COVID 19 has caused a significant financial impact on most business’ in South Africa. Employers may have been forced to implement certain survival measures in order to avoid business closure. These measures may include reduction of employee’s salaries, placing employees on temporary layoff or retrenchment.
Another measure which employers can consider is to determine whether to pay its employees bonuses. While it may be evident that an employer is going through serious financial crisis due to the COVID 19 pandemic, employers may be required to pay bonuses should it be a contractual obligation or practice within the workplace.
Payment of bonuses differ from workplace to workplace, for example, some employees bonuses depend on their working hours, their performance or sometimes the performance of the company. Whatever the criteria, bonuses will be determined on a pre-agreed set of criteria. In other workplaces, bonuses are agreed terms and conditions of employment, and the employer does not have any discretionary powers regarding the payment of the bonuses.
Although certain bonuses remain discretionary benefits where the employer may determine the payment of the bonus, through a lapse of time, the paying of such a benefit becomes a practice within the workplace, and it may become difficult for employers to simply not pay a bonus which has been paid for many years. It becomes a serious concern when an employee is anticipating a bonus whether as a performance bonus or as a 13th cheque and they do not receive it when it is normally due.
Employers should be aware that a bonus is a contractual condition which may be contained in the contract of employment or a company policy and, as stated previously, sometimes the payment of a bonus becomes a condition of employment through practise, and in this instance, the bonus must be paid by the employer, regardless of the provisions of the employment contract. A unilateral failure to pay the bonus can be regarded as an unfair labour practice in terms of section 186 and 191 of the Labour Relations Act 1995 (LRA). It can also be regarded as a breach of contract where the employee may be entitled to sue for damages or specific performance (demand payment of the bonus).
The exercise of discretion must always be subjective to being tested against basic fairness, the court in Solidarity obo K Oelofse v Armscor (SOC) Ltd & Others case number JR 2004/15 at para 28. In Aucamp v SA Revenue Services (2014) 35 ILJ 127 (LC) stated the following:
“Even if a benefit is subject to conditions and exercise of 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 was unfairly deprived of same”
In this regard, an employer who wishes to change the bonus payments either by paying less or at a different time of the year than the other previous years there must be a consultation with the employees to explain the problems and try to get the employees to accept the new system implemented. It should be remembered that such changes to the contract of employment constitute a change to the employees’ terms and conditions of employment, and this cannot be done unilaterally.
Should the employer and employees not reach an agreement at the consultation and the employees refuse to accept the change but the employer has good sound reasonable commercial basis for making the change, the employer may go ahead with the change and implement it after the consultation, regardless if all the employees agree to it which might lead to the referral of a dispute to the respective forum. As an alternative, the employer should contemplate a retrenchment process.
In respect of collective agreements and main agreements that are regulated by Bargaining Councils, these agreements are regulated separately in regards to payment of bonuses, and it is advisable that employers should make the necessary exemption application with the relevant Bargaining Council to exclude bonuses.
In light of the above, we recommend that an employer should not make the payment of any bonus a condition of employment to reduce the flood gates of disputes of unfair labour practice. Should an employer have been making payment of the bonus previously as practice, a consultation should be made with employees to reach a written agreement to exclude bonuses.
Article by: Tshepang Mahketha
Dispute Resolution Official – Pretoria