Change in job title, bonus structure not a breach of employment contract

B.C. Supreme Court says clause in contract allowed for changes in compensation that saw salesman's pay drop 9.3 per cent
|employmentlawtoday.com

When a phone directory company in British Columbia changed the job title of a sales executive, and the way his commission was paid, it did not breach his employment contract, the B.C. Supreme Court ruled.

Mark McSeveney started working for Phone Directories Company Inc. in early 1999. He was promoted regularly, with a corresponding increase in income.

In February 2004 he received a raise to $110,000 per year. As director of sales for B.C. and Alberta, he also receive 0.25 per cent commission on all existing sales and 0.5 per cent on all new sales in his area. There was a clause in his employment contract that allowed the company to modify the commission payment structure.

Job title changed

In March 2004 McSeveney’s title was changed to regional vice-president of sales. There was no increase in salary and the company later said the title change was merely a cosmetic one to enhance the apparent status of certain employees for marketing purposes. (The job titles of all eight regional directors were changed at the same time.)

McSeveney said he took on greater responsibility for sales and cost forecasting when his title changed.

From February to July he received an average of $1,873 in commission every two weeks. In August the payments stopped. McSeveney was told a new bonus system was going to be implemented, but the details had not yet been settled. He complained about the suspension of payments and was paid $750 every two weeks pending the implementation of the new plan. He received a total of $3,750 before those payments were halted.

The new bonus structure

The new bonus system applied to all employees at McSeveney’s level. It did not provide guarantees, but was based on meeting sales and growth targets set by the company. Under the new system, McSeveney earned $11,106 less in 2004 than he had under the old system the year before.

In December 2004 his title was changed back to regional sales director. His employment was terminated in February 2005.

Fired without cause

Both sides agreed his employment terminated was terminated without cause, so the only matter before the court was reasonable notice and the calculation of damages.

McSeveney wanted 12 months’ notice, given his senior management responsibilities and his six years’ service. He said the change in the bonus system from the predictable commission to the more discretionary system, along with the change in job title, amounted to constructive dismissal.

He said he was entitled to a reasonable period to consider his options once the new bonus system was announced and, prior to the expiration of that period, his employment had been terminated. Therefore, he also sought the $11,106 he would have been paid under the old bonus system.

The company said a reasonable notice period would be eight months. It said the change in the bonus system was allowed under the terms of the employment contract and was not a fundamental breach that amounted to constructive dismissal.

The court’s decision

In calculating the reasonable notice period, the B.C. Supreme Court took into account the fact McSeveney managed sales for B.C., Alberta, the Arctic and Alaska. Total sales in those regions reached $18.8 million.

McSeveney reported to the president of the company and managed 14 regional managers who in turn supervised between 45 and 120 salespeople. McSeveney oversaw a substantial advertising budget and played a role in the hiring and firing of employees. He was clearly an upper management employee, the court said.

McSeveney cited a number of cases where courts had awarded employees about two months’ notice for every year of service. But the court rejected that notion, pointing out that in those cases the economy was depressed and the market for the employees’ skills was very limited.

There was no evidence that was the case here, and the court settled on a figure of nine months.

It also dismissed his argument that the change in job title and the new bonus structure amounted to a fundamental breach. The change in job title may have resulted in a loss of prestige but it did not result in a loss of income or a change in duties. Plus, there was no evidence he’d complained or indicated dissatisfaction with the change, the court said.

And changes in monetary compensation do not automatically amount to a fundamental breach of an employment contract. Though the $11,106 decline in his income under the new bonus structure amounted to a drop in income of 9.3 per cent, and the new bonus structure provided less certainty, it did not amount to constructive dismissal, the court said, because of the clause in the contract that allowed the company to modify compensation.

McSeveney was awarded a total of $107,943 for nine months’ salary and bonuses, less what he’d been paid upon termination.

For more information see:

McSeveney v. Phone Directories Company Inc.

, 2005 CarswellBC 2576, 2005 BCSC 1510 (B.C. S.C.)

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