Federal Court decision sparks urgent review of incentive arrangements by Australian employers

The recent Federal Court of Australia decision in Wollermann v Fortrend Securities Pty Ltd [2025] FCA 103 found that the non-payment and forfeiture of the deferred portion of certain cash-based incentive bonus payments by an employer to two former employees (in the context of the cessation of their employment) was invalid and in breach of section 323 of the Fair Work Act 2009 (Cth) (Fair Work Act).

The practice of deferring portions of variable remuneration has become widespread in Australia to, among other things, assist in the longer term reward, retention and motivation of key employees and to provide employers with an ability to appropriately adjust remuneration outcomes at a later point in time (e.g. in the event of poor performance or misconduct).

While we do not consider that this decision will be prohibitive, more generally, of Australian employers’ ability to defer portions of variable remuneration (including into equity), this case has strong implications for the structuring and drafting of incentive bonus and deferral arrangements in Australia. Employers should urgently review their incentive and bonus arrangements to ensure they do not fall foul of the Fair Work Act and to mitigate legal risk of future challenges and personal liability.

Entities regulated by the Australian Prudential Regulation Authority (APRA) should also take particular note of the potential conflict between aspects of the principles in this case and their additional regulatory and legal responsibilities to defer variable remuneration and take reasonable steps to appropriately and proportionately adjust variable remuneration outcomes.

While Mr. Wollermann and Mr. Lyle (together, the Applicants) were employed by Fortrend Securities Pty Ltd (Fortrend), they were entitled to monthly bonuses based on the extent to which Fortrend’s monthly commissions exceeded a certain threshold.

Mr. Wollermann’s employment contract provided the following:

4.3 Bonus

(a) You would receive a bonus in the event of Fortrend receiving more than US$50,000 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.

For example, if Fortrend receives a commission of US$60,000 in a month, your bonus would be US$1,000 which is 10% of 10,000.

(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

(j) 50% after a period of seven months.

For example, if you are entitled for a bonus of US$1,000 for the month of January, an equivalent of US$500 in Australian Dollars will be paid to you on the fifteenth of February and the remaining on the fifteenth of August after a period of six months.

(c) If you resign or if your employment is terminated, you will not be entitled to receive the unpaid bonus.

Mr. Lyle’s monthly bonus entitlement under his employment contract was materially identical to Mr. Wollermann’s except that Mr. Lyle’s bonus entitlement provided for a higher potential bonus.

Following the Application providing their notices of resignation, Fortrend withheld and subsequently forfeited the ‘seven month’ deferred portion of the Applicants’ bonuses.

Section 323 of the Fair Work Act provides the following (our emphasis underlined):

(1) An employer must pay an employee amounts payable to the employee in relation to the performance of work:

(a) in full (except as provided by section 324)

(b) in money [...], and

(c) at least monthly.

Relevantly, ‘incentive - based payments and bonuses’ are considered ‘amounts payable’ if they become payable during a relevant period, in this case monthly.

Fortrend argued that each Applicant’s entitlement to the deferred portion of their monthly bonuses did not crystallise until after a period of seven months and were therefore not considered ‘due and payable’ until that time and provided they remained employed with Fortrend.

In addition, Fortrend pointed to subclause 4.3(c) of the employment contracts which 'plainly state … that the unpaid 50% is forfeited if the employee resigned or is terminated before payment'.

However, Justice O'Callaghan found the deferred portion of the monthly bonuses became ‘amounts payable’ for the purposes of section 323 of the Fair Work Act immediately upon the relevant commission threshold being surpassed. This is because subclause 4.3(a) of the employment contract determined the amounts payable for the performance of work.

His Honour reasoned that the following subclauses were each in breach of section 323 of the Fair Work Act and therefore invalid:

• subclause 4.3(b) which deferred the timing of when a portion of the payments would be made by seven months, and
• subclause 4.3(c) which purported to forfeit those payments in the event of non-employment.

Section 550(1) of the Fair Work Act provides that a person who is ‘involved in’ a contravention of a civil remedy provision (such as section 323) is taken to have contravened that provision. Section 550(2) provides guidance on the meaning of ‘involved in’ which has been extensively interpreted by the Courts over the years. Interestingly, a consistent message from common law is that it is not necessary for a person 'to know that those matters or things do constitute a contravention' or 'to appreciate that the conduct in question is unlawful' in order for them to be effectively ‘involved in’ a contravention.

In this case, the Court found that Mr. Forster (as Managing Director and ‘controlling mind’ of Fortrend) 'had knowledge of each of the essential matters the subject of the contravention' and was therefore personally liable as an accessory for Fortrend’s contravention of section 323(1) of Fair Work Act.

This was, in part, due to the fact that Mr. Forster:

• was responsible for ensuring Fortrend’s compliance with the Fair Work Act
• decided to include the seven month bonus deferral period in the Applicants’ respective employment contracts
• decided to withhold the relevant deferred portion of each Applicant’s bonuses
• made the relevant payroll payments, and
• acknowledged that the Applicants were not required to perform any further work in order to be entitled to receive their bonus payments each month.

Immediately review variable remuneration arrangement structures and drafting

The deferral and/or forfeiture of portions of variable remuneration (particularly for more senior executives) is commonplace in Australia. For example, in the ASX 100, 83% of companies with standalone short-term incentive plans defer a portion (typically 50%) of the payment (most commonly the deferral is in equity for a period of 2 years) for their most senior employees.

This decision underscores the importance for employers to review both the structure and drafting of their deferral (into both cash and equity), leaver provisions and malus arrangements to:

• clarify that payments under their incentive arrangements do not become ‘payable’ (for the purposes of the Fair Work Act) until following the end of any relevant deferral periods, and
• ensure that any ‘forfeiture’ of incentives are appropriately sequenced as to minimise the risk of being considered invalid.

Notwithstanding that we do not consider that this decision will be prohibitive more generally of employers’ ability to defer portions of variable remuneration (either into cash and/or equity) where appropriately drafted, we recommend that such deferral arrangements be carefully scrutinised with the principles of this case in mind.

Consequences for breach have never been higher

The importance of such diligence is reinforced by the fact that the potential consequences of ‘getting it wrong’ are now greater than ever - recent changes (which post-date the facts of this case) to the current penalty regime as it applies to the Fair Work Act have significantly increased the maximum penalty for a breach of section 323 of the Fair Work Act (now up to AU$495,000¹ per contravention) and reduced the threshold for a contravention to be considered a ‘serious contravention’ (maximum penalty of up to $4.95m¹ per contravention).

Uncertainty for APRA-regulated entities should be managed

There is also some uncertainty over how the principles laid out by this decision may practically impact APRA-regulated entities which are subject to certain additional regulatory and legal requirements under both APRA Prudential Standard CPS 511 Remuneration (CPS 511) and the Financial Accountability Regime (FAR) which mandate, among other things:

• the deferral of portions of variable remuneration (e.g. bonuses) for certain key employees
• the inclusion of the employer’s ability to reduce variable remuneration outcomes (i.e. apply ‘malus’ and in some cases, ‘clawback’) in the event of poor performance, misconduct or regulatory breaches, and
• the taking of reasonable steps to appropriately downwards adjust variable remuneration outcomes in those circumstances in a proportionate manner. 

While the requirements of CPS 511 and the FAR were not relevant to the facts of this case, we suggest that these APRA-regulated entities also revisit their deferral/malus arrangements to address and manage the risk of inconsistency with the Fair Work Act.

Risk of personal liability should not be disregarded

Lastly, given individuals may face personal liability as an accessory to their employer’s contraventions of the Fair Work Act, with appropriate advice and guidance, those involved in the drafting and application of incentive arrangements can minimise the likelihood of this occurring.

Our multidisciplinary team at PwC provides specialist reward, tax, legal and accounting services and are well placed to answer any questions and assist employers to review and/or structure their incentive arrangements in light of this case.

Footnote

¹ Maximum penalty may be even higher in the event of significant underpayment in connection with the relevant contravention.