CEO under fire for profit share 'promise' to staff for 'innovative ideas'

Ex-employee argues company owes him almost $4 million for new software

CEO under fire for profit share 'promise' to staff for 'innovative ideas'

The Employment Relations Authority recently dealt with an employee’s claim that the CEO of his former employer failed to fulfill his promise to enforce a profit-sharing scheme. He argued that the alleged “verbal offer” was directed at its staff after “soliciting” innovative ideas for the company’s benefit.

Kelly Reid, a citizen of the United States who moved to New Zealand in 2021, brought a claim against his former employer, Sedgwick New Zealand Limited, for breach of a purely verbal agreement that was allegedly made by its chief executive officer, Philip van Zyl, during an online induction call to newly-employed staff on 4 May 2022.

It was alleged that during the induction call, van Zyl “solicited” new ideas or processes from staff by promising them a share of the proceeds for their idea or process if it benefitted the company financially.

Reid further said that he accepted van Zyl’s offer by providing Sedgwick with information about an estimating software program known as Xactimate, which he had used extensively during his 30-year career as a self-employed insurance service provider in the US.

Xactimate is a software developed by Verisk which enables contractors and loss adjusters to capture the process better which in turn makes their jobs more efficient and easier to do.

Alleged employee benefits

According to Reid, Sedgwick's induction presentation outlined various employee benefits, including an employee assistance program, wellness allowances, and health insurance perks.

Reid, however, took issue with his salary of $90,000 per annum, which he deemed insufficient compared to industry standards.

Reid further asserted that he introduced the Xactimate estimating software to Sedgwick during his employment, expecting compensation as per van Zyl's alleged promise.

He claimed to have used Xactimate extensively in his previous 30-year career and questioned Sedgwick's valuation of his contribution.

Employee claimed profit share agreement

In an email to van Zyl on 29 June 2022, Reid expressed his dissatisfaction with his salary and requested a review. He also sought clarification on compensation for introducing Xactimate and his role as a software trainer.

Reid also accused him of dishonesty and alleged the existence of a video showing van Zyl promising compensation for employees' ideas.

Reid submitted a projection of what is owed to him by Sedgwick to the Authority, arguing that he recorded his supposed compensation for introducing Xactimate to the company.

He estimated that Xactimate could generate additional revenue streams for Sedgwick, amounting to $41 million over the next five years, making the total payment to him almost 10% of that amount or $3.8 million.

In addition to denying the existence of an offer by van Zyl, Sedgwick said that it was “aware of Xactimate” before Reid presented his improved process. The company also said that it was advised by Xactimate’s parent company, Verisk, in July 2022, that it was withdrawing from the Australasian market and therefore its services would no longer be available.

For this reason, Sedgwick stated that “it has never used (and will never use) Xactimate in New Zealand. Reid resigned from Sedgwick on 1 July 2022. He worked for the company for approximately 14 weeks and left without serving out his notice period.”

Was there a binding offer?

Upon the Authority’s investigation, it found out that the induction was supplemented by a PowerPoint, “which made no expressed mention of the alleged offer of compensation.”

“The PowerPoint includes a slide that sets out specific benefits to new employees of which a share in the proceeds for a revenue-generating idea or process is not included. The PowerPoint presentation is internally consistent of there being no offer made by van Zyl which aligns with his evidence,” it added.

“There is nothing in writing that is contemporaneous with the verbal offer when it was allegedly made in early May 2022. The first mention of it is in an email from Reid himself some eight weeks later. His reason for the delay is that no one from Sedgwick had bothered to approach him about Xactimate, which he could see the company was moving forward with implementation,” it said.

Are verbal contracts enforceable?

The Authority said that the alleged offer of compensation was never evidenced in writing. “Even so, verbal contracts are just as legally enforceable as written ones. That said, there must first be an ‘offer’ made by the offeror who intends to be immediately bound by the terms of their offer,” it said.

“No such offer of compensation was made by van Zyl to those who attended the induction call in early May 2022, Reid included.”

“Even if an offer had been made (not the case), any benefit to the company for using Xactimate could not be credited to Reid because the software was already on its ‘radar’ and therefore, Reid’s idea or process was neither new nor novel to Sedgwick,” it said.

Consequently, the Authority ruled for the worker’s application to be dismissed.

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