An IT company has been ordered to fork out $16,000 to a former manager, despite declaring losses of more than $1 million, in an employment case labelled a warning to employers to ensure they have tight contracts in place.
David Georgetti worked at Compass, an internet and telecommunications service provider, for seven years before he was made redundant during a company restructuring at the end of 2013, amid growing financial pressure on the company and over his bonus payments.
Mr Georgetti - who was general manager of sales and services in the three years before he left the company - took his complaint to the Employment Relations Authority (ERA), claiming up to $60,000 in unpaid bonuses a year for the March 2012 to August 2013 period.
The company said it could not justify large bonus payments when the business wasn't making a profit.
It claimed one of the divisions he was in charge of, the residential business unit, did not make an operating profit from March 2012 to August 2013, and so there was no profit growth on which to calculate the bonus. The unit had made a more than $1 million loss, Compass said.
In a series of email exchanges between company bosses, Mr Georgetti said he was owed bonuses of 25 per cent of his remuneration package, which were "not discretionary and payment of them shouldn't be affected by the business' current financial pressure". Bonus payments had previously been paid out in non-profit-making years, he said.
In its determination, the ERA said Mr Georgetti had a "contractual right" to a bonus worth up to $60,000 a year and, with the exception of targets, there were no terms or conditions attached to those bonus payments.
"Specifically, there is no reference to a bonus not being payable in the absence of a profit," the ERA said.
It also noted Compass had paid him in negative growth periods based on his own calculations in the past.
Compass was ordered to pay $16,327.22 in unpaid bonus payments.
Employment law specialist Susan Hornsby-Geluk said it was a lesson for companies to have tight contracts and clear guidelines for bonuses.
"I've seen a number of contracts where the employer says the bonus will be discretionary but then doesn't actually specify the criteria on which that discretion has to be exercised," she said.
"So if the company does wish to put some absolute criteria, such as company profitability, that needs to be spelled out in the contract."
Contractual entitlements to bonus payments bound employers to be reasonable and not arbitrary in how they awarded them.
"It would be lawful for the company to have said in the contract that employees are only entitled to a bonus if the company makes a profit, but the fact they obviously didn't do that means they can't then just arbitrarily apply that criteria."