HealthX Group Pty Ltd v Palling (No 2)

HealthX ran a labour hire business supplying nurses and aged care workers around Australia. Ms Carollyne Palling was the General Manager of that business. She had first worked within the broader AWX group, then moved into the HealthX role after being persuaded to stay with the group rather than leave. When HealthX became an independent business in 2016, she signed a new employment contract with HealthX itself.

That second contract contained Item 10, a clause described as a profit share arrangement. The clause said that all General Managers would participate in a profit share arrangement and that the General Manager of HealthX would access a profit share of 5% of the Gross Contribution, described in the extract as EBIT for the business unit before shared services costs. The clause also listed four gates that needed to be met before the profit share would flow.

Years later, after a dispute about payment for the period from 1 July 2022 to 26 April 2023, HealthX went to the Federal Court seeking a declaration that it did not have to pay what it called a bonus. Ms Palling cross-claimed, saying the contract gave her a binding entitlement to a profit share once the gates had been satisfied. By trial, other parts of HealthX's case had fallen away, including claims connected with resignation terms and a restraint. The real fight was over what Item 10 meant and whether the contractual preconditions had been met.

Item 10 used the language of profit sharing, not bonus. It said General Managers would participate in a profit share arrangement and that the General Manager of HealthX would access a profit share of 5% of the Gross Contribution. It then listed four gates: top line revenue growth, increased profitability, a staff survey showing committed and engaged staff, and client NPS improvement or maintenance at an agreed level if already at maximums.

HealthX argued that, despite that wording, the clause only gave it a discretion whether or not to pay. It said Ms Palling's right was only enlivened if the gates were met and that one of the gates effectively involved a budgetary EBIT figure. It also relied on the wording about an achievable opportunity and the word access to support the idea that payment was not automatic.

Ms Palling argued the opposite. She said the clause was unambiguous and gave her an automatic entitlement once the gates were opened. She pointed to the use of the term profit share, the reference to business performance, the wording that she will participate and will access a profit share, and the absence of any express discretion, approval mechanism or budget-based hurdle in the clause itself. She also argued that the wording of the gates suggested they were to be met once, not re-tested every year or quarter forever.

On the extract, Justice Derrington rejected HealthX's construction and accepted Ms Palling's. The Court held that Item 10 was not a discretionary bonus clause. It recorded a profit-sharing agreement within the employment contract itself. The Court placed weight on the express use of the term profit share rather than bonus and on the wording that Ms Palling would participate in the arrangement and would access a profit share of 5%.

The Court also rejected HealthX's argument about the word access. The extract says the Court accepted that the noun form of access can mean a passage or doorway, but held that the word was used here as a verb. In that form, the Court treated it as meaning obtain. That did not support a discretionary reading.

The Court further held that the phrase about an achievable opportunity was commentary and did not change the operative promise. It found that nothing in Item 10 connoted discretion. Instead, the clause meant Ms Palling would obtain 5% of the stated financial measure once the gates had been met.

The Court also read the wording of the gates as supporting a one-time trigger rather than an ongoing annual re-approval process. The extract says the Court considered the phrase 'the gates needed to be met' to indicate that the gates were to be met once. The Court therefore rejected HealthX's attempt to read in a continuing discretionary process or a budgetary hurdle that was not expressed in the contract.

The extract shows that evidence was a major problem for HealthX. The Court said the evidence about whether and when the gates were met was hardly satisfactory. HealthX had not produced admissible evidence establishing that the gates had not been met, even though relevant documents were within its power and control. The only HealthX witness relevant to that issue was Mr John Quinlan, who had not been involved with the business until March 2022.

The Court noted that several other people who may have had relevant knowledge were not called, including people involved in administration, finance and management. The Court drew a Jones v Dunkel inference that their evidence would not have assisted HealthX. That is a serious forensic problem for any business defending a remuneration claim.

The Court then worked with the best evidence available. That included tables said to show budgeted and actual EBITDA, staff survey results and client NPS survey results, even though the underlying records were not produced and the witness could not verify who had prepared some of the tables. The Court also relied on a 29 April 2019 email from Mr Strachan to Ms Palling with the subject line 'Profit share - let's get it happening', which referred to the business being underpinned by monthly profit and said it was paramount that she instigate the profit share structure.

Using that material, the Court inferred that the first and second gates had been met by that time. It also inferred from the available survey tables that the third and fourth gates had been met before that email. The Court therefore found that Ms Palling had met the gates that were a precondition to triggering the profit share arrangement.

One practical feature of the extract deserves special attention. Item 10 is recorded as giving Ms Palling 5% of Gross Contribution, described as EBIT for the business unit before shared services costs. But later parts of the extract discuss HealthX's alleged practice of comparing budgeted EBITDA with actual EBITDA, and the calculation section also refers to actual EBITDA figures. The Court said there was no reference in Item 10 to budgeted EBITDA and rejected HealthX's attempt to rely on that alleged practice to construe the clause.

For business owners, the broader point is clear even if the full text should still be checked carefully. If your contract says EBIT but your internal practice uses EBITDA, or if your spreadsheets use one concept while payroll uses another, you are creating avoidable litigation risk. A court may focus on the written clause, not the internal shorthand your team thought everyone understood.

This also shows why incentive clauses should not be drafted as a mix of commercial aspiration and accounting shorthand. If the formula matters, define it. If adjustments matter, list them. If shared services costs are excluded, say how. If a budget comparison is intended, write that into the clause. Otherwise, the business may be left arguing for a meaning that the contract never actually expressed.

The Court dismissed HealthX's claim for a declaration that it was not liable to pay the amount demanded by Ms Palling. It allowed Ms Palling's cross-claim and ordered HealthX to pay damages of $366,405.20 plus interest within 28 days. The Court also dismissed HealthX's interlocutory application and ordered HealthX to pay costs thrown away by its abandonment of the restraint of trade claim and the reasonable notice claim, with no other order as to costs.

For businesses, the case is a strong reminder that incentive disputes are usually won or lost on drafting and records. If the contract reads like a formula-based entitlement, a later attempt to relabel it as discretionary may fail. If the business cannot produce the underlying records for financial metrics, surveys or approvals, the court may draw inferences that do not help the employer. And if the business abandons parts of its case late, that can create separate costs exposure.

Businesses should read this case as a warning against casual drafting of senior remuneration arrangements. Review the contract wording, the accounting definitions, the approval process, and the records you actually keep. Those pieces need to line up. If they do not, the court will likely start and finish with the written contract and the best objective evidence available.

The judgment identifies the decision as HealthX Group Pty Ltd v Palling (No 2) [2025] FCA 1300 of the Federal Court of Australia, decided on 24 October 2025 by Justice Sarah C Derrington. The hearing took place on 9 and 10 September 2025. The extract records that HealthX commenced the proceeding in January 2024 and that Ms Palling's disputed claim related to the period from 1 July 2022 to 26 April 2023.

The public explanation on this page is based on that judgment. Because the extract is truncated after the damages discussion, the treatment of interest and any fuller reasoning on costs should be checked against the complete text before using the case as authority for those points.