In the ever-evolving landscape of employment law, the recent Federal Court case of Wollermann v Fortrend Securities Pty Ltd [2025] FCA 103 should have employers taking a closer look at the drafting of their bonus arrangements, particularly where these involve deferred bonuses and forfeiture conditions.
The case determined that contractual terms requiring a bonus payment to be deferred for up to seven months and subject to forfeiture if employment ceased during the deferral period were unlawful under the Fair Work Act 2009 (Cth) (FW Act). That was because section 323 of the FW Act requires amounts that are payable in relation to the performance of work (including incentive-based payments and bonuses) to be paid in full at least monthly.
The decision presents significant challenges for the use of deferred and forfeiture provisions in incentive arrangements, as it suggests that provisions which are drafted in the same manner as the incentive arrangements in the case are invalid and cannot be relied on. The decision will have particular implications for the incentive arrangements of APRA-regulated entities given the mandatory deferral and adjustment requirements under the Financial Accountability Regime Act 2023 (Cth) (FAR) and Prudential Standard CPS 511 (CPS 511). Even outside of companies subject to these regimes, deferral and forfeiture conditions are very common features of incentive plans across all sectors.
There is an immediate need for employers to review their incentive arrangements to determine whether their deferral and forfeiture arrangements may be susceptible to legal challenge based on the Federal court decision. The legal risk ought to be able to be addressed by clearly structuring bonus arrangements so that the bonus does not become payable (for the purpose of the FW Act) until the deferred period has been completed, as well as other potential drafting approaches.
Background
Christopher Wollermann and Stephen Lyle were employed as financial advisors by Fortrend Securities Pty Ltd (Fortrend).
Fortrend withheld and did not pay the advisors’ bonuses after they left Fortrend to work for a competitor, in accordance with the deferral and leaver conditions contained in their respective employment contracts. Mr Wollermann and Mr Lyle contended that Fortrend had breached its employment obligations and section 323 of the FW Act in doing so by both deferring the bonus payments and then forfeiting the deferred bonus amounts when they resigned.
Case highlights
Section 323 of the FW Act
Mr Wollermann and Mr Lyle claimed (amongst other things) that Fortrend had contravened section 323 of the FW Act by withholding bonus payments from them to which they were entitled under their employment contracts.
Section 323(1) of the FW Act regulates the method and frequency of wage payments, stipulating that employers must pay employees for their work:
- in full (except as provided by section 324 for permitted deductions); and
- in money; and
- at least monthly.
Relevantly, this also applies to incentive-based payments and bonuses.
The deferral/leaver conditions
Mr Wollermann’s employment contract contained the below clause:
4.3 Bonus
(a)You would receive a bonus in the event of Fortrend receiving more than USD50,000 per month in commissions through the clients and accounts allocated to you. This bonus would be equal to 10% of the commissions above 50,000. For the avoidance of doubt, commissions are calculated on the basis of trades settled in a particular month.
…
(b) The bonus for a particular month will be paid in the following manner:
(i) 50% on the fifteenth day of the following month; and
(ii) 50% after a period of seven months.
…
(c) If you resign or if your employment is terminated, you will not be entitled to receive the unpaid bonus.
[emphasis added]
Mr Lyle’s contract was materially the same except that it provided for a larger potential bonus.
Mr Wollermann and Mr Lyle argued that their entitlement to the full bonus crystallised as soon as the bonus threshold stipulated in subclause 4.3(a) was met through the performance of their work. Fortrend argued in the alternative that per subclause 4.3(b), only half of the bonus amount became payable midway through the month following that which the bonus related to, and entitlement to the other half of the bonus only crystallised after a period of seven months.
Breach of s323 of the FW Act
Justice O’Callaghan preferred Mr Wollermann and Mr Lyle’s reasoning. His Honour considered that subclause 4.3(a) imposed the obligation on Fortrend to pay the bonus, whereas subclause 4.3(b) only stated when those amounts ‘will be paid’. Simply put, the language used in the employment contract meant that once the bonus threshold in subclause 4.3(a) was exceeded, Fortrend’s obligation to pay a bonus crystallised immediately thereafter as there was no requirement for work to be performed before the obligation to pay the bonus crystallises.
His Honour then determined that a contractual clause allowing an employer to not pay half of an employee’s owing entitlement for seven months (i.e a deferred bonus), or one that allows forfeiture of an employee’s owing entitlement, such as subclauses 4.3(b)(ii) and 4.3(c), was inconsistent with section 323(1) of the FW Act. Delaying payment or enforcing forfeiture of an owing bonus was contradictory to the requirement that they must be paid in full, in money and at least monthly.
His Honour said the following at [18] of the decision:
“… s323(1) of the Act provides that incentive based payments and bonuses which become payable must be paid “in full”, “in money” and “at least monthly”. It follows that a contractual provision which purports to enable an employer to withhold payment of 50% of an employee’s entitlement for a period of seven months, or which purports to impose forfeiture of amounts to which an employee was already entitled, is prohibited by s323 and is invalid”.
Managing Director an accessory
Fortrend’s Managing Director was also held liable as an accessory for Fortrend’s contraventions of the FW Act (noting there were other contraventions relating to deductions).
Justice O’Callaghan likened this matter to previous accessorial liability cases, describing Mr Forster as the ‘mind of the company’ because he was responsible for (among other things):
- ensuring Fortrend’s compliance with the FW Act;
- the decision to split bonus entitlements over seven months and withhold half of Mr Wollermann and Mr Lyle’s bonus payments over that period;
- the relevant payroll payments; and
- a decision to make deductions of $500 per month from Mr Wollermann’s salary over the relevant period, which was a decision made for the benefit of Fortrend’s clients, and not for Mr Wollermann’s benefit.
Accordingly, Mr Forster had direct knowledge of, and his actions deliberately contributed to, the events that constituted the breaches of section 323(1) of the FW Act, and the Court found him liable as an accessory to the section 323(1) contraventions.
Implications for employers
Many incentive arrangements have similar terms to those considered in the case, whether in employment contracts or sitting in separate incentive arrangements.
Deferred bonuses are commonly used by employers as a retention tool to assist with reducing turnover and driving employee performance for longer periods, with employees forfeiting the bonus if they leave, other than in certain circumstances. They have become an essential feature of the remuneration arrangements of many listed companies to further align employee remuneration to longer term outcomes for shareholders.
Importantly, deferred bonuses are also an important consequence management tool used by employers to adjust earned bonuses downwards (including to zero) in circumstances where a significant risk and compliance event has been identified after the relevant period of performance. Deferred bonuses are considered an easier mechanism by which an employer can implement consequence management in those circumstances, given the difficulties associated with seeking to clawback payments under the FW Act.
For APRA regulated entities the requirement to defer bonuses for a mandatory period and adjust bonuses downward for certain conduct is a legal requirement under the FAR for Accountable Persons and under CPS 511. The decision doesn’t consider these requirements (as they were not applicable in this case), but clearly it presents a major impediment to the arrangements contemplated by FAR and CPS 511 unless they are carefully structured so that bonuses remain conditional and are not earned and are not payable until the completion of the required deferral period.
The decision also presents difficulties for the common practice of deferring a component of short-term incentives as equity unless the incentive arrangements are structured in line with the above principles.
Following the case, employers must pay careful attention as to when a bonus becomes payable under their bonus arrangements, with the drafting to make it clear that such amounts only become payable upon satisfaction of the relevant time-based vesting conditions (i.e: deferral conditions).
There may be separate arguments based on the relevant statutory and prudential requirements for APRA regulated entities to support the deferral arrangements, but we still consider it prudent for these entities to be proactive in addressing the potential conflict between s323 of the FW Act and the requirements under CPS 511 and FAR, by ensuring that the drafting of their contractual arrangements does not give rise to an inconsistency to begin with – for example, by making it clear that payments or awards under incentive schemes only become ‘payable’ upon meeting both performance and time-based conditions, such as deferral and leaver conditions.
Key Takeaways
Employers should carefully review the deferral and forfeiture conditions in their incentive arrangements to reduce their susceptibility to legal challenge and being ruled invalid under the FW Act.
