Hewlett Packard Pty Ltd v Subasic

Hewlett Packard Pty Ltd appealed a decision of the primary judge concerning an alleged underpayment of sales commission to Ms. Subasic. The dispute centred on whether Ms. Subasic was entitled to a claimed commission under a sales incentive program, notwithstanding Hewlett Packard's asserted discretion to cancel the program and the retrospective application of a cap on incentive payments. The appeal was heard by Murrell CJ, Elkaim and Charlesworth JJ.

The court was required to determine two principal legal issues. Firstly, whether the employment contract limited the method by which the amount of an incentive payment could be calculated or recalculated during a review process. Secondly, whether it was permissible for Hewlett Packard to make changes to a Sales Plan with retrospective effect, applying to a measurement period or part thereof that had already occurred.

The court reasoned that even if a discretion existed to retrospectively cap incentive payments, this discretion was exercised capriciously in the circumstances. The evidence indicated that Hewlett Packard encouraged its sales employees to aggressively pursue sales, even after Ms. Subasic had exceeded her quotas and triggered a review. A letter from February 2010 urged employees to exploit market opportunities for increased profitability, suggesting Hewlett Packard was aware of the favourable commercial environment generating high sales. Instead of adjusting quotas to reflect this, employees were encouraged to achieve higher performance. The court found that the subsequent imposition of a cap on incentive payments for high-performing employees, without substantive reasons and without informing employees that sales beyond a certain threshold would not be rewarded, demonstrated an arbitrary and unreasonable exercise of discretion, thereby defeating the commercial purpose of the incentive program.