Sunday Times 4 December 2011

As the year comes to an end, many employees will be expecting payment of a 13th cheque or Christmas bonus from their employer. Contracts of employment specifically provide conditions under which employees will be entitled to the payment of bonuses. However, where an employment agreement is silent on the payment of a bonus then the issue is subject to the discretion of the employer or negotiation between the employer and employee, whether or not a bonus is to be paid. There is no legal obligation for an employer to pay bonuses to its employees. However, the position is different where the employer has previously paid bonuses to its employees, as the employees have a reasonable expectation that the employer will continue paying the bonuses as it has done in the past.

An employer may pay bonuses based on an employee's performance or simply as gratuity for loyal service throughout the year. Some employers will pay an amount that is equivalent to an employee's full month's salary or the bonus may be a pro rata share of the employee's monthly salary. Bonuses are therefore amounts which are additional to employees' salaries and are classified as benefits of the employment contract. Benefits do not create statutory rights or entitlement, and employees may not strike over the non-payment of bonuses or other benefits, unless a right to such benefit has been created in the employment agreement.

There may exist exceptional circumstances where the right to payment of a bonus has been created by agreement between the employer and employee, but the employer decides that it cannot make such payment to its employees. This may happen where the employer cannot afford to pay the employees' bonuses due to the operational requirements of its business, or where employees have been transferred to a new employer in terms of section 197 of the Labour Relations Act, 1995 and the new employer wishes to discontinue payment of the bonuses.

The employer must consult with the affected employees or their representative trade union once the decision not to pay bonuses has been made. The failure of an employer to consult with its employees will amount to a unilateral variation of the employment contract. This could lead to claims of unfair labour practices from the affected employees against the employer.

The Labour Court has previously decided that it is not sufficient for an employer to inform its employees two weeks before Christmas that they will not be getting end of year bonuses, as some employees plan their holiday budgets on the expectation of receiving such bonuses. An employer is expected to plan its finances in a way that enables it to know in advance that it will not be able to pay its employees their expected bonuses in order to advise them of its situation and to engage them on the issue to avoid unfair labour practice disputes.

The courts have summarised the position regarding bonuses as follows:

  • Where an employer has never paid bonuses to employees then such employer is under no obligation to do so and there is no law which compels it to make such payment. Accordingly, an employee has no right to payment of a bonus where none has ever been paid.
  • However, where an employer has paid bonuses in the past and wishes to discontinue such payment or make any other change regarding the payment of bonuses, such as new conditions for the payment of bonuses or the timing of such payments, then the employer must inform the employees well in advance to allow them to engage it on the proposed changes. Failure to provide adequate notice and to engage employees on this issue will amount to an unfair labour practice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.