Taking the discretion out of discretionary bonuses

March 9, 2011 12:06 pm Published by Leave your thoughts

A recent decision in the New South Wales Court of Appeal has emphasised the importance of ensuring that bonus provisions in contracts of employment properly reflect the intent of the parties.  This issue would be worth considering in the context of your own employment contracts, before the end of the financial year.

Employers should be vigilant in setting objectives for employees and examining performance against those objectives.  The recent outcome in Silverbrook Research Pty Ltd v Lindley highlights a few key issues surrounding bonuses:

  • It may now be considered breach of contract to not set performance criteria and not assess employee performance, when a contract states that you will do so.
  • Making a bonus ‘discretionary’ will not excuse an employer from the obligation of considering how a bonus might be assessed.
  • If a bonus is able to be withheld at the discretion of the employer, even if the performance objectives have been achieved, the contract must clearly state that as the case.

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