Payment of bonuses

Labour law does not place a statutory requirement on employers to pay bonuses of any sort, therefore, any payment of bonuses are also not regulated by labour legislation, but rather by contract, policy, or the establishment of practice.

Bonus as a Benefit

In the Labour Appeal Court case of Apollo Tyres South Africa Pty Ltd v CCMA and Others (2013) 34 ILJ 1120 (LAC) it was established that a bonus constitutes a “benefit” as intended by section 186(2)(a) of the Labour Relations Act. Benefit include a right or entitlement to which the employee is entitled, either ex contractu or ex lege; and advantages or privileges granted to an employee in terms of a policy or practice subject to an employer’s discretion.

The court stated that “ ‘benefit’ in section 186(2)(a) of the Act means exiting advantages or privileges to which an employee is entitled as a right or granted in terms of a policy or practice subject to the employer’s discretion.”

13^th Cheque as a Bonus

In Aucamp v SA Revenue Service (2014) 35 ILJ 1217 (LC) the court stated that bonuses which are part of remuneration, for example a 13^th cheque and other guaranteed bonuses as a salary and as part of a gross remuneration and a cost to company package, are all examples of bonuses which employees receive because the employee is working for the employer. While the employee is employed, the employee is entitled to be paid this bonus for tendering service, and there is no real link between the specific work to be done and the bonus.

However as soon as there is a direct link between the payment of the bonus and the performance of actual work, the content, standard and completion thereof, then the bonus is a quid pro quo for the nature and fulfilment of the work itself and not simply for working.

The bonus therefore does not form part of the employee’s remuneration, but is dependent on a specific performance outcome, depending on the contractual provisions. The employee would still be entitled to these kinds of bonuses if the standards are met as contractually required.

Discretionary Bonuses

In Aucamp v SA Revenue Service the court further stated that where such a bonus is dependent on an employer’s discretion to decide if such a benefit accrues to an employee, and the employer then exercises that discretion unfairly, the employer is committing an unfair labour practice. Therefore the exercise of the discretion must always be subject to being tested against fairness.

In Public Servants Association obo Motsekoa v Department of Sports, Arts and Culture (2015) 36 ILJ 808 (BCA) the court held that the employee had failed to show that the employer had exercised its discretion ‘arbitrarily, capriciously or for no justifiable reason’ and therefore there was no unfair labour practice.

In National Union of Metalworkers of South Africa obo Members /KSB Engineering Pty Ltd (2015) 12 BALR 1289 (MEIBC) the employer had a practice of paying ex gratia bonuses and failure to pay these to employees who embarked on a protected strike was an unfair labour practice.

However if an employee is no longer an employee when a bonus is declared this does not constitute an unfair labour practice – National Democratic Change & Allied Workers Union obo Mokoena v MTN Pty Ltd (2014) 1 BALR 49 (CCMA).

In Summary

When a payment of a bonus is a guaranteed right, for instance in terms of an employee’s contract of employment, an employer’s remuneration or bonus policy, or an industry regulated Bargaining Council Main Agreement, and the bonus is not dependent on the exercise of any discretion of the employer or the accomplishment of individual or company related performance objectives, then such a bonus should ordinarily be payable.

When an aggrieved employee decides to challenge the exercise of an employer’s discretion in relation to the payment or calculation of a bonus, the employee would bear the onus of showing that the employer, in exercising such discretion, acted irrationally, capriciously, grossly unreasonably or mala fide. The test is to prove some form of behaviour on the part of the employer which meets the aforementioned test of irrationality, capriciousness, gross unreasonableness or being mala fide.

Contributor: GRETCHÉN ANKER (Senior Associate) (Labour & BEE) (Umhlanga Office)

E-mail: gretchéna@tmj.co.za

Tel: 031 566 2207