Court rejects executive’s $200,000-plus claim on contractual benefits – Employer saved by crystal clear bonus entitlement terms
As an employer, devoting the time and resources to develop a sound HR policies and procedures strategy for your business before the need arises is clearly an investment that can pay large dividends in higher productivity and minimised litigation.
Well-documented policies and procedures serve to communicate your organisation’s values and expectations for how things are done, comply with legislation, support fairness and transparency, safeguard against employment claims and minimises the time taken to deal with productivity-draining people issues.
An executive’s claim for over $200,000 in contractual benefits was rejected in Court recently, a cost his employer did not have to pay as a result of their astute attention to detail in the area of employment contractual provisions relating to bonus entitlements as well as their documented policies and procedures.
The national sales manager, who was on a permanent working visa, alleged he was entitled to more than $220,000 in contractual entitlements and bonus payments over three years. This consisted of about $8,000 in permanent residency costs and the balance being end-of-year bonus payments for the 2012, 2013 and 2014 financial periods.
However, WA IRC Senior Commissioner Stephen Kenner did not find any reference to permanent residency sponsorship in the sales manager's letter of appointment, and noted his surprise that the manager did not seek written confirmation of this if payment of such costs was so important and agreed upon.
In December 2011, the employer defined the terms of a bonus scheme for the 2012 financial period based on the company’s annual results and budget targets. The sales manager argued he was entitled to $15,000 for hitting sales above the WA profit target and a further $106,604 as his share of the branch’s profit above budget.
According to the employer, the sales manager was not contractually entitled to participate in the bonus scheme because it was not included in his terms of employment. It also said that the payment was subject to agreement, at the discretion of the sales and managing directors. Furthermore, bonus payments were typically divided between all branch employees, not only the five sales staff.
Despite his exclusion from the bonus entitlement, the employer paid him $40,000 in lieu of any claim to a payment for the 2012 financial period. In spite of this, the sales manager claimed that the payment did not discharge the employer’s liability to a full bonus as he said he felt vulnerable and pressured at the time to accept for fear of losing his job and visa if he asked for more. However, Senior Commissioner Kenner found it unacceptable that the sales manager could take the money and yet fail to tell the employer of his reservations.
In May 2012, when the sales manager was promoted, he requested for the inclusion of the bonus scheme in his new contract. However, for the financial year ending 30 June 2013, the senior managing directors decided not to pay bonuses. The WA IRC considered it reasonable for the employer to exercise discretion and withhold bonus entitlements since the company was in financial difficulty and had fallen short of its budget. There was no evidence of the managing directors acting in bad faith when they decided not to pay bonuses for the 2013 financial period.
For the 2014 financial period, the company introduced a new bonus scheme that would provide a bonus payment if the company achieved its budget targets. When the company again refused payment, the sales manager lodged a complaint under the company’s grievance procedure. The company undertook a review and confirmed that no employees were entitled to a bonus for 2013/14 as the thresholds specified under the scheme had not been triggered. Under the new scheme, a bonus was not payable unless all branches achieved their budget targets.
Senior Commissioner Kenner agreed that the terms of the 2014 bonus scheme were “crystal clear” and “unambiguous” and dismissed the sales manager’s application since the sales manager failed to prove he was denied contractual benefits.
This case demonstrates the importance of having clear contractual provisions and setting well-documented policies and procedures in place for bonus and incentive payments; and is just one example of the importance of having clear and concise documentation as part of your company’s strategy to minimise business risk.
iHR Australia understands the importance of developing policies and procedures that are specific to your organisation’s expectations, standards and responsibilities. Clear procedures help guide managers and staff through the practical application of policies. iHR Australia’s bespoke HR policy and procedures services helps organisations with designing and developing well-documented and comprehensive individual policies, procedures and handbooks which are customised to your organisation’s needs. Our expertise also includes developing a Guidelines and Procedures Manual for Managers to cover guidelines, procedures and templates for human resources practices such as selection and recruitment, performance management, managing complaints and terminations.