By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Craig Flowers’ FML web shop chain has been ordered to pay a former senior executive $120,000 plus interest after the Court of Appeal overturned a previous verdict relating to “irregularities” designed to inflate staff earnings.

The appellate court, by a two-one majority ruling, found that Deyvon Jones, FML’s former chief operating officer, should receive the four months’ unpaid salary due to him. With a 6 percent annual interest rate applied to this sum from late March 2018, the total payment due is now over $150,000, but the Court of Appeal rejected the bulk of a claim for that totalled more than $1m for breach of contract and constructive dismissal.

Appeal justice Stella Crane-Scott, writing the majority verdict, noted that Mr Jones brought eight of the former Fantasy web shop locations with him when he joined FML Group of Companies as its chief operating officer in 2015. He was to initially be paid an annual $180,000 salary, or $15,000 per month, “plus 20 percent of net revenue generated over a pre-determined amount of $1.5m per month”.

This contract, which was to last for two years, was modified in December 2015 to double Mr Jones’ salary to $360,000 per year, or $30,000 per month, together with the same 20 percent share of net generated revenue growth (NGR) above $1.8m. Further contract revisions followed, until FML entered a November 1, 2017, management agreement with an entity called Blue Star Holdings that would see the latter operate/manage its 19 “Express” web shops.

Blue Star’s principals included Mr Jones, plus two other employees, Cindy Williams and Jamaal Stubbs. “In early February 2018, FML became aware of what appeared to be suspicious customer activity at certain store locations managed under the appellant’s [Mr Jones] portfolio,” the Court of Appeal noted.

The scheme purportedly involved deposits made in the morning being withdrawn that very same evening in a bid to unduly inflate compensation. The performance-based compensation agreement struck with Mr Flowers and FML meant that the higher the daily amount/volume of customer deposits at those “express stores”, the greater Mr Jones’ share of daily profits.

“The activity involved what FML claimed was unusually high deposit/withdrawal activity with no clear gaming purpose. FML’s internal investigations continued and, by mid-February 2018, the matter was escalated to the level of the Board of Directors. On February 16, 2018, Craig Flowers met the appellant and his team and informed of them the situation.

“The appellant refuted any knowledge or suspicion of inappropriate activity. Cindy Williams left the meeting and Jamaal Stubbs made no comment. On or about February 19, 2018, the appellant advised the Board of Directors that Jamaal Stubbs had admitted to orchestration of a scheme to manipulate the accounting system in order to boost performance numbers for his team. The following day, the appellant informed the Board of Directors of Jamaal Stubbs’ resignation.”

However, some three to four days later, Mr Jones’ so-called ‘performance-based incentive agreement’ was terminated on the grounds of “gross negligence”. Mr Flowers’ son, Jason, in a February 23, 2018, letter told Mr Jones: “It has come to my attention that there has been a falsification of the accounting system operating under the 1Click Platform, which handles the day-to-day operation.

“Further that, based on this falsification, percentages have been manipulated to benefit FLM Express. Furthermore, your company has admitted to and acknowledged that this has occurred.” A further meeting was held between FML and JR Jones, but the former received legal advice on February 27, 2018, that he had “not returned to work and had abandoned his job, and that due to the infractions he should be summarily dismissed of he returned to work”.

This triggered the legal dispute between the two sides. Mr Jones alleged that he was unable to perform his job from February 23, 2018, because he was “locked out” of the web shop’s computer system while FML had also “started an unsubstantiated rumour” that he “was engaged in fraudulent activity”.

He claimed damages that included $720,000, or two years’ salary; some $120,000 in unpaid wages between September 2017 and February 2018; and other sums that included accrued vacation and three months’ termination notice. The total amounted to more than $1m.

FML, though, countered with a defence that asserted Mr Jones’ computer access was only restricted “in order to facilitate an investigation of irregularities involving the operation of the ‘express stores’”. The probe “disclosed unauthorised behaviour and internal fraud taking place..... that would benefit [Mr Jones] under the new compensation arrangement”.

The web shop chain added that apart from the restricted computer access, Mr Jones was never barred from coming to the office, but instead he “never returned to his workplace after the investigation started” and therefore “abandoned his job” without notice to FML.

The scheme to inflate deposits was reported to the Gaming Board, with FML alleging that - at the time - it had already incurred $50,000 in legal and accounting costs for doing so and these were continuing to mount. These claims, though, were vehemently denied by Mr Jones who alleged that Fantasy’s eight outlets increased FML’s footprint by one-third, taking it from 16 to 24 stores.

He also claimed that the same-day deposit and withdrawal of monies at FML’s express stores “was a feature I had asked several times to be addressed, as based on the compliance rules under the Gaming Board this is not permitted”. Then-justice Keith Thompson, in the initial Supreme Court verdict, found for Mr Flowers and FML and ruled that Mr Jones was never terminated but simply did not return to work.

However, the Court of Appeal was critical of former justice Thompson, finding that he “failed to take proper advantage of having heard and seen the witnesses and, quite simply, failed to show a correct understanding of the issues he had to decide against the background of the pleadings and the material available, the evidence led and the inherent probabilities”. Appeal justice Milton Evans said he had failed to “properly analyse the evidence”.

He and Justice Crane-Scott ruled that Mr Jones had established “a prima facie case” for breach of contract dating from May 15, 2017, where FML had agreed to pay him a $30,000 monthly salary and 4 percent share of net generated revenue “on new products only”.

They found that the burden of proof had thus shifted to FML to prove this salary and terms had been altered orally. “While Craig Flowers’ testimony was that FML had agreed to compensate the appellant ‘based on’ the Blue Star agreement, his evidence fell far short of providing any details as to precisely how (and when) the relevant compensation Agreement had been ‘changed orally’ as FML had claimed in its defence,” Appeal justice Crane-Scott found. 

“Most importantly, Craig Flowers gave no evidence whatsoever as to what was the new ‘varied’ salary or compensation which FML and the appellant had (as it claimed) verbally agreed that the appellant was to pay himself out of the income from the Express Stores after 1 November 2017.

“What is even more astounding is that apart from merely stating that the appellant had in fact been compensated from November 2017 based on the Blue Star compensation agreement, and that the appellant could in effect ‘keep as compensation the lion’s share of the profits generated after paying the expenses of those stores’, FML produced no evidence or accounting whatsoever to support these crucial assertions of fact.”

As a result, she found Mr Jones’ employment contract had been breached and he was entitled to receive four months’ unpaid salary at $30,000 per month or $120,000 in total. Appeal court president, Sir Michael Barnett, dissented from the majority by finding that the ex-FML chief operating officer’s compensation terms were varied by the Blue Star agreement.

However, he found that Mr Jones was constructively dismissed because he was locked out of FML’s computer system, and would also have allowed the claim for wrongful dismissal or breach of employment agreement for the same reason.