breach of contract. Conclusion In summary, if Ralph can establish that the rights regarding the bonus, commission payment and sick pay were part of his contract, Wainwright’s attempts to vary this will constitute breach of contract in the absence of Ralph’s agreement to the variation. If the contract of employment itself is silent and Ralph didn’t receive a section 1 statement, he will be able to bring a section 11 action to determine the accurate terms of his employment. Moreover, unless a mobility clause had been agreed at the outset, the attempt to relocate Ralph will constitute breach of contract in the absence of his agreement. Additionally, as senior sales manager it is highly likely that Ralph will have a positive duty to inform Wainwright of Rowena’s breach of employment contract. BIBLIOGRAPHY Honeyball & Bowers (2006). Textbook on Labour Law. 9th Edition Oxford University Press. Painter and Holmes (2006). Cases and Materials on Employment Law. 6th Edition Oxford University Press. Gwyneth Pitt (2007). Employment Law. 6th Edition Sweet & Maxwell Selwyn’s Law of Employment (2006). 14th Edition Oxford University Publishing. Employment Rights Act 1996 Read More