Shimmons v Pricewaterhouse Coopers LLP [2011] NIIT 02645

THE INDUSTRIAL TRIBUNALS

CASE REF: 02645/10

02647/10

02648/10

02649/10

CLAIMANTS: (1) Mark Shimmons

(2) Colin Place

(3) David Boggs

(4) Richard Morrow

RESPONDENT: PricewaterhouseCoopers LLP

DECISION

Each of the claims is dismissed.

Constitution of Tribunal:

Chairman (sitting alone): Mr H Travers

Appearances:

The claimants were represented by Mr Daly, Solicitor, of Francis Hanna & Co Solicitors.

The respondent was represented by Mr Sadiq, Barrister, instructed by PricewaterhouseCoopers Legal LLP.

REASONS

ISSUE

1. The claimants were employed by the respondent in a part of its business which became the subject of a TUPE transfer to another company. Each of the claimants opted out of the transfer and their employment with the respondent was thereby terminated.

The issue for the tribunal is: Was the respondent in breach of the claimants’ contracts in refusing to pay them an annual bonus upon termination of their contracts?

FACTS

2. At the hearing the parties submitted to the tribunal a document headed “Agreed Statement of Facts”. It is reproduced below:-

IN THE INDUSTRIAL TRIBUNAL OF NORTHERN IRELAND

02645/10 IT

02647/10 IT

02648/10 IT

02649/10 IT

B E T W E E N:

MARK SHIMMONS

COLIN PLACE

DAVID BOGGS

RICHARD MORROW

Claimants

-and-

PRICEWATERHOUSECOOPERS LLP

Respondent

AGREED STATEMENT OF FACTS

The PwC Northern Ireland Bonus Scheme (the “Bonus Scheme”) has been operated on an annual basis since 1998. The Respondent’s Northern Ireland employees at “Manager” grade and above have been eligible to participate in the Bonus Scheme in respect of each financial year since 1998. The PwC financial year runs from 1 July to 30 June.

The evidence in relation to the rules of the Bonus Scheme that is available to the Tribunal consists of a couple of documents. The first is entitled PwC NI 2005/2006 Bonus Scheme Rules. This states that the staff member must be employed at the 31^st October the following financial year.

The second is a copy of Power Point slides upon which in October 2008, the Respondent held a number of “Lunch & Learn” sessions to explain the operation of the bonus. In this document it states that the bonus would be payable to staff “if employed at 31 August the following financial year”. These slides were issued by way of an email to staff in Northern Ireland in January 2009 explaining the rules and drivers behind the Bonus Scheme.

There is documentary evidence in the form of emails in respect of the bonus payments made from 2005.

2005 was paid in the November Salary

2006 was paid in the November Salary

2007 was paid in the November Salary

2008 was paid in the September Salary

2009 was paid in the September Salary

On 8 July 2010, the Respondent informed employees who were working in the Respondent’s UK trustee scheme actuary, trustee investment consulting and scheme administration client business (the “Business”) that it would be selling some of the Business to Xafinity Consulting Limited and that completion of the sale would take place on 13 August 2010.

On 8 July 2010 the Respondent sent a Q&A document to transferring employees which stated “PwC employees will receive their FY10 salary review and their allocated bonus payments before they transfer to Xafinity Consulting”.

On 30 July 2010, Hugh Crossey, the Managing Partner in the Respondent’s Northern Ireland office, sent all staff in Northern Ireland an email which stated that, “The bonuses will be paid with the August salary for those qualifying and in employment at the 31^st August 2010”.

The Respondent met with employee representatives on 21, 28 July 2010 and 5 August 2010.

During the consultation meeting on 28 July 2010, the Respondent informed employee representatives that those staff who chose not to transfer to Xafinity Consulting Limited would terminate their employment on 13 August 2010 by virtue of their opting out of the TUPE transfer.

During the consultation meeting on 5 August, the Respondent informed employee representatives that staff in Northern Ireland would not receive a bonus payment if they opted out of the TUPE transfer or left before the end of August.

On 11 August 2010 Colin Place opted out of the transfer.

On 12 August 2010 Mark Shimmons opted out of the transfer.

On 12 August 2010 Richard Morrow opted out of the transfer.

On 13 August 2010 David Boggs opted out of the transfer.

The transfer to Xafinity Consulting Limited took place on 13 August 2010.

The Respondent made bonus payments to employees who transferred to Xafinity but did not make any bonus payments to employees who opted out of the transfer.

The Parties Contentions

The Claimants contend that their entitlement to the bonus was contractual on the basis that it has been paid annually since 1998. As with any bonus there were certain criteria to be met, which were primarily financial and it is the Claimants’ case that once these were met and the bonus payments were declared then they were contractually entitled to the payment due. In the alternative the Claimants contend that it was an implied term of their contracts that they were entitled to an annual bonus at the Respondent’s discretion and that they would reasonably exercise their discretion in respect of the payment of the annual bonus.

The Respondent’s case is that the Bonus Scheme was subject to an express term regarding eligibility, specifically that the employee must be in the Respondent’s employment at 31 August 2010. As all of the Claimants were not in the Respondent’s employment at this date, they were not entitled to a bonus payment. Alternatively, if the entitlement to a bonus payment was discretionary, the Respondent did not act irrationally or in bad faith in failing to pay bonuses to the Claimants.

In addition the Respondent contends that prior to the transfer date of 13 August 2010 the Claimants were approached by Deloitte with offers of employment. As part of these offers Deloitte committed to compensate staff for any lost bonus, as a result of leaving employment with PwC in the form of a guaranteed bonus payment after joining. As a result, the Claimants have suffered no financial loss as a result of the non-payment of the bonus.

Issues for the Tribunal

Was the Respondent in breach of the Claimants’ contracts in refusing to pay them the FY10 annual bonus for the reasons given?

If the answer to this question is yes then the Claimants are entitled to the following

MARK SHIMMONS £7,612.00

COLIN PLACE £7,612.00

DAVID BOGGS £2,134.00

RICHARD MORROW £21,936.00

3. At the hearing the respondent amended the second paragraph of the “Agreed Statement of Facts” under the heading “The Parties Contentions”. On the first line of that paragraph, the words “a clause” were substituted by the respondent for the words “an express term”.

4. Evidence

Each of the claimants gave evidence.

The following witnesses gave evidence on behalf of the respondent: Mr Clements, operations partner of the respondent; Mr Crawford, respondent’s employee performance leader for the UK; Mr Todd, a partner in respondent; Mr Quinn, a former employee of the respondent who now works for Xaffinity Consulting Limited.

In addition to the oral evidence, each party invited the tribunal to consider various documents.

5. In reaching the findings of fact set out in this decision, the tribunal has considered all the evidence and information placed before it, including the parties’ submissions on the facts. In setting out the tribunal’s findings it is not proposed to restate those matters which have been agreed between the parties as contained in the Agreed Statement of Facts.

6. The bonus scheme

The respondent has offices in major business centres throughout the United Kingdom. Management bonus schemes operate across the respondent’s offices. In 2010 the bonus scheme operating in Northern Ireland differed from that operating in England and was specific to eligible employees based in Northern Ireland.

7. The tribunal was provided with a copy of the power point presentation entitled, “Management Bonus Scheme(s) Explanation of Rules/Drivers October 2008” [“the Presentation”]. This was emailed to all relevant employees in January 2009. The author of the Presentation was Mr Clements. He said that he had prepared it so that, “everyone could understand the rules”.

8. The Presentation sets out a specific formula for the calculation of the bonus pot in respect of five separate Northern Ireland bonus pools. Each pool applies to a specific grade of staff member within the respondent’s business. In an email to staff dated 19 January 2009 and headed “N Ireland Regional Bonus schemes”, Mr Clements stated that, “the sum which goes into each grade’s bonus pot is determined annually in accordance with the rules...to date there is no judgement involved. Once the bonus pots are determined NILT [Northern Ireland Leadership Team] determine annually between those graded 1 to 5 in that year. For those who were unable to attend the presentations I attach the bonus scheme rules which provides greater detail on these key points.”

9. In the Presentation under the heading “What is it meant to achieve”, the aim of the bonus scheme is described as: “Improvement in gross margin percentage – Covers all relevant factors: billing decisions; recovery levels; bad debts; utilisation and; staffing levels both chargeable/non-chargeable. Those covered by the schemes are those capable of influencing these factors”.

Mr Clements described the purpose of the bonus scheme as: (a) to drive the practice forward, and (b) to secure staff retention.

10. The Presentation goes on to describe ways in which bonuses can be increased.

11. Under “Eligibility” the Presentation includes the following:-

“ - At least 6 months service in eligible grade

- - Leavers: payable if employed at 31 August following financial year”

The Presentation sets out detailed rules as to how the level of bonus payable will be affected by maternity/sickness leave, and by a staff member’s promotion.

12. The October 2008 Presentation had been foreshadowed by an earlier document headed, “Management Bonus Scheme Arrangements – PwC NI 2005/2006 Bonus Scheme Rules”. The stated eligibility requirements included the requirement that: “The staff member must be employed by the firm and working within the Northern Ireland Business Unit at 31 October following the financial year end.” In fact, notwithstanding the January 2009 email distribution of the Presentation, in 2010 it was the 2005/2006 Bonus Scheme Rules which remained available on the respondent’s intranet for consultation by members of the respondent’s staff including the claimants.

13. Year after year it was a consistent feature of the bonus scheme that although the bonus related to business performance for the year ending in June, the qualifying date for eligibility post-dated June by some months. The 31 August was the earliest qualifying date which was ever applied.

	Year ending	Date on which staff member must be employed to qualify for bonus
	2006	31 October 2006
	2007	Not established in evidence but bonus paid with November 2007 salary
	2008	31 August 2008
	2009	30 September 2009
	2010	31 August 2010

14. Each year the respondent’s leadership team decided the qualifying date on which a staff member must be employed in order to be eligible for a bonus.

15. Mr Clements said that he would expect a staff member to receive a bonus if they met the qualifying criteria. In the respondent’s own July 2010 question and answer document which was provided to staff concerning the TUPE transfer, the respondent poses the question, “What happens to any bonus entitlement [emphasis added] that I might accrue for the first month of FY10/11 (i.e. July 2010).”

16. There was no reference to an entitlement to a bonus payment in the claimants’ individual contracts of employment. In a TUPE consultation meeting on 21 July 2010 Mr Crawford stated that, “the bonus scheme we operate is contractual but the actual details of what the bonus is are non-contractual, Xaffinity has been asking us very specific questions about the detail of our scheme so that they can match this as closely as possible”. In contrast, in a TUPE consultation meeting on 5 August 2010 Mr Crawford stated that, “the bonus scheme was discretionary”. In evidence Mr Crawford insisted that the bonus scheme was discretionary.

17. Setting qualifying date for 2010 bonus

In his capacity as a member of the respondent’s Northern Ireland leadership team, Mr Clements participated in the decision to set the qualifying date for eligibility for the 2010 bonus as continued employment at 31 August 2010. At the time that decision was made the leadership team was already aware that the date for the TUPE transfer was set at 13 August 2010. Mr Clements rejected the suggestion put to him by Mr Daly that 31 August had been selected in order to blackmail members of staff into agreeing to transfer to Xaffinity Consulting Limited (45 members of staff transferred to Xaffinity). The tribunal is satisfied that when Mr Clements gave evidence on this point he did so in an honest and straightforward manner.

18. There was always a time lag between the end of the financial year and the payment of the bonus because of the time taken to calculate and allocate the bonus payments.

19. Historically, the qualifying date for payment of a bonus had been set at the end of the month and it had never been set earlier than 31 August in any given year.

20. The claimants

Each of the claimants now works for Deloittes. It was in July 2010 that each of them began to explore the possibility of employment with Deloittes.

Mr Morrow opted out of the TUPE transfer on 12 August, entered a contract of employment with Deloittes on 13 August, and commenced employment with Deloittes on 16 August 2010.

Mr Shimmons opted out of the TUPE transfer on 12 August and began employment with Deloittes on 16 August 2010.

Mr Place opted out of the TUPE transfer on 11 August and his contract of employment with Deloittes commenced on 14 August 2010.

Mr Boggs opted out of the TUPE transfer on 13 August and his contract of employment with Deloittes commenced on 14 August 2010.

21. Mr Todd described Mr Morrow as a, “high performing employee”. This assessment is reflected in the size of the bonus which he would have received had he remained in the employment of the respondent. Mr Morrow was a diligent, talented and hard-working member of the respondent’s staff. He commenced employment with the respondent in 2005 and received a bonus each year thereafter.

22. In respect of the PwC NI 2005/2006 Bonus Scheme Rules which were placed on the respondent’s intranet, Mr Morrow said in evidence that, “I don’t believe that I have seen it before. There is a possibility, but I don’t recall having seen it”.

Mr Morrow said that he, “did not recall” having seen the Presentation. As to the email dated 19 January 2009 which was circulated to staff attaching the Presentation, Mr Morrow said that he, “did not recall seeing it but it is possible that I did”.

Mr Morrow went on to say that, “No-one at PricewaterhouseCoopers prior to 2010 said that I had to be employed at 31 August in order to receive a bonus”.

23. Mr Morrow placed particular reliance on one question and answer in a document headed “TUPE Q & A for Transferring Employees” which was prepared and circulated to staff by the respondent. It is an 11 page document in a question and answer format which deals with all sorts of questions which an affected staff member might have, from “Will I be able to keep my mobile phone and blackberry?” to “Will my trustee pension client portfolio change?”.

24. The document contains the following question and answer: “Will this impact my performance review, salary and bonus? PwC employees will receive their FY10 salary review and their allocated bonus payments before they transfer to Xafinity Consulting”. Mr Morrow contends that by this question and answer the respondent was stating that all employees would receive their bonus. The tribunal does not agree.

The answer refers specifically to employees who “transfer to Xafinity Consulting”. It does not indicate that it will apply to those who do not transfer. In respect of those employees there is a significant question and answer which appears in the Q & A document immediately before the question and answer relied upon by Mr Morrow. It reads, “What happens if I don’t want to transfer to Xafinity Consulting? PwC believes that this will provide an outstanding opportunity for personal growth and career development for those employees due to transfer to Xafinity Consulting. Under TUPE regulations an employee has the right to opt out of the transfer in which case he/she is treated as resigning. In these circumstances the employee has no right to compensation.”

25. There were three elected employee representatives in the Belfast office in respect of the TUPE consultation. One of the representatives, Mr Quinn, was based within 12 feet of the door of Mr Morrow’s office. Mr Morrow told the tribunal that he, “didn’t liaise with the elected employee representatives, I didn’t have any points which needed raising, but I had the opportunity to raise points with the elected employee representatives”. Had Mr Morrow done so after the consultation meeting on 5 August he would have learned of Mr Crawford’s statement that, “individuals should work on the basis that if they opt out of the TUPE transfer or leave before end August they will not receive a bonus.”

26. Mr Shimmons said that at the time when he opted out of the TUPE transfer he was not aware that he would not be paid a bonus. He said that he worked closely with the elected employee representatives but that he didn’t have a conversation with them about the issue and that no group meeting had been arranged with them.

27. Mr Place opted out of the transfer on 11 August but he told the tribunal that he did not realise that he would not be receiving a bonus until 12 August when he, “got something from payroll I was missing bonus money”.

28. Mr Boggs did not receive Mr Crossey’s email of 30 July until 13 August when he returned from holiday. He did not realise that he would not receive a bonus until he received his salary for August 2010.

29. Difference in treatment between those who transferred under TUPE and those who opted out

45 out of 49 eligible staff members transferred to Xafinity under the TUPE transfer. They were paid their bonus. Mr Clements described that decision in commercial terms. He said: “As I understand it, and I wasn’t in the discussion, the bonus payment was a deal adjustment issue. It was a pricing issue with Xafinity and it was paid by PricewaterhouseCoopers to the people transferring at the end of August 2010”

LAW

30. Whether the Bonus Scheme was Contractual or Non-Contractual

The claimants assert that the bonus scheme was implied into their contracts of employment by custom and practice. It is said that it was a contractual scheme with discretionary elements e.g. as to the qualifying date for employment each year.

The respondent contends that the bonus scheme was entirely discretionary and that the burden of proving that it was contractual falls on the claimants.

Neither Mr Daly nor Mr Sadiq cited any authority on the issue of whether the bonus scheme was contractual or non-contractual.

31. The Respondent’s Exercise of Discretion

The claimants invite the tribunal to conclude that the respondent has exercised a discretion in an improper and impermissible manner thus giving rise to a claim for breach of contract.

The respondent counters that insofar as it exercised a discretion, it did so entirely properly.

The parties have cited a number of authorities which have been considered by the tribunal.

Horkulak v Cantor Fitzgerald International [2005] ICR 402

Clark v Nomura International plc [2000] IRLR 766

Keen v Commerzbank AG [2007] ICR 623

Reda v Flag Ltd [2002] IRLR 747

32. Horkulak is a Court of Appeal decision concerning the construction and application of a contractual discretionary bonus clause in an employment contract.

In respect of the exercise of the employer’s discretion, at paragraph 46 of the judgement Potter LJ held that, “the claimant was entitled, had he remained in [the respondent’s] employment, to a bona fide and rational [emphasis added] exercise by [the employer] of their discretion as to whether or not to pay him a bonus and in what sum”.

At paragraph 47 Potter LJ explained further that, “The provision emphasises the obligation of [the employer] to consider the question of payment of a bonus (and amount) as a rational and bona fide, as opposed to an irrational and arbitrary, exercise when taking into account such criteria as [the employer] adopt for the purpose of arriving at their decision. Failure so to construe it would strip the bonus provision...of any contractual value or content in respect of the employee whom it is designed to benefit and motivate. It would fly in the face of the principles of trust and confidence which have been held to underpin the employment relationship.”

33. Clark is a first instance decision concerning a discretionary bonus scheme. The dicta of Burton J in Clark were cited by Potter LJ in Horkulak. At paragraph 40 Burton Coleridge J stated that, “the concept of ‘without reasonable or sufficient grounds’ seems to me to be too low a test. I do not consider it right that there be simply a contractual obligation on an employer to act reasonably in the exercise of his discretion, which would suggest that the court could simply substitute its own view for that of the employer. My conclusion is that the right test is one of irrationality or perversity (of which caprice or capriciousness could be a good example) ie that no reasonable employer would have exercised his discretion in this way.”

CONCLUSION

34. Contractual or non-contractual bonus scheme

The tribunal concludes that the claimants have discharged the burden of proof on them to establish that the bonus scheme was an implied term in their contract of employment by reason of the custom and practice between them and their employer. The tribunal has reached this conclusion for the following reasons:-

· The respondent’s bonus scheme comprised a detailed set of rules providing how the bonus pot should be calculated each year and setting out conditions of eligibility.

· This scheme was positively promoted by the respondent which was anxious that all relevant staff members should understand how it worked and be incentivised by it.

· Mr Clements, operations partner for the respondent and author of the Presentation, acknowledged that any staff member who fulfilled the criteria would properly have an expectation of a bonus.

· Mr Crawford, the respondent’s employee performance leader for the UK, referred to the bonus scheme as “contractual but the actual details of what the bonus is are non-contractual” at the very first consultation meeting with representatives on 21 July 2010.

· The respondent’s TUPE q & a refers to a “bonus entitlement that I might accrue for the first month of FY10/11 (i.e. July 2010)”.

· Bonuses have been paid in accordance with the scheme over a number of years.

35. The claimants had a contractual right to a bonus in the event that they fulfilled the terms of the scheme. The respondent retained a discretion as to the actual share of the bonus pot which an individual would receive. It was a term of the scheme that the staff member should be employed on a given date in order to be eligible for a bonus under the scheme. The respondent retained a discretion as to setting that qualifying date each year.

36. The Respondent’s Exercise of Discretion

On behalf of the claimants, Mr Daly forcefully has urged the tribunal to find that the respondent has improperly exercised its discretion in setting 31 August as the qualifying date for payment of a bonus. It is suggested that the respondent has acted in bad faith in order to compel staff members to either support the TUPE transfer or face the financial penalty of losing their bonus. Mr Daly has described the respondent’s decision as “sharp practice” and “blackmail”.

37. Having carefully considered the evidence, including that of Mr Clements, the tribunal rejects this suggestion. The claimants have failed to satisfy the tribunal that the respondent’s exercise of discretion was in bad faith, irrational or arbitrary. There is insufficient evidence to support a finding of either “sharp practice” or “blackmail”. The fact that the decision to set the qualifying date at 31 August impacted adversely on the claimants does not of itself establish “sharp practice” or “blackmail”.

38. The date chosen for qualification for a bonus was arrived at on the same basis as in previous years. No qualifying date earlier than 31 August has ever been set by the respondent. The date was not chosen with a view to compelling compliance with the TUPE transfer.

39. The impact of the decision was undoubtedly harsh on the four members of staff who opted out of TUPE but it was a rational, commercial decision. Those who remained as of 31 August within the business unit which was transferred to Xafinity received the bonus, those who departed the unit did not.

40. The respondent paid those who transferred under TUPE in order to facilitate what Mr Clements described as a “deal adjustment” with Xafinity. The rationale was to enable the commercial transaction between the respondent and Xafinity to take place. It was not an irrational or arbitrary decision, it made commercial sense.

41. The tribunal has much sympathy with the claimants, in particular Mr Morrow, who lost their entitlement to the bonus. The tribunal finds that it was a hard decision but a permissible one within the terms of their contracts of employment.

Chairman:

Date and place of hearing: 18-19 May 2011, Belfast.

Date decision recorded in register and issued to parties:

	[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	Industrial Tribunals Northern Ireland Decisions
You are here: BAILII >> Databases >> Industrial Tribunals Northern Ireland Decisions >> Shimmons v Pricewaterhouse Coopers LLP [2011] NIIT 02645_10IT (05 August 2011) URL: http://www.bailii.org/nie/cases/NIIT/2011/2645_10IT.html Cite as: [2011] NIIT 02645_10IT, [2011] NIIT 2645_10IT

Industrial Tribunals Northern Ireland Decisions