Bonus Payments: Russo v Westpac Banking Corporation [2015] FCCA 1086

Published 9 June 2015

A former Westpac senior manager has won $70,000 after Westpac failed to pay him his discretionary incentive based bonus when he was made redundant. Westpac admitted that it failed to follow its own workplace policies concerning redundancy and bonuses.

Mr Russo commenced employment as a Senior Sales Manager in 2009. During each year of his employment, Mr Russo was entitled to earn, and did in fact earn, a $70,000 bonus in addition to his $200,000 salary. Mr Russo was recognised as a highly successful employee and had been offered to participate in the Accelerated Leadership Program, a program for employees whom Westpac considered to be future leaders.

In October 2011, shortly after the end of Westpac’s financial year, Mr Russo was made redundant. As Mr Russo was not employed on 1 December 2011, the date on which the bonus would have been paid, Westpac argued that he was not eligible to receive a bonus.

Mr Russo brought proceedings against Westpac claiming that it had breached his contract of employment, the bank’s redundancy policy and bonus scheme policy and that it had engaged in misleading and deceptive conduct during the course of Mr Russo’s job interview by stating that Mr Russo’s pay would be made up of a cash bonus. Mr Russo also claimed that Westpac had breached implied terms of the employment contact to act in good faith and to treat each other with mutual trust and confidence.

At trial, substantial evidence was presented regarding Westpac’s performance review process. Individual performance ratings, under the incentive plan, categorised employees as outstanding, high achievement, effective, needs development and unsatisfactory. An employee needed to achieve a minimum ‘effective’ rating in order to be eligible for a bonus.

In 2011, Mr Russo’s manager rated him as ‘needs development’, but this was never disclosed to Mr Russo and he was informed that his overall rating was ‘effective’ and believed he would therefore receive a bonus. Evidence given by Mr Russo’s manager disclosed that he had failed to look at critical documents prior to giving Mr Russo the ‘needs development’ rating and had taken into consideration matters which had occurred after the conclusion of the performance period.

During cross examination, the manager made “extraordinary admissions” when it came to exercising his discretion to award Mr Russo’s bonus, admitting that he had failed to properly apply the redundancy or incentive scheme policies.

Mr Russo dropped his misleading and deceptive conduct claim and was also forced to drop his claim for breach of the implied term of trust and confidence after the High Court decision in Commonwealth Bank of Australia v Barker [2014] HCA 32 which held that the term should not be implied into employment contracts.

The decision

The Court accepted that Mr Russo’s employment contract expressly stated that workplace policies did not form part of the contract of employment. However, Judge Lloyd-Jones found that the policies were relevant for determining Mr Russo’s entitlements in a situation where his position was made redundant.

Judge Lloyd Jones stated:

“I am satisfied that the proper construction of the Employment Contract is that although the relevant policies may not have general application as contractual terms, they do for the specific purpose of determining Russo’s termination entitlements on redundancy.”

The Court found that the Westpac incentive scheme was not transparent to the external observer and Westpac was unable to explain how an “executive with a highly successful performance of his role” could suddenly and without explanation have been held to have “failed in all aspects of his employment.”

Westpac was ordered to pay Mr Russo $70,000 together with legal costs.

Read the full decision here