As we draw to the end of the year, the common practice of bonus season arrives. With a struggling financial year for most, employees may not receive any bonuses this year. Even though it sounds unreasonable to expect a bonus in these uncertain times, a few employers may be contractually bound to pay bonuses to their employees or to exercise their discretion in relation to payment thereof.
It should be noted that an employee is not automatically entitled to receive a bonus, unless the parties agree thereto in terms of their contract of employment or if provision is made for such bonuses in a relevant Bargaining Council’s Main Agreement.
Payment of bonuses is not regulated by labour legislation and therefore, when an employee claims entitlement to a bonus and the employer fails to pay such bonus, it could amount to an unfair labour practice relating to benefits.
Some employers consistently pay bonuses to their employees each year, without making provision for such bonus payment in their employment contracts. Employers should consider that paying bonuses each year, creates an expectation. Employees who have an expectation to receive bonuses and don’t, may result in aggrieved employees referring unfair labour practice disputes in terms of Section 186(2)(a) of the Labour Relations Act regarding benefits to the CCMA or Council.
Creating a valid expectation to pay bonuses may put a constructive obligation on employers to continue to pay same but will not automatically entitle an employee to a bonus. Employers who have paid such bonuses for the past few years should give their employees sufficient notice that they will not be receiving a bonus, consult with the employees timeously and state reasons as to why bonuses will not be payable if they are unable to pay them. Even if employees do not agree during the consultation to non-payment of bonuses, an employer may in some rare instances implement non-payment if it has a valid, reasonable, and fair reason for doing so, for example during a retrenchment process.
On the other hand, employers who had made provision for bonuses in their employment contracts will most probably find themselves in a position where they will not be able to pay bonuses this year. If an employer is in breach and cannot pay bonuses, even though they are contractually obliged to do so, it might be seen as a unilateral change in a contract of employment and an employee will be entitled to take appropriate legal action against the employer for breach of contract.
Contractual terms or conditions that employers and employees undertake in their employment contracts or company policies, might refer to a certain standard or obligation that needs to be met before they qualify for a bonus which is subject to an employer’s discretion.
In the matter of Aucamp v SA Revenue Services (2014) 35 ILJ 1217 (LC), the Labour Court held that if an employer exercises their discretion unfairly in terms of paying bonuses, it constitutes an unfair labour practice. The Court held:
“Even if a benefit is subject to conditions and the exercise of a discretion, an employee could still, as part of the unfair labour practice proceedings, seek to have instances where the employee then did not receive such benefit adjudicated. So, therefore, even if the benefit is not a guaranteed contractual right per se, the employee could still claim same on the basis of an unfair labour practice if the employee could show that the employee was unfairly deprived of same. An example would be where an employer must exercise a discretion to decide if such benefit accrues to an employee and exercises such discretion unfairly.”
Further in Health & Allied Workers Union obo Malik Ariefdien and Others v South African Revenue Services  10 BALR (CCMA) the employer prevented the employees from loading their performance scores onto the system to qualify for a bonus. This constituted an unfair labour practice relating to benefits. It was held that the employer should have exercised their discretion and considered whether the employees were entitled to a bonus or not.
In another Labour Court matter, Solidarity obo Oelofse v Armscor (SOC) Ltd and Others, the applicant made an application for review of an unfair labour practice dispute relating to non-payment of a performance bonus. The employer had a Remuneration Practice Policy in place in 2010, that required their employees to obtain a 90% score rating on the last day of the company’s financial year to enable them to qualify for a bonus. The policy was amended in 2013 and incorporated a Performance Management Practice which was defined as “the attainment of specific results or outputs through specific actions, the whole being consistent with the values and objectives of the company”.
In the interpretation of the ‘Remuneration and Performance Practice’, the Labour Court held that the performance bonus is there to reward the right kind of performance, which includes aspiring to organisational values and that these aspirations are determined by way of exercising the employer’s discretion. It further contended that the burden of proof is on the employee to prove inconsistency. The Labour Court, in this matter, agreed with the Commissioner’s approach and dismissed the applicant’s application for review.
In South African Commercial, Catering and Allied Workers Union obo Skosana and others v Triptra (Pty) Ltd t/a Denneboom Station Pick and Pay  9 BALR 993 (CCMA) the employer halted payments of bonuses to which employees were contractually entitled to, as a means of preventing retrenchments. The Court held that even though the dispute fell within Section 186(2)(a) of the Labour Relations Act, the employer’s refusal to pay such bonuses was not unfair as it was based on the employer’s financial constraints.
In conclusion, employers should note that if they are contractually bound to the terms of an employment contract, they are obliged to pay bonuses unless the bonus policy requires an employer to exercise their discretion to pay bonuses. This discretion should be exercised in a fair and reasonable manner. Employers are also bound to pay bonuses in the terms of the relevant Bargaining Council Main Agreements.
Creating an expectation of payment of bonuses could constitute an unfair labour practice if an employer has paid bonuses for consecutive years in the past but then suddenly decides not to.
Contact Cofesa Labour Law Specialists for expert advice & assistance: firstname.lastname@example.org
Source: www.ceosa.org.za | by: Shaun Venter