Worker considers new pay plan unenforceable

You make the call

Worker considers new pay plan unenforceable

This edition of You Make the Call involves a long-time employee who wanted his pay in lieu of notice based on an old pay plan rather than a new one that reduced his income and was implemented a few months before his dismissal.

Brian Jessel Autosport (BJAI) operates an automobile dealership in Vancouver selling new and pre-owned vehicles. BJAI hired Tim Van Dyke in 1982 as a lot attendant, but over several years, he moved into other positions, reaching the position of director of new and pre-owned operations in 2007. By then, the owner of BJAI divided a 10-per-cent equity interest in the business among Van Dyke and two other senior employees, with each receiving 3.33 per cent. Van Dyke’s shares eventually increased to 10 per cent.

BJAI instituted a pay plan for Van Dyke in 2012 that included a monthly base salary, bonuses based on the profits earned from both new and pre-owned vehicle sales and dividends from his shares. Previously, his pay plan had been amended in 2010, 2009, 2007 and 2005.

In 2015, BJAI divided the new and preowned sides of the business and began operating them at separate locations. Van Dyke was assigned to the new location devoted exclusively to pre-owned vehicles, with his title changing to director of preowned operations. However, he continued to support new vehicle sales staff through appraisals of pre-owned vehicle trade-ins.

Soon after, Van Dyke developed a plan to buy trucks locally for export to the U.S. However, the new CEO who had taken over for the owner was concerned over the company’s exposure to liability and asked Van Dyke to sign a personal guarantee for $795,000 to cover it. The venture went as planned and there was no loss to Van Dyke or BJAI.

In early 2016, the CEO decided to change Van Dyke’s pay plan. Although Van Dyke was responsible only for the pre-owned vehicles part of the business, his 2012 pay plan was still in place that reflected both sides of the business. As a result, Van Dyke’s compensation in 2015 had been higher than normal, making him the second-highest paid employee after the CEO.

A new pay plan was drafted that excluded the new vehicle part of the bonus formula and replaced it with a new bonus equal to one per cent of the profit from the entire business, effective April 1, 2016. Van Dyke signed the new pay plan one month later.

A couple of months later, the BJAI’s owner told Van Dyke that he wanted to reduce Van Dyke’s shareholdings back to three per cent and cut his pay in half. The following month, on Aug. 16, BJAI terminated Van Dyke’s employment. He was 52 at the time and had worked for BJAI for 34 years.

Van Dyke sued for wrongful dismissal, claiming 24 months’ pay in lieu of notice to be calculated under his 2012 pay plan, which entitled him to more than $61,000 more than what he received between the implementation of the new pay plan on April 1 and his dismissal, plus a difference of more than $400,000 during the notice period. He argued that the new 2016 pay plan wasn’t valid because he didn’t receive consideration for the change in his employment contract.

Was the new pay plan enforceable?
Was Van Dyke entitled to damages calculated under the 2012 pay plan?

IF  YOU  SAID  the  new  pay  plan  was  enforceable,  you’re  correct.  The  court  found  that  the  2016  pay  plan  wasn’t  an  amendment   to   the   employment   contract   but   rather “the latest in a long serious of such revisions.”  Van  Dyke’s  pay  plan  had  been  revised before — the previous pay plan had been  in  effect  since  2012,  but  Van  Dyke  had  been  in  the  position  since  2007.  The  evidence showed Van Dyke’s remuneration had been revised periodically as part of his employment contract, said the court.

The  court  noted  that  the  2016  pay  plan  was different in that it was the first one to deliberately  reduce  his  overall  remuneration.  However,  Van  Dyke’s  income  in  2015  had  been greater than normal because his bonus was tied to both sides of the business, which prompted  the  new  plan  to  bring  it  back  in  line with that of previous years. In addition, Van Dyke’s employment contract didn’t entitle  him  to  retain  the  2012  plan  any  more  than it did the previous plans, the court said.

“I  find  that  it  was  not  inconsistent  with  the  terms  of  Mr.  Van  Dyke’s  employment  contract for [the CEO] to restore Mr. Van Dyke’s remuneration to historical levels as and  when  he  did,”  said  the  court.  “In  this  case,  it  is  Mr.  Van  Dyke  who  seeks  to  rely  on one anomalous year, rather than several representative  ones,  to  establish  the  contractual norm.”

BJAI was ordered to pay damages equivalent  to  24  months’  pay  under  the  new  pay  plan implemented on April 1, 2016.

For more information, see:

•  Van  Dyke  v.  Brian  Jessel  Autosport  Inc., 2019 BCSC 1736 (B.C. S.C.).

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