Smith v Snack Food Wholesale Ltd

• Jurisdiction: Bahamas
• Judge: Lyons, J.
• Judgment Date: 30 July 2007
• Court: Supreme Court (Bahamas)
• Docket Number: Commercial Labour 22 of 2003
• Date: 30 July 2007

Supreme Court

Lyons, J.

Commercial Labour 22 of 2003

Smith

and

Snack Food Wholesale Limited

Appearances:

Mr. Obie Ferguson for the plaintiff.

Mrs. Sharon Wilson for the defendant on the 3 June 2004 and Mrs. D. Smith assisted by Mr. N. Smith on the 18 July 2007 for the defendant.

Industrial law - Contract of employment — Termination — Discretionary bonus scheme — Plaintiff entitled only to basic pay.

Lyons, J.

1 (1) This matter was first heard as to day one on the 3 June 2004. As a result of certain preliminary rulings I made in this and other similar matters, it was adjourned for the Court of Appeal to decide those preliminary matters. Those matters involved the question as to whether section 29 of the Employment Act (2001) and section 4 thereof either codified the common law or represented an alternative action by a party seeking damages for wrongful dismissal. As the Court of Appeal decided this issue in Thalberg Wells v. Snack Food Wholesale Limited Appeal No. 20 of 2006 and Paula Deveaux v. The Bank of The Bahamas Appeal 19 of 2006. Subsequently this matter was then relisted so it could proceed.

2 (2) The plaintiff commenced her employment with the defendant or (a subsidiary thereof) in 1981. She was first employed as an Accounts Clerk. Her commencing salary was approximately one hundred and fifty-five dollars ($155.00) per week. The employer (the defendant) also paid a discretionary Christmas bonus to staff members.

3 (3) The plaintiff continued to be promoted through the ranks of employees of the defendant. By the beginning of 1986 she was earning nearly twenty thousand dollars ($20,000.00) a year in salary.

4 (4) In 1986 she found herself out of the Accounts Section and into the Sales Section. As I understand the evidence, she first received just a basic salary and, of course, that entitlement to the discretionary Christmas bonus payment but in 1986 the employer decided to change the Christmas bonus system by replacing it with an incentive bonus/commission scheme. Thus it was that the plaintiff was receiving a base salary of approximately twenty thousand dollars ($20,000.00) a year together with this incentive bonus. The bonus was first calculated as based on monthly sales performance to budget. If the budget was obtained, a bonus of eight per cent (8%) of the monthly salary would be paid to the employee. For every one per cent (1%) the sales were over budget for the month an additional half per cent (1/2%) would be added to the bonus base of eight (8%). It was clearly expressed by the defendant that the incentive bonus was to replace the year-end Christmas bonus system.

5 (5) In 1987 this incentive bonus system was changed in that the base rate of eight per cent (8%) was changed to ten per cent (10%).

6 (6) By 1993 the plaintiff was receiving a base salary of six hundred and ninety dollars ($690.00) per week plus the incentive bonus system.

7 (7) By letter of the 30 June 1993, the manager of the defendant company (it was then Purity Bakery Ltd. – but it is not disputed that for all intents and purpose that it was the defendant) advised the staff that as a result of certain pilferage and incorrect practices, the profits of the defendant were suffering. The plaintiff was requested, as a supervisor of staff as she then was, “to pick up her socks”.

8 (8) In November of 1994 the defendant decided to alter the manner of compensating the sales staff (including the plaintiff). It was decided to compensate the plaintiff and other sales persons on a straight commission of all net sales basis. The plaintiff was able to draw down as against the commissions earned on a weekly basis, with the sales commissions paid on a monthly basis.

9 (9) The original rate of commission only was 1.10% of all net sales. The defendant in December of 1998 advised the plaintiff that this was to be altered as to 1.10% on all sales that showed a gross profit of twenty per cent (20%) or more but only .55% on all sales that showed a gross profit under twenty per cent (20%).

10 (10) At around this time the plaintiff became disenchanted with the commission only method of compensation. She addressed the management on this. Whether or not it was as a result of these representations I am not sure, but at the end of 1999 a new programme was put in place. Under this salary programme, the plaintiff was to receive a base salary of seven hundred and fifty dollars ($750.00) per week plus .45% of all wholesale outlet sales on the sales routes numbered 32, 39 inclusive. As a result of this, the plaintiff was receiving an overall sales salary package in the range of sixty – sixty-five thousand dollars ($60,000 – $65,000) per year.

11 (11) In October of 2001 the defendant's management advised the plaintiff that, due to financial and economic difficulties, the defendant found itself in a position where it had no choice but to make reductions in the sales incentive programme. The incentive of .45% of all outlet sales was reduced to .15%.

12 (12) The plaintiff continued to receive her seven hundred and fifty dollars ($750.00) per week salary.

13 (13) In December 2002 the defendant company decided that all management commissions (which the plaintiff was receiving) as based on sales were to be discontinued. In its place the plaintiff was to receive her weekly salary of seven hundred and fifty dollars ($750.00) per week (thirty-nine thousand dollars ($39,000.00) per year) plus a profit sharing programme for all management personnel of one per cent (1%) of the defendant company's annual net profit. This was conveyed to the plaintiff on the 1 January 2003.

14 (14) The plaintiff was not happy with this. She viewed the alteration to the bonus commission system of payment as a repudiation of her contract of employment. On the 10 January 2003 she wrote to the manager of the defendant and invited management to reconsider. To this management replied that in its view the company had not changed or altered the plaintiff's salary. What had been altered was the incentive or bonus programme. The defendant company noted that it paid those incentives and/or bonuses when it is doing well and can afford to do so to those persons that it deems to have contributed to its success. Mr. Albury, on behalf of management, expressed the view that when the company returned to a profitable position then the plaintiff would benefit as a recipient of its profit sharing programme. Of course, if there was no profit then there would be no sharing of it.

15 (15) Paragraph 4 of Mr. Albury's letter of the 13 January 2003 clearly sets out the defendant's position. It reads:

“At no present or prior time has the company changed or altered your salary. It is quite clear in any business what is an Incentive or Bonus Programme. The company pays these incentives and/or bonuses when it is doing well and can afford to do so to those persons that it deems to have contributed to its success. When the time comes that it is not doing well it must make adjustments accordingly. So your contention that “wages is one of the fundamental terms in my contract of employment and any variation of it must be with my consent” clearly does not apply to your situation since as I said earlier the company has not made any changes to your salary or wage.”

16 (16) On the 4 February 2003, the plaintiff replied to Mr. Albury. The relevant part of this reply reads:

“I am still not satisfied that the correct legal procedure was followed. I recognize that when economic conditions change for the worst, certain decisions become necessary but as in any relationship, particularly legal contracts, decisions cannot be unilaterally made to the detriment of the other party.

Accordingly, my request is that the company finds another method that allows your senior staff to maintain their income and thereby protect our dignity in the community. Let me reiterate once again, it has always been my understanding that wages is one of the most fundamental terms in a contract of employment and any variation of it must be with consent of the employee.

For many years, my financial plans, immediate and long term, were predicated upon my employment contract which guaranteed a monthly income based on monthly incentives and quite honestly, the monthly commissions was a motivating factor.

To suddenly change my monthly income from a formula based on monthly gross to one based on a annual net sales is most unacceptable and I trust that senior staff will be afforded the respect and entitlement of a meeting to discuss this matter.”

17 (17) On the 25 February 2003 counsel for the plaintiff weighed in with a letter to Mr. Albury. It reads as is relevant as follows:

“In January 2003, the monthly incentive plan was replaced by an annual incentive plan based on net profits or a profit sharing concept. This latest management initiative eliminates all monthly commissions, which further reduces our client's income to basic, monthly salary only.

The law requires that any variation of an employee's contract must be by consent of the employee, particularly when that change adversely affects the employee and places the employee in a worst position than prior to the variation.

Therefore, we invite you to correct this matter by firstly paying our client $18,000.00 and arranging a meeting to get consent within seven (7) days of the day of this letter, thereby obviating the need for an application to the Supreme Court for remedy.

Our legal fee to date is $1,750.00.

Please make a cheque in the amount of $19,750.00 payable to Obie Ferguson & Co. Client Account.

We thank your for your co-operation in this matter.”

18 (18) On the 3 March Mr. Albury replied in the following terms:

“Dear Mr. Ferguson,

I am in receipt of your letters of February 25, 2003 pertaining to the alleged breaches of contract between ourselves and Messrs. Thalberg Wells and Gail Smith (Hand...