South African Labour Law does not provide for compulsory payment of bonuses unless the employer falls within the ambit of a specific Bargaining Council or if a particular company policy makes such a provision. Therefore, without a Policy or Bargaining Council regulating a particular industry, an employee has no automatic right to a bonus.
The employment contract is of utmost importance in establishing whether there is an agreement between the employer and employee on the payment of bonuses. Employees must be aware that certain factors, i.e. absence, disciplinary records, etc., may affect their bonuses. Should the employment contract stipulate that the payment of a bonus is "the sole discretion of the employer", there should be no expectation from the employees to receive such a bonus, and they will not have a guaranteed right.
Unfortunately, this does come with some difficulties and is not as simple as it seems. For example, employees receive bonuses yearly for numerous consecutive years, even though they have a discretionary bonus clause in their employment contracts. At the end of the year, the employer decides he will not pay any bonus. This could create a problem and be seen as terms and conditions of employment (through practice) that were not honoured or could constitute a unilateral change in terms and conditions of employment. It is not unreasonable for employees to expect their annual bonus on this basis that a precedent was set through practice.
Should employees claim that payment of bonuses constitutes a benefit and therefore claim "Unfair Labour Practice", such employees would bear the onus of showing that the employer, in exercising such discretion, acted irrationally, capriciously, grossly unreasonably or in bad faith by withholding bonuses.
If the employees are successful with their claim, it can cost the company in payment of bonuses or compensation. The employer must ensure that all employees are treated equally, not favouring or prejudicing certain employees in exercising discretion. Employers should inform employees well in advance and provide legitimate reasons should bonuses not be paid in a particular year when the expectation has been set for such payment each year. Employers attempting to rely on the discretionary clause in the employment contract when such an expectation has been set could find themselves on the wrong side of the legal precedent and law.
Should an employer have a discretionary bonus clause or policy based on performance or production, its employment contracts or bonus policies should clearly define the terms. The employer must show that a performance review or appraisal was done and communicate the outcome to the employees. This, of course, must be done fairly and justly.
Examples of clauses could be that employees should not assume that bonuses will be paid for the current year simply because bonuses were paid in previous years or that employees must not rely on custom and practice as a reason to expect a bonus payment in any year.
In Adapt (Pty) Ltd v Maseko and Others 2023 JDR 2633 (LC), Acting Judge Swartz re-affirmed the principle in Aucamp v SA Revenue Services (2014) 35 ILJ 1217 (LC), where it was held that "Even if a benefit is subject to conditions and the 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 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."
In supra, the employer had a discretionary bonus scheme. All the employees received bonuses except Ms. Maseko, the Human Capital Business Partner. The employer argued that Ms. Maseko was undergoing a Performance Improvement Plan at the time of the bonus payment and, therefore, did not qualify for such a bonus. They did not undergo a Performance Review as their discretionary bonus policy states they must do. The Judge found that the employer should have gone through the process of assessing the employee and explaining to her formally why she did not qualify for a bonus or increase. Failure to follow this process was found to be unfair. He found that the employer acted irrationally and capriciously in exercising discretion, and the employee was awarded compensation.
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.