Conditions of Employment

 

This is an annual update on the bonus issue,  which crops up every year around about this time.

 

Every year, there are arguments between employers and employees regarding bonuses, and a number of these arguments do end up at the CCMA. Firstly, it is necessary to understand that there is no statutory requirement to pay bonuses of any sort, and any such payments that are made are not regulated by labour legislation.

 

In many recent cases, it is interesting to note that in almost every one it has been ruled that the payment of performance related bonuses, production related bonuses, or other forms of murdered bonus do not constitute an unfair labour practice with respect to the provision of benefits.

 

It is on the basis of unfair labour practice that many disputes are referred to the CCMA - but these disputes do not exceed on the basis of it being an unfair labour practice. Generally, if the bonus is guaranteed - such as into being a guaranteed payment stipulated in the employment contract - then the employer is not left with much choice - he must pay the bonus.

 

However,  where the payment of the bonus is dependent on certain criteria being met - such as the employee’s hours of work, or  the employee's performance or to the performance of the company, or the branch, or the department in which the employee is employed, the employer is under no obligation to bonus unless those criteria are complied with.

 

Such bonuses are normally referred to as "performance bonus" or “production bonus.” The attaining of production targets in terms of quality or quantity, and the attaining of sales targets are common criteria used in the calculation of such bonuses. In other instances, a bonus is paid which bears no relation to the employees hours of work, but is related solely to the overall performance of the company or the branch.  These bonuses are usually referred to as "a 13th cheque," but it is usually stipulated that this is payable entirely at management discretion, and it is specifically stated that it is not guaranteed

 

Whether or not the bonus is paid is dependent either on the terms and conditions of the individual Contract of Employment, or it may be dependent on Company Policy, or it may be dependent on certain targets being reached in terms of production or sales, or it may be dependent upon Company performance in terms of gross profits or any other criteria stipulated by the employer. It may also be a bonus that is paid simply because of established practice or “custom and practice” as it is sometimes termed. Because of the consistent “established practice” or “custom and practice”, the bonus payment becomes a term or condition of employment.

 

The problem arises because employees who have been paid a bonus consistently for the past two or three years, come to depend on receiving the bonus in December - they make holiday arrangements in advance, taking into account what they expect the bonus to be. When the bonus is not paid, the problem starts.

 

The important thing to note here is that the declaration off bonus payments by the employer is a contractual issue and not a Labour Law issue. This is because it appears that the issue of bonus payments does not fall under “ a matter of right” and this it is a guaranteed payment, but rather it falls under “ a matter of mutual interest.”

 

Obviously we can only address the issue in general terms in this article, because every case is unique. By far the greater number of enquiries on our e-mail facility received over the December holiday period is from employees complaining about the non-payment of bonuses.

 

In the main, these complaints concerned cases where, in  past years,  the bonus had been consistently paid, but in December 2007 employees were informed on the last day of work that this year they would be no bonus.  In some instances, employees had not been informed at all, but only discovered that no bonus had been paid when they visited the bank to withdraw funds.

 

Some of the bonuses were a 13th cheque, others were annual performance bonuses, others were termed "anniversary bonuses.” In many cases, the payment of the bonus was a contractual requirement, some being a guaranteed payment in terms of the contract, others being a discretionary payment.

 

Whatever the case, employers should note that where a bonus is a contractual condition embodied in the employee’s contract of employment, or a contractual condition embodied in a Company Policy, or where the payment of the bonus has become a condition of employment through established practice, then the bonus must be paid. 

 

A unilateral failure to pay the bonus may amount to a unilateral change to terms and conditions of employment, or indeed may be seen as breach of contract, where the employee would be entitled to sue for damages, or (more likely) would sue for specific performance.

 

It is essential that in every employment contract, the terms and conditions applicable to the payment of bonuses must be specifically and clearly stated, even to the extent that if it is a Company policy not to pay bonuses of any sort, this fact must also be stipulated in the employment contract.

 

In those instances where the bonus has been consistently paid over previous years, whether a contractual condition exists or not, the employee has undoubtedly developed a very strong right of expectation that the bonus will also be paid in the current year.  Having been given no indication to the contrary, the employee's right of expectation is even stronger, and when the employee is suddenly informed by means of a letter attached to his pay slip that there will be no bonus this year, or until he discovers it himself by visiting the bank, trouble might arise for the employer.

 

It is definitely unfair of the employer to decide unilaterally not to pay bonuses, and in addition to either not advise the employee at all, or advise the employee at the last possible minute. Whilst the right of expectation does not actually afford the employee the absolute right to demand and to be paid the bonus, it certainly does afford him the right to be heard before the decision not to pay the bonuses is made by the employer.

 

This would imply then that the employer should consult with employees if it is found that, for any legitimate reason or sound commercial rationale, the bonuses cannot be paid in a particular year, or if the amount of the bonus is to be to be less than the amount consistently paid in the past, or less than the contractual amount. Remember that Company Policy is invariably construed to form part of the employment contract.

 

Employees are entitled to put their side of the story, and it cannot be denied that this opportunity is a fundamental requirement of "fair procedure." It cannot be accepted, by any stretch of the imagination, that an employer suddenly discovers only on shut-down day that Company profitability disallows the payment of bonuses for this year, or he suddenly discovers on shut-down day that employees have not been performing and therefore the payment of bonuses this year is not justified and so on.

 

These unilateral decisions by management also include in some instances, the decision to only pay half the bonus in December and the other half in February or March of the following year. If such a decision is implemented without any prior warning or consultation with employees, problems may result.

 

To make matters worse, after suddenly discovering these hitherto completely unknown facts, the CEO and M.D. of the company take off on an extended holiday to the Seychelles, Mauritius and the Maldives. The message here is that the management of any company must surely be aware by the middle of the year whether or not profitability, staff performance, or whatever other criteria exist, may endanger or even prevent the payment of the relevant bonuses for that year.

 

It is the duty of management (and it is only fair ) to consult with the staff at the earliest possible moment, to warn them of this possibility that bonuses may not be paid or may be reduced this year, or if necessary take the extreme precaution of informing staff categorically that no bonuses will be paid for that year.

 

If it is later proved that payment can be proceeded with, then it will be a pleasant surprise for all employees. The “thinking” – if it can be termed such – of management is that if the non-payment of bonuses is only made known on shut-down day, or if management remain silent and let the employee discover the non-payment for himself, there is nothing the employees can do until the Company re-opens in January, by which time the employees will have “cooled off” anyway, and are unlikely to raise the issue.

 

That kind of thinking is pretty dumb to say the least – and it does not solve the problem – it only postpones it until next year. If employers cannot be fair to their employees with regard to the payment of benefits that employees have right to expect, either contractually or otherwise, then the employer cannot expect those employees to be fair to him. There is no greater impediment to productivity than disgruntled employees.

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