An employee was recently awarded $74,000 in damages (reduced by
an ex gratia payment the employer made to the employee on appeal)
because the employer failed to set objectives and review the
Under her employment agreement the employee was eligible for an
annual performance bonus of $40,000 if her performance satisfied
quarterly objectives set by the employer. However the agreement
stated that the decision to pay the bonus to the employee was
entirely at the employer's discretion.
The NSW District Court found that the employer had breached the
employment agreement by failing to formulate objectives for the
employee and review the employee's performance against
those objectives for the purpose of determining her entitlement to
The Court stated that the employer's discretion must be
"exercised honestly and it does not permit the employer to
choose arbitrarily or unreasonably not to pay the bonus once the
set objectives are satisfied".
Lessons for employers
When drafting a bonus clause or scheme employers should:
ensure any bonus clause is carefully drafted and that it
achieves what is intended;
clearly state if the bonus is intended to be entirely
be aware that a bonus scheme that claims to be discretionary
but then includes set targets and objectives that the employee is
required to meet may not be discretionary at all, and may impose
legal obligations on the employer to pay the bonus.
For more detailed information about how these changes will
impact on your business please contact a member of our workplace
relations team on 07 3231 2444.
Cooper Grace Ward was named Best Australian Law Firm in the BRW
Client Choice Awards 2010 - Revenue < $50m. Joint Best
Australian Law Firm in the BRW Client Choice Awards 2009 - Revenue
The firm has also been named as the fastest growing law firm in
Australia for 2009 by The Australian.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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