Many Australian employers use deferred bonus schemes as a ‘golden handcuff’ to retain key staff. Typically, these schemes pay 50% of a bonus immediately and the remaining 50% in six or twelve months, contingent on the employee remaining with the company.
However, a recent landmark decision by the Federal Court has confirmed that if these clauses are not drafted with extreme precision, they likely breach Section 323 of the Fair Work Act 2009 (Cth).
The Facts
In Wollermann v Fortrend Securities Pty Ltd [2025] FCA 103, two financial advisors at Fortrend Securities were entitled to monthly bonuses based on commission targets. Their contracts stated that:
- 50% of the bonus would be paid the following month.
- The remaining 50% would be deferred for seven months.
- If an employee resigned or was terminated before the seven-month mark, the unpaid 50% was forfeited.
When the employees resigned, the employer refused to pay the deferred portions. The employees sued, arguing that the bonuses were already earned and that withholding them was an unlawful deduction from their wages.
The Ruling
Justice O’Callaghan found in favour of the employees, establishing several critical points for employment law:
- Section 323 of the Fair Work Act requires that all amounts payable for the performance of work must be paid in full and at least monthly.
- Once the commission threshold was met, the employees’ right to the bonuses was “earned.” The seven-month delay was merely a payment schedule, not a condition of earning the money.
- Because the money was already “owed” for work performed, the clause attempting to forfeit that money upon resignation was legally void.
- Notably, the Managing Director was held personally liable as an accessory to these contraventions.
Key Takeaways for Employers
This case does not mean that deferred bonuses are dead, but it does mean your contracts may need an urgent audit.
- Drafting matters: If a bonus is intended to be a retention tool, the contract must be clear that the bonus is not “earned” until the end of the retention period. If the contract says you have “earned” a bonus this month, but we won’t pay it for six months, you are likely in breach.
- Discretionary vs. Contractual: Truly discretionary bonuses (where the employer decides if and how much to pay) are safer than formula-based contractual bonuses that “crystallise” automatically.
- Monthly Payment Rule: Be wary of any clause that delays payment of earned wages or bonuses for more than one month.
How Hart & Co Lawyers Can Help
If you are looking to protect your business with robust retention schemes, Roxanne Hart and Veronica Voulgaris provide the high-level strategic counsel you need to navigate these complexities.
