I probably have no legal grounds to fight this with my employer but feel completely helpless and thought it may be worth trying to get some advice here. (maybe a better place than BBV?)

I have worked for the same company for 7 years, but last April got asked to help set up a new business which I have been doing.

My job has historically been commission based and I was earning £80k-£100k+ between Sept 2007 & March 2011 when I took this now role.

I have (had) a lot of trust in my employer, and although they promised contracts, I didn't get signed contracts when i took the new role on, so all I have is my old contract which is a £19k basic+ commission, and verbal agreement of the new setup (+payslips for the last 10 months)

The company have paid me a basic salary of £75kpa while i set up the new business. They said at some point the salary would be reduced, and that i have 10% equity in the business and would be paid 10% annual bonus based on net profit. There have been some internal problems with the company so we do not have a full set of accounts yet but hope to receive them in the next few days.

Sadly the business has not taken off as much as we wanted and is likely to post a loss for the 1st year. (although there are some positive things setup to make us profitable in future). There are around £400k owed to us from clients, £120k in the bank, and we have spend around £420k so far which is setup on a loan account to the new business from my old company. Unfortunately some of the £400k we are owed is likely to be written off (around £80k).

On finding this out the owner of the overall business, (who has not been very involved in day-to-day running), has said that my basic wage will be cut to £30k immediately with £10kpa guaranteed bonus for the next 3 months if i am to continue working on the business. There is also a commission structure with monthly (10% personal gp / quarterly (5% company np) / annual bonsues (5% company np) for success.

This in theory is fine, but the immediate drop in salary will leave me really stuck as i was not expecting this, have been given no warning / notice to plan financially and have 3 young children, a lot of debt (poker) and a wife who does not work. My monthly outgoings just for bills exceed the basic salary they are now offering.

I don't think I have legal grounds to complain, but it feels rather harsh that my basic salary can be cut by so much without notice. I would be happy for the salary reduction to start from 1st week in April, which i suggested to the employer but they said that they will not do this and it has to be immediate, or my other choice is to leave the business.

I know this is my own fault for being way too trusting, and will make sure I get proper contracts in place for all agreement going forward, but my main question is can they legally / (morally?) make such a cut in basic wage without notice>?

Thanks in advance

It doesn't sound like you have that much negotiating leverage.

Just accept as is. That's life.

Steal their clients and start up your own gig if you are still bullish on this venture. It sounds like the plan was for you to do all the work, with the company getting most of the profits.

Thanks for the response..I would add to this that it's not as simple as just jumping ship and starting up on my own.. Geographically this job is ideal, nice offices, and there's not too many other options close to home or other wealthy backers that I know. ..

My instinctive reaction was to take the database and set up own gig, or to start setting something up in the background, but that would need capital which i don't have. The main attraction to taking this deal last year for me was that the business owner runs a number of successful companies each turning over multiple millions so my 10% has a decent chance of having some value eventually if it goes well, so still feel there may be a future in working with these guys, just annoyed that they give me no warning that they cut my salary in half when they know my financial situation and that i have 3 young children relying on me.

I've had opportunities since starting the new business to benefit personally from back-handers / cash in hand offers from clients etc but been totally honest and never accepted / always declared anything like that, almost regret not keeping one of those brown envelopes now

it reads like you have many issues here:

A) Their actual contractual obligation in rather small and technically their 30k base offer is an increase.

B) When they paid you the base of 75 for the setup, it was explicit that was valid until the new company had been setup and they had the right to reduce the amount to X. Of course, it appears that X wasn't completely negotiated out so it's now open to interpretation.

C) The new owner doesn't seem to be happy with the results of the new office and it's giving you an ultimatum of sorts and I would question whether the 10% equity share is really yours at this time.

D) A 10% deal on net is not a good deal for you. To make your wages to previous level, this branch will have to roughly have net income of $400K. I am not sure what your margins are and whether that's net post taxes as well; thus, I would hazard a guess that gross revenue would have to be at least to be over 3 to 4M. Does that sound reasonable in terms of gross?

For future reference, it this kind of situation where equity/profit sharing has a tremendous impact on your compensation, it's wise to negotiate that percentage out of operating income rather than net.

Do you have any e-mails, voice mails, correspondence that these were the terms that were agreed upon? If you do, then I would advice to have a consultation session with a lawyer and see whether you have any standing in a breach of a contract situation. However, this is a difficult to road to take with your employer and it appears that you have served your role and they could care little if you leave.

The only negotiated solution that you could suggest is that your profit distributions should be scheduled on a quarterly basis rather than annual one so you can smooth out your earnings. Another alternative would be to return to your previous position and continue to make your lower base plus commission. However, this reads like a bad situation for you in the long term and it might be time to leverage your new role and experience into another company/competitor ASAP as quietly as possible.

GL

Thanks for the advice.. I might start looking in more detail at what other options there are out there.

I only have one piece of advice for you. Focus really hard on setting up a good emergency fund for yourself and family so that the next time life throws you a big curveball, and there will be a next time, you'll be able to handle it with no problems. With as much money as you have made in the past few years there is no excuse for you not have one.

Just curious, if you leave the job I'm guessing you still keep the 10% equity and 10% net?

I don't have any other advice to give, but good luck to ya.

I expect if I were to leave they would be able to take the equity away from me at this stage, as the company does not appear to be worth very much today.. They could probably shut the company down / re-open it in a different name with the current staff if they wanted to.

I will be speaking to the shareholders tomorrow more about it. I've decided it will be best to stick with the job for now, and aim to work hard over the next 3 months to secure some decent commission to make up for the reduced basic salary. The main thing I am going to be asking from them is that contracts are place by the end of March at the latest.

Provided this happens and the business starts making money soon, I will hopefully be OK an potentially in a good spot if it really takes off.
One of the things I will look to clarify in the contract is what would happen to my equity if I leave at any stage, through my choice or theirs. Are there any other clauses anyone can advise to get included in the contracts?

why not got in tomorrow and say if they are going to reduce your salary to give you more equity. effectively their argument is that the business is worth less now that they originally thought so you should be paid less. so counter that you will be fine as long as you now get 15% equity or 20% or something. they should be happy with that since their actions are indicating that they feel the business is worth less today than a few months ago.

Been in today and the situation is worse than I thought, they literally are on the verge of shutting down the business. The main investor / shareholder is quite volatile and seems to be at the stage of wanting to give up with it, as he's frustrated that after almost a year and £500k it's still not making regular profit.

Of course if that happens I will be without a job, but it may mean that by cutting my salary as they have they could get away with paying me a smaller redundancy payment.

I think I am going to have to fight to keep even the offer that was made of reduced salary if today is anything to go by, but will just have to work hard and start delivering soon to make sure they keep the business going.

It's a recruitment / employment business in the renewable energy industry so part of the problem is cuts to government incentives & knowing which parts of the market to focus on.

Update on this, 3 months later we scaled the business right down from 12 staff to 4.
I looked at other options at the time and spoke to some investors but felt like sticking with it with the reduced salary was the most secure option for my family.

Pleased to say so far so good and this month were on course to make £30k net profit and start scaling up again in July and with many lessons learnt, in a more developed market.

I am however still without a formal written contract and on paper at least am 100% owner of the business registered at companies house, although the agreement is for me to have 10% equity.

As the business is that much stronger, im effectively wihout a contract and not formally tied into an agreement, and the way forward feels that much clearer it seems like a good time to consider my options.

Do I:

A: carry on with current arrangement
B: push to negotiate contract with some extra clauses such as golden parachute and equity increase on hitting certain targets
C: look for new investors who may give a higher salary & equity share if I was to go to them with the full business plan strategy & some existing clients & database

Quick update:
Went with option A.. Current arrangement still going well.

July has been great so far and we are on course to make £90k gross profit, £60k net profit. Also having felt truly screwed over back in March, my wage never dipped below £40k and have just been paid a £6.5k bonus based on success from Apr-June.
The bad debt was not as bad as predicted and pre-audit accounts show a small profit &~£1m turnover for yr1.

Financially I feel more secure now than ever and have enough in reserve if things get tough again.

The business situation and financial support we have as a company is exceptional- Just scaled back up to 9 direct UK staff + finance, credit control, marketing, contracts staff and non-exec advice on site, all virtually cost free.

Also about to open Asia office with 6 staff next month, rebrand, and looking for new UK premises!

Obviously still a long way to go and a lot of hard work ahead but it's nice to be able to post some good news.

Looks like things are going well. That was a good lesson to make sure you accumulate savings and never have to stress out about these thing again.

It seems like business is growing like weeds. What line of work is this? Expanding to Asia? Interesting.

Yes very important lessons learnt.
It's a global energy recruitment business.
Some of our direct competitors turnover £400m+ and if you pro rata our current business we turnover ~£4m. We still have only a tiny peice of market share.

A lot of our business in year 1 came from fitting pv panels in the uk solar boom. Now we just supply staff. The wages in the industries we work in are high (£500-£1000 / day) so you need a lot of capital (or access to it) to grow any decent sized contract recruitment business.

We borrowed £250k initially and although we are owed more than that right now, will probably have to take on much more capital to sustain such fast growth.

Isn't that the definition of a job?

Are your clients consumers or other businesses?

Do you outsource all solar panel fitting?