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When Can an Employee Demand a Bonus?

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It’s a little sad that I don’t know too many private companies in the Philippines that institutionalize bonuses as part of their employee compensation and benefits plan. Before I get through most of this article, let’s get one thing straight – 13th month pay is NOT a bonus.

Every time an employer hypes everybody up on an email or in an office announcement that the 13th month ‘bonus’ might come earlier than expected, I get seriously annoyed. Not much annoyed of the fact that the HR lady or person from management labeled a statutory, mandated benefit a ‘bonus’ – but more annoyed of the idea that some of my co-workers would think that 13th month pay is a gratuity, something the company did as a reward to employees for such a fine year.

Well, it’s not a reward. Rewards are usually optional, and contingent. Private sector people, let’s please stop labeling 13th month pay a bonus. Because we all know that government workers have it way better – PERA (economic relief assistance), 13th month, 14th month, the list goes on.

Now that that’s out of the way, let’s discuss something deeper about bonuses.

Did you ever wonder to yourself and ask, “Can I ever demand a bonus? Will I not sound like a jerk if I did? Is my company legally obligated to give me a bonus?”

It turns out, there are indeed situations where you can say yes to all those questions. But in the meantime, let’s examine one particular case in mind – Lepanto v. Lepanto Employees Association (G.R. 180866).

Trapped in Bonus Land: Lepanto v. Lepanto Employees Association

Before you might start making assumptions about your own situation or maybe a friend of yours’, let’s make it clear that Lepanto Ceramics, Inc. was a company where the workers were organized, or unionized in labor law lingo. Lepanto Ceramics Employees Association existed as the sole and exclusive bargaining agent in Lepanto’s establishment. Since the employees were unionized, they were able to enter into a Collective Bargaining Agreement (CBA) with the company. And in that CBA, which was effective for five years, there was a provision providing for a Christmas Bonus amounting to 3,000 pesos (which was already a big deal for Filipinos working in 1998).

The CBA’s effectivity lasted from the years 1999 to 2004. It’s worthy to note that in 1998, employees did still get their usual Christmas Bonus of 3,000 pesos by the end of the year. And this was in a year where the company incurred net losses of 14 million pesos, blaming mostly the financial crisis of 1997. What an awesome and compassionate company, right?

Well, come 1999, things started to smell bad. Despite the CBA expressly providing that the Christmas Bonus, among other existing benefits, would still stay in place for the duration of the CBA, Lepanto did something fishy. In the years 1999, 2000, and 2001, instead of giving employees the Christmas Bonus in cash, it gave them the 3,000 pesos in the form of Tile Redemption Certificates.

But it doesn’t sound all too bad, right? It made some sense – the company was losing a lot of money, not having yet recovered from the financial crisis. Giving out these gift certificates to employees would mean they could offload some inventory (the company was selling tiles) while rewarding employees indirectly. The gift certificates that the company gave out weren’t in the form of cash as the employees were used to, but employees could still sell these gift certificates to people they knew – so it wasn’t too bad of a substitution (despite somewhat violating the CBA), right?

But then, by 2002, the company made things rot further. The 3,000-peso bonus turned into a 600-peso cash benefit, a fifth of the Christmas Bonus being referred to under the CBA. There were no more Tile Redemption Certificates to hand out – the 600-peso cash gifts were all the company could afford at that point.

Of course, the employees and the whole employee association did not take it lightly, which is why they filed a case against the company – a case they won all the way up, and was now elevated for the Supreme Court to decide on. It’s easy to feel sorry for the company, one that suffered billions of losses in the years 2001 and 2002. But what about the CBA? Can the employees still demand the Christmas Bonus they have been so used to receiving, despite the company undergoing serious financial trouble?

Can the employees demand their bonus?

The Supreme Court ruled that yes, the employees had the right to claim the bonus.

Before we get into the decision, let’s discuss the legal definition of a bonus (one that management and HR are so very happy to cite when they decide not to give you one):

A bonus is a gratuity or act of liberality of the giver. It is something given in addition to what is ordinarily received by or strictly due the recipient. A bonus is granted and paid to an employee for his industry and loyalty which contributed to the success of the employer’s business and made possible the realization of profits.

There was of course, no surprise, that Lepanto corporation relied on this definition.

However, the court explained, “Generally a bonus is not a demandable and enforceable obligation. For a bonus to be enforceable, it must have been promised by the employer and expressly agreed upon by the parties.”

Was the bonus a demandable and enforceable obligation in this case?

The answer is yes.

Given that the bonus in this case is integrated in the CBA, the same partakes the nature of a demandable obligation. Verily, by virtue of its incorporation in the CBA, the Christmas bonus due to respondent Association has become more than just an act of generosity on the part of the petitioner but a contractual obligation it has undertaken.

The CBA is the law between the employer and the union

When the Supreme Court made the ruling that the bonus was not a mere act of generosity or some form of reward by the company, it emphasized that the Collective Bargaining Agreement, having been agreed upon, signed, and understood by both parties (which includes the company’s own representatives) means that its effects were binding.

Because it was stated under the CBA that the Christmas bonus, among other benefits, would continue to be enjoyed by the employees, the company could no longer take it away. This rationale goes deeper than the labor law principle of non-diminution of benefits (in the Philippines, pay cuts are generally illegal) and gets into the basic principles of obligations and contracts.

And that simple principle is that two parties come together, secure each other’s consent, with an object in mind, for a consideration. That agreement becomes binding until after the expiration date (if that exists). And there are repercussions for breaking that agreement, which in this case there was – not only did the Christmas bonus stop being cash, it got reduced to a fifth of its original monetary value.

As best said by the high court, “It is a familiar and fundamental doctrine in labor law that the CBA is the law between the parties and they are obliged to comply with its provisions.”

But what about the financial crisis? What about the losses that the company suffered? Isn’t it inhumane to force a company to give out employee bonuses when it could hardly pay its own bank loans?

To this, the court said that business losses cannot be used as a basis for disregarding its undertaking. “It is manifestly clear that petitioner (Lepanto Ceramics, Inc.) was very much aware of the imminence and possibility of business losses owing to the 1997 financial crisis.”

Emphasis on the right to self-organization

If you are someone’s or some company’s employee while reading this article, please know that this wasn’t written to simply raise awareness on when the right to claim a bonus arises. What this article wanted to do was to emphasize the right to self-organize, or the right to form a union.

Just how were the employees in Lepanto v. Lepanto Employees Association able to demand their bonus? It was because they had a Collective Bargaining Agreement – and you can’t get that without a union. That is why the Department of Labor and Employment emphasizes the right to self-organization all the time. It’s not only in the Labor Code – it’s written in the Constitution!

Workers are in a better position to negotiate for better pay, benefits, and working conditions when there is a labor organization backing them up. More often than not, employers have too much power or will go out of their way to distract employees with fancy gadget giveaways and performance bonuses just to prevent the possibility of employees within that company to form a union. Technically, that isn’t union-busting, but it’s pretty damn close.

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