Mr Anthony Loone was the Managing Principal of the Launceston arm of Crowe Horwath (Aust) Pty Ltd (CHA). Mr Loone’s contract contained a term that provided for the payment of a bonus. The relevant clause of the contract provided that:
“The bonus you may be eligible to get forms a discretionary component of your Remuneration. The Company will determine from time to time, at its absolute discretion, the amount of any bonus payment that may be made to you. This amount will be determined by consideration of various performance parameters including but not limited to your personal performance, the performance of the Group and the broader economic conditions. You will be eligible to receive a bonus in any year if, and only if, you are in the employ of the Company at the time the bonus is to be paid and you have not, prior to that time, given or been given notice of termination of your employment.”
In 2014, Mr Loone was instrumental in Crowe Horwath acquiring Davey Financial Group (DFG), a Launceston accounting firm. After spending hundreds of hours in negotiating and arranging the acquisition, in 2016, Mr Loone was told that the DFG acquisition would be excluded from the bonus pool that he and other Launceston Principals were to share. There was to be no reflection of Mr Loone’s personal contribution to the acquisition in the bonus paid.
Notwithstanding the fact that the amount of any bonus was subject to CHA’s absolute discretion, CHA failed to undertake the promised contractual process for the assessment of Mr Loone’s bonus leading the Victorian Supreme Court to conclude that such a failure constituted a breach of contract,
In June 2016, CHA also proposed a new incentive model under which 20% of the bonus would be deferred for a three-year period. This was in breach of the obligations in the contract which provided that Mr Loone would be eligible to receive a bonus in any year and therefore, that the bonus should be paid in the relevant year and not deferred for three years. The Court found that CHA was not entitled to unilaterally change the bonus scheme.
While other contractual breaches were also significant in the case, the failure by CHA to assess Mr Loone’s bonus by reference to the mandatory criteria in the contract and its decision to defer 20% of the bonus payment for a period of 3 years were held to be so significant as to constitute repudiatory conduct which entitled Mr Loone to bring an end to his employment and to claim for damages. Mr Loone was subsequently awarded $423,445 in damages by the Court: Crowe Horwath (Aust) Pty Ltd v Loone (No 3) [2017] VSC 548.
The take home messages for employers from this case include:
- the need to ensure contractual bonus terms are carefully drafted to properly reflect the employer’s commercial intent given the likely binding effect of such clauses; and
- before a potential bonus payment becomes due, give proper consideration to the contractual process for calculating or assessing a bonus payment in order to ensure legal compliance and thereby minimise the risk of an employee claim.
