Companies warned over pay promises

by 13 May 2008

AS COMPANIES seek to preserve profitability in the face of a global economic slowdown, employers have been cautioned to check their employee contracts as well as their undertakings made at the time of recruitment, before taking action to cut salary costs.

This is especially the case for senior executives with large bonus incentives, where the propensity for litigation against companies by employees has risen steeply in recent times.

Joydeep Hor, managing partner of Harmers Workplace Lawyers, said that the days where companies slashed or significantly adjust bonuses and incentives without consultation were numbered, and that such unilateral actions could increasingly be challenged in courts by disgruntled senior staff members.

“The notion of promises and representations, both formal and informal, could potentially be applied in legal challenges in circumstances where employees believe they had been misled by their employers into expecting certain levels of bonus and/or incentive payments regardless of economic conditions,” he said.

Speaking at a recent HR conference in Sydney, he said that while there had only been a small number of matters thus far invoking the relevant section (Section 53B) of the Trade Practices Act (1974) into misleading representations by employers over remuneration and bonus payment expectations, the propensity for employees to launch legal challenges on these grounds could be on the rise.

Hor cited a recent example of a case in which a senior employee of a company took his employer to task over pre-employment representations made by an executive search firm about the probability of large increases in the company’s share price and the financial benefits he would receive.

The court found the representation to be misleading and that the executive had relied upon them. As a result, the court ordered that the executive be paid the equivalent of 10 months’ notice (in excess of $1 million) plus interest and the majority of the executive’s legal costs.

While the recruiters were not held directly liable, the case has set the stage for the potential for orders to be made against recruiters in the future.

“The legal risks involving senior company executives who believe they have been unfairly treated by their employers are now greater than ever,” said Hor.

“One could argue that the exposure from recent high-profile discrimination cases involving senior executives has potentially opened the floodgates for disgruntled senior executives to take their employers to court over issues in which they believe they have been unfairly treated,” he said.

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