Employers should reassess bonus structures following recent decision
A recent Federal Court decision found the deferred bonus arrangements set out in two employees' contracts to be unlawful. While this decision does not impose a blanket ban on deferred bonuses, it does highlight the importance of carefully drafting terms of contracts that deal with bonuses, as well as bonus policies.
Employers need to consider their bonus structures to avoid the implications of this decision.
The decision is unlikely to apply to bonuses which are clearly not part of the employment contract and are wholly discretionary. Employers implementing such arrangements should make this clear in their contracts and policies.
Further, if a bonus is partly a reward for the employee remaining in employment for a period and not resigning, this should clearly be stated in the policy and contract so it is clear that the bonus is not “earned” until the employee has satisfied this condition.
Monthly bonus structure
In Wollermann v. Fortrend Securities Pty Ltd, [2025] FCA 103, two employees sued their former employer for failing to pay bonus amounts outstanding on termination.
The employment contracts provided for a monthly bonus to be paid on a “half-now, half-later” basis. It also included a clause stating that any unpaid bonus would be forfeited if the employment ended before the full payment was made. Based on this clause, the employer declined to pay the employees the unpaid bonus amounts when their employment was terminated.
The clause in question was in the following terms:
“(a) You would receive a bonus in the event of Fortrend receiving more than USD 50,000 per month in commissions through the clients and accounts allocated to you. This bonus would be equal to 10% of the commissions above 50,000. For the avoidance of doubt, commissions are calculated on the basis of trades settled in a particular month.
For example, if Fortrend receives a commission of USD 60,000 in a month, your bonus would be USD 1,000 which is 10% of 10,000.
(b) The bonus for a particular month will be paid in the following manner:
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50% on the fifteenth day of the following month; and
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50% after a period of seven months.
For example, if you are entitled for a bonus of USD 1,000 for the month of January, an equivalent of USD 500 in Australian Dollars will be paid to you on the fifteenth of February and the remaining on the fifteenth of August after a period of six months.
(c ) If you resign or if your employment is terminated, you will not be entitled to receive the unpaid bonus.”
Breach of Fair Work Act
The employees argued that this payment structure breached s. 323 of the Fair Work Act, which provides that an employer must pay an employee “amounts payable” to them “in relation to the performance of work:”
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In full
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In money
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At least monthly.
Justice O'Callaghan found that contractual bonuses can be subject to s. 323 of the Fair Work Act. He found that the bonus became an “amount payable” when the monthly commission threshold was surpassed. He found that clause 4.3(b) simply provided for when monthly commission amounts would be paid. There was no requirement for work before the employer's obligation to pay the amounts to the employees crystallised.
Importantly, it was also held that because amounts payable are required to be paid “in full” and “at least monthly,” the clause was unlawful because it purported to permit a seven-month delay on payment.
Michael Michalandos is a Partner specialising in employment law and industrial relations, Michael Starkey is a Senior Associate in the Employment & Compensation team, and Afif Haque is an Associate, all at Baker McKenzie in Sydney.
