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Discretionary bonuses are not optional.

20/01/2011

An employee was engaged under a written service agreement.  It required annual salary reviews, even though there was no obligation to increase the remuneration.  In fact, the salary was never increased, despite requests for a review.  There was also a provision for a discretionary bonus payment to be assessed on performance against set objectives.  Performance objectives were never assessed and no bonus was ever paid.  The employee sued for damages for breaches of the service agreement, namely:

  • failure to review salary annually or at all;
  • failing to formulate a set of objectives relevant to the bonus; and
  • failing to review her performance against those objectives periodically .

On a proper construction, the employer had to exercise its discretion (not to increase the remuneration) honestly and conformably with the purposes of the contract. It did not have a capricious right to  refuse to pay a bonus without good reason.  The Court held that damages will be recoverable where there is an opportunity or chance to obtain a benefit and the  opportunity is lost in the consequence of a breach of contract, so long as the loss of that opportunity or chance is not too remote in a contractual sense.  There’s no need to prove, on the balance of probabilities, the chance or opportunity would be come to fruition.  The opportunity or chance is to be measured by the probabilities and possibilities.  That involves an assessment of how the employer should have acted conformably with its contractual obligations

An ex gratia payment made to the employee on termination was set off against the damages that would otherwise have been assessed.

Read all the reasons for judgement in Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357

 

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