Bonuses and the law

ONE of the most problematic things for employers and a source of litigation and disputes with workers is payment of different types of bonuses.

There are many different types of bonuses that are given to employees on a discretional or contractual basis and the wording used in the bonus agreement is the one that tells us how the bonus is managed legally.

Today many organisations are battling with either bonus payments or reduction of the bonus or outright removal of bonuses. Whether an employer can unilaterally withdraw or reduce a bonus depends on the wording of the agreement. Bonus agreements are either contained in the contract of employment or condition of service and as such the wording of the two documents is of critical importance in handling bonus disputes.

A number of organisations have a 13th cheque, which is given to an employee at the end of each year.

In my reading of the law, loosely speaking, we call this a bonus, it is payment for recognition of the presence of the employee at work for the last 12 months. It has nothing to do with the performance of the employee or the business unless it expressly states that its payment is on performance of the employee or of the business. This is the most difficult form of bonus to extinguish due to its contractual nature.

The employer will have to negotiate with employees for its removal. Alternatively, parties will have to go to court with the employer arguing why the bonus should be varied or removed and the workers arguing why it should remain in place. Given the fact that an employment contract cannot remain static, with brilliant arguments, the employer may succeed in having the 13th cheque varied or totally removed but this is not an easy legal battle.

Most bonuses are not contractual, they clearly state that their payment will depend on the performance of the business. However, some bonuses for lower level employees are contractual as guided by the collective bargaining agreement (CBA) for the particular industry, which means their variation or removal has to be dealt with at national employment council (NEC) level, or the employer would have to apply for an exemption from the NEC.

There are many other short life bonuses that are introduced by employers to drive sales, volume or productivity. The foundation of such bonuses is usually documents that clearly state the purpose of the bonus, who qualifies for the bonuses, how the bonus will be calculated, how the bonus will be paid and how the bonus will be extinguished when its purpose ceases.

In the present economic environment, many employers have found it easy to intimidate workers into signing off their rights to various types of bonuses using threats of retrenchment. While this works, in my opinion it is immoral, and carries the risk of workers litigating at some point as they argue that they were forced into signing off their rights and in the event the court looks at the environment under which the agreement was signed and finds in favour of the workers, the employer could find himself in problems.

In conclusion, employers should carefully craft any bonus agreement and seek legal advice before signing and where the employer wishes to vary or remove a bonus, it must be legally done.

Davies Ndumiso Sibanda can be contacted on: e-mail: stratwaysmail@ yahoo.com or cell No: 0772 375 235.