D. Bonus

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1. CONCEPT

A bonus is “a gratuity or act of liberality of the giver which the recipient has no right to demand as a matter of right. It is something given in addition to what is ordinarily received by or strictly due the recipient.

a. Management prerogative

The granting of a bonus is a management prerogative, something given in addition to what is ordinarily received by or strictly due the recipient. Thus, a bonus is not a demandable and enforceable obligation, except when it is made part of the wage, salary or compensation of the employee. (Producers Bank of the Philippines v. NLRC, Producers Bank Employees Association, G.R. No. 100701, 28 March 2001)

The granting of a bonus is basically a management prerogative which cannot be forced upon the employer who may not be obliged to assume the onerous burden of granting bonuses or other benefits aside from the employees’ basic salaries or wages.” (Philippine National Construction Corporation v. NLRC, PNCC Toll Operations Employees and Workers Union [PNCC-TOEWU], G.R. No. 117240, 02 October 1997)

b. Gratuity

A bonus is an amount 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. It is an act of generosity granted by an enlightened employer to spur the employee to greater efforts for the success of the business and realization of bigger profits. (Producers Bank of the Philippines v. NLRC, Producers Bank Employees Association, G.R. No. 100701, 28 March 2001)

By its very definition, bonus is a gratuity or act of liberality of the giver, and cannot be considered part of an employee’s wages if it is paid only when profits are realized or a certain amount of productivity is achieved. If the desired goal of production or actual work is not accomplished, the bonus does not accrue. (MEGA Magazine Publications, Inc. v. Defensor, G.R. No. 162021, 16 June 2014)

A bonus is also granted by an enlightened employer to spur the employee to greater efforts for the success of the business and realization of bigger profits. (Lepanto Ceramics, Inc. v. Lepanto Ceramics Employees Association, G.R. No. 180866, 02 March 2010)

An employer cannot be forced to distribute bonuses which it can no longer afford to pay. To hold otherwise would be to penalize the employer for his past generosity. (Producers Bank of the Philippines v. NLRC, Producers Bank Employees Association, G.R. No. 100701, 28 March 2001)

2. WHEN A RIGHT AND DEMANDABLE

General Rule: The grant of a bonus or special incentive, being a management prerogative, is not a demandable and enforceable obligation.
Exception: …e xcept when the bonus or special incentive is: 1) Made part of the wage, salary or compensation of the employee (MEGA Magazine Publications, Inc. v. Defensor, G.R. No. 162021, 16 June 2014) 2) Promised by the employer and expressly agreed upon by the parties. (Ibid.) 3) A company’s long and regular practice (Eastern Telecommunications Philippines, Inc. v. Eastern Telecoms Employees Union, G.R. No. 185665, 08 February 2012)

a. Part of the wage, salary or compensation

b. Contractual obligation

For a bonus to be enforceable, it must have been promised by the employer and expressly agreed upon by the parties, or it must have had a fixed amount and had been a long and regular practice on the part of the employer. (American Wire and Cable Daily Rated Employees Union v. American Wire and Cable Co., Inc., G.R. No. 155059, 29 April 2005)

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. 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. (Lepanto Ceramics, Inc. v. Lepanto Ceramics Employees Association, supra.)

If the contract contemplates a continuance of the employment for a definite term (e.g. anniversary bonus), and the promise of the bonus is made at the time the contract is entered into. If no time is fixed for the duration of the contract of employment, but the employee enters upon or continues in service under an offer of a bonus if he remains therein for a certain time, his service, in case he remains for the required time, constitutes an acceptance of the offer of the employer to pay the bonus and, after that acceptance, the offer cannot be withdrawn, but can be enforced by the employee. (Marcos v. NLRC, Insular Life Assurance Co., Ltd., G.R. No. 111744, 08 September 1995)

American Wire and Cable Daily Rated Employees Union v. American Wire and Cable Co., Inc. (April 2005)
The Christmas parties and its incidental benefits, and the giving of cash incentive together with the service award cannot be said to have fixed amounts. What is clear from the records is that over the years, there had been a downtrend in the amount given as service award. There was also a downtrend with respect to the holding of the Christmas parties in the sense that its location changed from paid venues to one which was free of charge, evidently to cut costs. Also, the grant of these two aforementioned bonuses cannot be considered to have been the private respondent’s long and regular practice. To be considered a “regular practice,” the giving of the bonus should have been done over a long period of time, and must be shown to have been consistent and deliberate. The downtrend in the grant of these two bonuses over the years demonstrates that there is nothing consistent about it.
To hold that an employer should be forced to distribute bonuses which it granted out of kindness is to penalize him for his past generosity.

If there are no conditions or qualifications for entitlement of bonuses in a collective bargaining agreement (CBA), it becomes a contractual obligation on the employer, and no longer a management prerogative. (Eastern Telecommunications Philippines, Inc. v. Eastern Telecoms Employees Union, supra.)

Eastern Telecommunications Philippines, Inc. v. Eastern Telecoms Employees Union, (February 2012)
The Company (ETPI) confirms that the 14th, 15th and 16th month bonuses (other than the 13th month pay) are granted – without qualification. The wording of the provision does not allow any other interpretation. There were no conditions specified in the CBA Side Agreements for the grant of the benefits. Terse and clear, the said provision does not state that the subject bonuses shall be made to depend on the ETPI’s financial standing or that their payment was contingent upon the realization of profits. Neither does it state that if the company derives no profits, no bonuses are to be given to the employees. In fine, the payment of these bonuses was not related to the profitability of business operations.
Verily, by virtue of its incorporation in the CBA Side Agreements, the grant of 14th, 15th and 16th month bonuses has become more than just an act of generosity on the part of ETPI but a contractual obligation it has undertaken. Moreover, the continuous conferment of bonuses by ETPI to the union members from 1998 to 2002 by virtue of the Side Agreements evidently negates its argument that the giving of the subject bonuses is a management prerogative.
From the foregoing, ETPI cannot insist on business losses as a basis for disregarding its undertaking. It is manifestly clear that although it incurred business losses of ₱149,068,063.00 in the year 2000, it continued to distribute 14th, 15th and 16th month bonuses for said year. Notwithstanding such huge losses, ETPI entered into the 2001-2004 CBA Side Agreement on September 3, 2001 whereby it contracted to grant the subject bonuses to ETEU in no uncertain terms. ETPI continued to sustain losses for the succeeding years of 2001 and 2002 in the amounts of ₱ 348,783,013.00 and ₱ 315,474,444.00, respectively. Still and all, this did not deter it from honoring the bonus provision in the Side Agreement as it continued to give the subject bonuses to each of the union members in 2001 and 2002 despite its alleged precarious financial condition. Parenthetically, it must be emphasized that ETPI even agreed to the payment of the 14th, 15th and 16th month bonuses for 2003 although it opted to defer the actual grant in April 2004. All given, business losses could not be cited as grounds for ETPI to repudiate its obligation under the 2001-2004 CBA Side Agreement.

c. Company practice

A bonus may be granted on equitable consideration when the giving of such bonus has been the company’s long and regular practice. (Eastern Telecommunications Philippines, Inc. v. Eastern Telecoms Employees Union, supra.)

Eastern Telecommunications Philippines, Inc. v. Eastern Telecoms Employees Union, (February 2012)
Granting arguendo that the CBA Side Agreement does not contractually bind petitioner ETPI to give the subject bonuses, nevertheless, the Court finds that its act of granting the same has become an established company practice such that it has virtually become part of the employees’ salary or wage. A bonus may be granted on equitable consideration when the giving of such bonus has been the company’s long and regular practice.
To be considered a “regular practice,” however, the giving of the bonus should have been done over a long period of time, and must be shown to have been consistent and deliberate. The test or rationale of this rule on long practice requires an indubitable showing that the employer agreed to continue giving the benefits knowing fully well that said employees are not covered by the law requiring payment thereof.
The records show that ETPI, aside from complying with the regular 13th month bonus, has been further giving its employees 14th month bonus every April as well as 15th and 16th month bonuses every December of the year, without fail, from 1975 to 2002 or for 27 years whether it earned profits or not. The considerable length of time ETPI has been giving the special grants to its employees indicates a unilateral and voluntary act on its part to continue giving said benefits knowing that such act was not required by law. Accordingly, a company practice in favor of the employees has been established and the payments made by ETPI pursuant thereto ripened into benefits enjoyed by the employees.
The giving of the subject bonuses cannot be peremptorily withdrawn by ETPI without violating Article 100 of the Labor Code: Art. 100. Prohibition against elimination or diminution of benefits. – Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code.
The rule is settled that any benefit and supplement being enjoyed by the employees cannot be reduced, diminished, discontinued or eliminated by the employer. The principle of non-diminution of benefits is founded on the constitutional mandate to protect the rights of workers and to promote their welfare and to afford labor full protection.

3. IN RELATION TO 13th MONTH PAY

PD 851, which was issued by President Marcos on 16 December 1975, requires all employers to pay their employees receiving a basic salary of not more than P 1,000 a month, regardless of the nature of the employment, a 13th month pay, not later than December 24 of every year. However, employers already paying their employees a 13th month pay or its equivalent are not covered by the law. Under the Revised Guidelines on the Implementation of the 13th-Month Pay Law, the term “equivalent” shall be construed to include Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to not less than 1/12 of the basic salary. The intention of the law was to grant some relief – not to all workers – but only to those not actually paid a 13th month salary or what amounts to it, by whatever name called. It was not envisioned that a double burden would be imposed on the employer already paying his employees a 13th month pay or its equivalent whether out of pure generosity or on the basis of a binding agreement. To impose upon an employer already giving his employees the equivalent of a 13th month pay would be to penalize him for his liberality and in all probability, the employer would react by withdrawing the bonuses or resist further voluntary grants for fear that if and when a law is passed giving the same benefits, his prior concessions might not be given due credit… Thus, the employer is justified in crediting the mid-year bonus and Christmas bonus as part of the 13th month pay. (Producers Bank of the Philippines v. NLRC, Producers Bank Employees Association, G.R. No. 100701, 28 March 2001)

Disclaimer: All information herein is for educational and general information only intended for those preparing for the bar exam. These should not be taken as professional legal advice or opinion. Please consult a competent lawyer to address your specific concerns. Any statements or opinions of the author are solely his own and do not reflect that of any organization he may be connected.

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