Though presents usually come at Christmas, for many employees Christmas actually comes in July in the form of an end of financial year bonus. And just as the prospect of presents waiting under the Christmas tree has motivated many kids to behave themselves, the prospect of a bonus makes many employees strive for their own successes at work.
So what are the rules about bonuses? Is your employer obliged to recognise your hard work with a bonus? What happens when you find out that your colleague received a bigger bonus than you?
Back to bonus basics
Bonuses are payments awarded at the discretion of many employers as an incentive for their employees to work hard and stay loyal. Around one-third of Australian workers receive bonuses. Whether or not to award a bonus, and how big that bonus should be, is typically entirely at the employer’s discretion.
But sometimes, particularly in financial or professional services companies, bonuses are based on certain predetermined and objective criteria, like sales numbers, clients brought in, or profits. Many employers may choose to deal specifically with bonuses in their employment contracts, other times though the rules surrounding bonuses are found in workplace policies. Often, bonuses are mentioned in any employment documents.
So when you say absolute discretion…?
Just because an employer has ‘absolute discretion’ to award bonuses in a contract or policy, it doesn’t necessarily mean that their discretion to award bonuses isn’t limited in certain important ways.
In Australia, any discretion to award a bonus must be exercised honestly and in conformity with the purposes of the employment contract. Bonuses should not be refused arbitrarily, unreasonably or capriciously. Where a bonus is contractually required to be considered on the basis of individual performance, in the absence of any deficiency or variation in their performance, employees must be treated equally.
This is not to say that an employer must pay a bonus. There will be many considerations, such as finances and individual performance, that may legitimately justify a decision not to award one. The principles stated above have to be applied with an understanding of the particular commercial context of the business, the contract and the decision.
However, there may be circumstances when you could seek to enforce your right to a bonus. If the bonus is based on meeting clear and objective targets or criteria that measure individual performance, your employer can’t unreasonably or indiscriminately refuse to pay the bonus if those targets have been satisfied. It all comes down to the wording, but if the terms of your contract seem to compel the payment of a bonus on such grounds, you may be able to pursue this. This can be true even if you’ve ceased working for that employer, so long as you met the conditions.
So, what do you do if you missed out?
If there is provision made about bonuses in your employment contract and your employer refuses to pay a bonus in breach of the principles above, you may be able to assert that your employer has repudiated your contract. In real terms, this means you could terminate your contract and sue your employer for compensation. It might even mean that your employer is unable to enforce any post-employment restraints on you and your career.
Although not something you’d want to leap into without obtaining proper advice, this can be a powerful tool to ensure that you receive what you are entitled to. If you missed out on a bonus this EOFY and you think you might have been entitled to one, get in touch with an employment law specialist.
John Wilson is the Managing Legal Director of BAL Lawyers and an accredited specialist in Industrial Relations and Employment Law. He thanks his colleague Bryce Robinson for his assistance in preparing this article.
This is a sponsored article, though all opinions are the author’s own. For more information on paid content, see our sponsored content policy.