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||Neutral Citation Number:  EWCA Civ 204
||Neutral Citation No  EWCA Civ 204
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
||Royal Courts of Justice
||16th February 2004
B e f o r e :
LORD JUSTICE PETER GIBSON
LORD JUSTICE LAWS
LORD JUSTICE LONGMORE
||COMPRO COMPUTER SERVICES LIMITED
(Computer-Aided Transcript of the Palantype Notes of
Smith Bernal Wordwave Limited
190 Fleet Street, London EC4A 2AG
Tel No: 020 7404 1400 Fax No: 020 7831 8838
(Official Shorthand Writers to the Court)
MR K SONAIKE (instructed by Messrs Irwin Mitchell, Birmingham B2 5DB) appeared on behalf of the Appellant
MISS D ROMNEY (instructed by Messrs Hammonds, Leeds LS3 1ES) appeared on behalf of the Respondent
HTML VERSION OF JUDGMENT
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LORD JUSTICE PETER GIBSON:
- This is an appeal by Nicholas Brand from part of the order made on 30th April 2003 by the Employment Appeal Tribunal ("the EAT"), Wall J presiding. Thereby the EAT dismissed Mr Brand's appeal from part of the decision promulgated on 11th July 2002 of an Employment Tribunal ("ET") sitting at Watford. The part of the decision which is relevant to this appeal relates to commission on sales completed before Mr Brand was wrongfully dismissed. The ET decided that under the contractual documents governing Mr Brand's right to commission from his employer, Compro Computer Services Ltd ("Compro"), he was not entitled to commission not payable until after his dismissal. The appeal is brought with the permission of Mance LJ.
- Compro is a company controlled by Quantica Plc ("Quantica") which controls a number of companies involved in the business of recruitment and training. Compro carried on business as an employment recruitment agency for the IT sector. One of Compro's two divisions was the contract division. Mr Brand was employed at Watford by Compro as a contract sales consultant in the contract division from 16th December 1998 until 26th July 2001. Compro placed contract staff with client companies. Mr Brand's basic salary at the time his employment ended was £31,000. However, with commission and bonuses he was paid in the year to April 2001 a total of £142,500. His contract of employment, which he signed on 16th December 1998, provided in clause 3:
Your basic salary is £17,000.00 per annum payable by equal monthly instalments in or around the 1st day of each month. The first 3 months of your employment will be a probationary period.
In addition to your basic salary you are eligible for Commission on sales. The commission payable is detailed in the Commission Scheme operating at the time and is illustrated below. The Company reserves the right to vary or replace the Scheme in line with operational requirements. Any change to the Scheme as a result, will take effect thereby replacing any previous Commission Scheme. Quarterly targets will be agreed with you on commencement of employment.
The Commission Scheme is based on gross margin on sales generated each month and is paid monthly in arrears ..."
There were then set out the commission rates operative at that time.
- By clause 7 the contact was terminable by either party on one month's notice in writing in the circumstances of Mr Brand. Clause 5 set out Mr Brand's hours of work, which make clear that he was in full-time employment.
- The relevant commission scheme was contained in a memorandum dated 1st June 2000, headed "Your FY2000/2001 Compensation Plan" and addressed to Mr Brand ("the memorandum"). Although it was expressed to run only until 31st May 2001, we are told that this remained the document governing commission in force in the relevant months of 2001. The memorandum contained the following material provisions. Clause 1 provided:
The key objective of Compro for 2000/2001 is to achieve the sales margin and profit targets. The plan rewards you for the achievement of your targets, which contributes to this key objective."
- In clause 2 the two targets for Mr Brand were set out as a sales margin target and a target for the number of contractors running consecutively by 31st May 2001.
- Clause 3 provided as follows:
You will be paid a base salary of £31,000 per annum. Commissions earned on the achievement of targets is paid in addition and make up the remainder of your on target earnings and are set out below."
- By clause 4 Mr Brand was told of what was called the incentive element. This was in four parts, of which the first in clause 4.1 was as follows:
"The Sales Margin Target.
The Sales Margin incentive falls within the framework of your current commission scheme. Commissions are calculated at the end of each month and paid in the next payroll, however, commission is earned only when Compro is in possession of signed time sheets from the contractor. In situations where the customer does not pay or significantly delays payment, Compro reserves the right to recover commissions paid to you but not earned. Each month's results are calculated on a stand-lone basis using the commission table below. There is no cap on earning potential."
Then there is set out a commission table:
- That table therefore shows a commission rate starting with 10% of the monthly sales margin in the bracket £2,000 to £3,000 and rising to 40% when the monthly sales margin was £40,000 or more. That was more favourable for the employee than the figures which were included by way of illustration in the contract of employment.
- The other three parts of the incentive element were bonuses geared to what Mr Brand achieved by way of sales.
- Clause 6 contained four sentences which I have numbered for ease of reference:
(1) The Plan assumes that you remain in full-time employment with Compro at all times in order to qualify for the commission payments. (2) The payment of commission will be based upon customer payment, in accordance with Compro accounting principles.
(3) In the event of any disputes concerning plan interpretation or conflicts, the issue should be put in writing to the Sales Director, who will respond within 10 working days. (4) In any event the Managing Director's decision is final."
- Mr Brand signed and dated the memorandum to indicate that he read and accepted its terms.
- On 19th July 2001 Quantica decided to centralise the contracting work of the companies it controlled at its head office in Halifax. In consequence the contract division employees of Compro in Watford, including Mr Brand, would become redundant. Mr Brand was not interested in taking up an alternative position or in being relocated. On 26th July 2001 he was summarily dismissed. He was told that he would be paid up to that date in the July payroll, together with a sum in lieu of notice equivalent to one month's pay. He was also told that he would not receive any additional payments under the compensation plan, as he had to be in full-time employment with Compro to qualify for such payment.
- On 24th October 2001 Mr Brand presented an originating application to the ET. In it he complained of unfair dismissal, breach of contract and outstanding holiday pay. His claim for breach of contract was under a number of heads, but they included claims for commission payments for June and July which would have been payable at the end of July and August respectively, and for being deprived of the opportunity to earn commission in August, that commission being payable at the end of September.
- Compro resisted all Mr Brand's claims and counterclaimed against him for more than £11,000 commission which it had already paid to him but which was in respect of sales where the clients had not paid by the time Mr Brand's employment ended on 26th July 2001.
- There was a hearing over two days before the ET. Mr Brand and Compro respectively were represented by counsel other than those who represent them today. The ET found that Mr Brand was dismissed by reason of redundancy and that the dismissal was fair. They upheld one of Mr Brand's claims for breach of contract relating to a £10,000 bonus. They then turned to the claim for breach of contract relating to the payments of commission. They described the payments under the compensation plan as generous. They referred in paragraph 29 to evidence given for Compro by Mr Turner, a director of Compro and the finance director of Quantica, relating to clause 6(1). They said in paragraph 29:
"In his evidence, Mr Turner stated that such clauses are common in the recruitment industry. He explained that commission payments are calculated when the Respondent receives the time sheets from the contractors and that they are usually paid to the employees before the customers actually pay the Respondent. However, if a customer defaults in making the payment, it is usually possible to recover an overpayment of commission from the employee's ongoing monthly payments. He stated that when an employee is leaving the commercial reality is quite different and the recovery of overpayments becomes more difficult."
The ET then added this comment of their own:
"It is also self-evident that the Respondent has less commercial reason to continue such a generous scheme in the case of someone who is leaving and that an employee may well accept such onerous terms on termination in order to enjoy the large commissions paid during employment."
- The ET expanded their conclusion on the claim for commission in paragraph 30 of their decision:
"We have not found Clause 6 to be an easy Clause to apply to the facts of this case but we accept the Respondent's evidence of the commercial background to the Compensation Plan. Against this background, we note that the Plan contains four incentive elements of which the Sales Margin Target is one. Clause 4 sets out the entitlement to these incentives but each of them is subject to the overriding conditions in Clause 6. In our judgement, it is a condition of entitlement to a commission payment that an employee remains in full time employment to the time that the right to payment crystallises. We find this is made clear in Clause 6 by the requirement that the employee remains in full-time employment 'at all times in order to qualify for the commission payments.' We further find that in respect of the Sales Margin Target the entitlement to commission crystallises on the date the payment was due to be made, by which time the amount of the payment will have been calculated. We find that, before this time the employee had not 'qualified' for the payment. Accordingly, we conclude that in order to be entitled to a payment under the Sales Margin Target Scheme, the Applicant would have had to be in employment on the date that payment was due to be made. The Applicant was not in employment on the last days of July, August or September and he was not therefore entitled to such payments in respect of June, July or August."
- In paragraph 31, however, the ET accepted an alternative argument for Mr Brand that he was summarily dismissed in breach of contract, and that damages should be assessed on the basis of putting him in the same position as he would have been in had his contract been honoured and he had worked out his period of notice. They said that if that had happened he would have been in employment on 31st July 2001 and so his right to the commission for June would have crystallised. Accordingly, they awarded Mr Brand damages for breach of contract for that month in the sum of £9,464.08.
- It is unnecessary to refer to the other claims and counterclaims, save to note that the ET dismissed Compro's counterclaim and that on an application by Compro for a review the application was rejected by the ET on 18th July 2002.
- On appeal by Mr Brand the EAT agreed with the ET. They said that to accept Mr Brand's argument would leave out of clause 6(1) the words "at all times". They thought that the language of the clause was plain and that the ET made no error of law. A cross-appeal by Compro was also dismissed.
- Mr Brand acting in person applied for permission to appeal. That came before Mance LJ at a without notice hearing. The Lord Justice had no doubt that permission should be granted, as the appeal had a very real prospect of success.
- On this appeal Mr Sonaike, for Mr Brand, submits that the ET and the EAT were wrong in law to find that Mr Brand was not entitled to commission payments after 31st July 2001. He argues that Mr Brand was entitled to recover all commission earned, including commission which he would have earned had his employment not been wrongfully terminated by Compro not allowing him to work until 26th August 2001, irrespective of when actual payment of the commission would have fallen to be made. He has reminded us of general principles of construction, such as were recently expounded by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society  1 WLR 896, at 912 and 913. He says that under clause 4.1 of the memorandum, commission is earned when Compro was in possession of signed time sheets from the contractor and that the ET were wrong to say that the entitlement to commission crystallised only on the date payment was due to be made.
- Miss Daphne Romney, for Compro, in a lucid and well-sustained argument, supports the reasoning and conclusion of the ET. She submits that there is no ambiguity in the language of clauses 4.1 and 6, and she relies on the acceptance by the ET of the evidence of Mr Turner to which I have referred. The matters of which he is recorded as having given evidence she calls "the matrix of fact" against which the contractual documents fell to be construed. She goes further than the ET held. She says that even without clause 6(1), the wording of clause 4.1 of the memorandum is sufficiently clear to make Mr Brand's entitlement to be paid commission dependent on him being still on the payroll as an employee at the time of payment. She points to the different uses of the word "earned" in clause 4.1: the first signifying that commission is only earned when Compro receives the time sheets signed by the contractor; the second when the clause appears to suggest that even though the employee has been paid, presumably after signed time sheets have been received, commission "paid to you but not earned" may be recovered. She submits that the word "earned" in clause 3 of the memorandum, "Commissions earned on the achievement of targets is paid in addition", has to be understood consistently with clause 4.1.
- She submits that the intention of the parties is in any event made clear by clause 6(1), which is to be read with, and to apply only to, clause 4.1. She says that there has to be a cut-off point for the entitlement of the employee to payment of commission. She submits that were it not so, given the nature of the business a consultant like Mr Brand, who succeeds in placing a contractor with a client for a period, can go on being credited with sums payable by the client indefinitely so long as the contractor continues to work for the client. That cut-off point, she says, is what is specified in clause 6(1). Mr Brand must be in full-time employment at all the times referred to in clause 4.1 and that, she says, includes the time of payment.
- Her final argument was that by paragraph 10 of the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994, the ET can only award a maximum of £25,000 in claims for breach of contract. She says that the ET, having awarded Mr Brand £19,500.48, can only award him a further £5,499.52 and not the further sums which he appears to be claiming of about £18,000. She says that he should have pursued this part of his claim in the County Court.
- The issue raised is a short question of construction of, in effect, two contractual documents: the employment contract of Mr Brand and the memorandum. In construing those documents I bear in mind that the function of the court is to ascertain what objectively was the intention of the parties from the words used by them against the background of fact known to both parties.
- Miss Romney had submitted in her skeleton argument that the ET found that Compro intended the documents to have the meaning favoured by the ET and approved by the EAT. That is, in my judgment, irrelevant because it is the subjective intention of but one of the parties. I have difficulty with Miss Romney's identification of the factual matrix as that of which Mr Turner gave evidence and which the ET accepted. Some of those matters seem to me likely to go beyond what Mr Turner -- who was giving factual, not expert, evidence -- could properly say in evidence (e.g. as to the prevalence of clause 6.1 in the recruitment industry) and there is nothing in any event to indicate that this was a matter known to Mr Brand. Mr Turner was giving his perception from Compro's viewpoint of what the clause was intended to achieve and that was of doubtful admissibility in relation to a question of construction. In any event, his identification of "the commercial reality", i.e. that clause 6.1 was needed to overcome the difficulty of recovery of overpaid commission from an employee who has left, is not to my mind cogent. If, contrary to what Mr Turner believed, the employee had the right to be paid commission even after he had left the employment of Compro, what was recoverable from the employee could be set off against that commission. Further, as Mr Sonaike pointed out, given that the average delay in payment of commission by clients was 40 days (see paragraph 36 of the ET's decision) clause 6(1), if interpreted as Compro suggests it should, would not avoid the necessity in some cases of pursuing the employee, for whom there was a short notice period for termination of the contract, after he had left Compro's employment.
- Be that as it may, the real question on this appeal is the true meaning of the particular words used in the contractual documents. The contract makes plain that in addition to the basic salary Mr Brand was eligible for commission on sales. The commission payable was "detailed", as Mance LJ stressed, in the commission scheme operating at the relevant time and illustrated in clause 3 of the contract of employment, though the scheme could be varied or replaced at Compro's sole discretion. Nevertheless, the scheme would have to detail the commission if the scheme was to accord with the employment contract.
- The other point to note from clause 3, to which again Mance LJ drew attention, is that the commission scheme was expressed to be based on gross margin on sales generated each month and to be payable in arrears. The illustration given in clause 3 of the contract of employment shows commission rates geared to gross margins of £2,000 per month and above. As Mance LJ said in paragraph 6 of his judgment:
"Thus far one might think the basic right was to commission on sales, and there was nothing to suggest that commission in month A should cease to be payable merely because the employment had ended in month A (any more than salary would cease to be payable if it was, in the ordinary course of employment, paid by a payroll after the end of month A)."
- The memorandum shows that the purpose of the commission scheme was to give incentives to Mr Brand to achieve his targets set by Compro by rewarding him, and commission is said in clause 3 of the memorandum to be earned on the achievement of targets. Clause 4.1 of the memorandum can be described as detailing the commission payable on sales achieved by Mr Brand, though it adds three qualifications: (1) the commission will be paid in the payroll following the calculation made at the end of each month; (2) commission is only earned when Compro receives the signed time sheets from the contractor; (3) Compro reserves the right to recover from Mr Brand commission paid to him but not earned, in circumstances where the customer did not pay or significantly delayed payment. It may be that there is some inconsistency in the use of the term "earned" in clause 4.1, but what to my mind is clear is that commission paid is recoverable in the circumstances that non-payment or significant delay in payment occurs. The description of the recoverable commission not earned does not affect the clear statement of when commission is earned, viz. when Compro is in possession of signed time sheets from the contractor.
- I am not able to accept Miss Romney's argument that the reference in clause 4.1 to commissions being calculated at the end of each month and paid in the next payroll imports a condition for payment that the employee must be on the payroll, in the sense of being an employee at the time. It is not in dispute that the payroll following the calculation at the end of the previous month was on the last day of that following month. It is requiring too much to be read into those words to import a condition of being then in Compro's employment when plainly all that is being referred to by the reference to the next payroll is the date of payment of the calculated commission.
- Thus far, going through the documents, but subject to clause 6(1) I think it clear that the entitlement of Mr Brand to commission on sales before he was dismissed had accrused, even if the relevant payroll date followed his dismissal.
- Mance LJ said, in paragraph 9 of his judgment:
"The tribunals below held that the applicant had no right to commission in respect of sales in July (or potential sales in August) simply and solely because he would not in the ordinary course have been paid the commissions relating to them until the end of August (or September) respectively. This appears to me to place little weight on the basic principle that commission was 'on sales', or (as clause 3 of the memorandum itself puts it) 'earned on the achievement of targets'. One would not expect commission already earned on sales prior to termination of employment to cease to be payable on cessation of employment, just because the contractual machinery provided for payment monthly in arrears."
- Clause 6(1) was, however, held by the ET and the EAT to make all the difference. Mance LJ said in paragraph 7 of his judgment:
"It seems to me, as I have said, very arguable that clause 6 of the memorandum has thereby been given a scope which goes beyond 'detailing the commission payable', and is potentially inconsistent with the basis on which commission is under the contract earned, which is expressly 'on sales'."
- In paragraphs 10 and 11 he said:
"10. The tribunals read clause 6 as intended to have this effect. But clause 6 might be thought to be a very generally expressed clause, coming at the end of the memorandum, and hardly intended to lead or capable of leading to the unfair and haphazard results which, in my provisional view, would on their face follow from the tribunals' interpretation. Why should entitlement to commission depend upon whether an employee, who at the time had no notice that he was going to be made redundant by a redundancy notice dated 26th July 2001, have succeeded in achieving a big sale on 29th June or 2nd July 2001? Why should entitlement to commission earned in July depend upon whether one month's notice happened to be given on 30th July or 2nd August?
11. I myself provisionally doubt whether clause 6 was addressing the situation on determination of employment as distinct from a situation where a person worked part-time or for less than the year referred to in, say, clauses 2 and 4.3 or less than the period of at least 12 weeks referred to in clause 4.4 of the memorandum. But, if it was addressing the situation on determination of employment, then the words 'at all times' beg the question: what times are relevant? They clearly cannot refer, for example, to the date when proceedings had begun. They must mean no more than 'at all times relevant to the earning of commission'. This leads back to the question whether the parties can have intended that commission earned should cease to be payable, simply because it would (had employment been continued) have been paid under a payroll at a time by when employment had in fact ceased."
- I respectfully agree. I would not accept that clause 6(1) was intended to introduce a new condition of entitlement depriving the employee of commission earned, in the sense indicated in clause 4.1 of sales made and time sheets signed by the contractor being received by Compro, if the employee did not remain in full-time employment at the time when the commission was otherwise due to be paid. That gives to clause 6(1) a meaning which goes beyond what the words can reasonably bear. The language of clause 6(1), unlike that of clause 4.1, is expressed as an assumption, viz. that Mr Brand remains in full-time employment with Compro throughout in order to qualify for commission payments. Miss Romney's interpretation gives no significance to "full-time". It would be sufficient, as Mr Sonaike pointed out, if the words "full-time" had been omitted. The language of assumption suggests to me that all that was intended to be conveyed by clause 6(1) was that Mr Brand's status, when he signed the memorandum as a full-time employee, would not change to part-time employment at or for any time if he was to qualify for commission payments. In other words, it makes express what is already implicit.
- Miss Romney does not dispute the ET's description of clause 6(1), if Compro is right on its construction, as onerous. A stronger term might be thought more apposite. Such a harsh result would be inconsistent with the avowed purpose of the plan, to give rewards for the achievement by Mr Brand of the targets set for him by Compro. In my judgment, it would have needed clearer words to override the entitlement to the reward of commission on sales achieved before the employment ended. I do not accept that to construe clause 6(1) as confirming that Mr Brand's status as a full-time employee should at no time change to that of a part-time employee if he was to qualify for the commission payments deprives the words "at all times" of any meaning. I agree with Mance LJ that it means "at all times relevant to the earning of commission".
- It is of course correct that the court should strive to construe the contractual documents to accord with business common sense. The ET expressed their own thoughts when they said that it was self-evident that Compro had less commercial reason to continue such a generous scheme in the case of someone who was leaving, and that an employee might well accept such onerous terms on termination in order to enjoy the large commissions paid during employment. But it is common ground that Compro was not being philanthropic in entering into the contracts with its employees. There can be no doubt but that it was acting in its own interests in putting forward the terms which it did. Why should the employee be content with clause 6(1) (if it has the meaning which Compro suggests that it has), given that he would surely regard both the basic salary along with the commission as his remuneration? Why would the employee be willing to accept that he would not be entitled to more than his modest basic salary for the final period of his employment? If he had worked hard in the month preceding the determination of his employment and achieved his targets, why should he accept that he would not be entitled to any commission for that period merely because he had earned good commission earlier? The well-advised employer would, if Compro were right, always seek to terminate the contract of employment shortly before the commission payment date at the end of the month, and no doubt to dismiss summarily as well with a payment in lieu of notice.
- For my part, I do not accept that such a one-sided bargain is one which the parties should be taken to have entered into, in the absence of clear words making plain that any accrued entitlement to commission was dependent on the employee also being in employment at the date when the commission would be payable. There are no such words in clause 4.1 or in clause 6(1).
- As for Miss Romney's point about an open-ended entitlement to commission provided that signed time sheets were received by Compro, it has not been contended before us on behalf of Mr Brand that he is entitled to further payments as a result of time sheets being received by Compro after his employment ceased and, for my part, I would prefer to say nothing on this particular point.
- For these reasons, I would hold that both the ET and the EAT, with all respect to them, erred in their construction of the contract of employment and the memorandum.
- That leaves Miss Romney's point on the limit on what an ET can award by way of compensation for breach of contract. Mr Sonaike has indicated that he does not dispute what Miss Romney says. Accordingly, Mr Brand can only be awarded £5,499.52 by way of further compensation for breach of contract. As that sum is less than the sum which Compro indicated to the ET would be payable to Mr Brand for the month of June 2001, there is no point in remitting this case to the Tribunal to make further findings on what sums would, but for the limit, be due.
- I would allow the appeal, set aside the order of the EAT and substitute for the figure of £19,500.48 in the decision of the ET, as the sum to be paid by Compro to Mr Brand for breach of contract, the figure of £25,000.
- LORD JUSTICE LAWS: I agree that this appeal should be allowed for the reasons given by my Lord, Lord Justice Peter Gibson, and I concur in the order proposed by him.
- LORD JUSTICE LONGMORE: I agree also.
ORDER: Appeal allowed; order of the EAT set aside and the sum of £25,000 to be paid by Compro to Mr Brand for breach of contract, in substitution for the figure of £19,500.48; the respondent to pay the appellant's costs of the appeal, summarily assessed in the sum of £2,279.50.
(Order not part of approved judgment)
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