Nicolas and De Vega Law Offices Image Article - Christmas Bonus Management Prerogative

This article explains an instance when a company can withdraw the grant of a Christmas bonus, even if the same has become customary or company practice.

After years of company practice of giving Christmas bonuses, can a company legally refuse to give the employees a Christmas bonus? Yes, an employer may withdraw the grant of a Christmas bonus, if the company’s financial condition declines or weakens.

As a Rule, A Bonus is a Management Prerogative

The granting of a bonus is a management prerogative. (Traders Royal Bank v. NLRC, 189 SCRA 274 (1990).)  As a general rule, a bonus is a gratuity or an act of liberality that the recipient has no right to demand as a matter or right. Metro Transit Organization v. NLRC, July 11, (1995)  However, if the grant of a bonus has ripened into a company practice favorable to an employee, then such grant cannot be reduced, diminished, discontinued or eliminated by the employer. (Tiangco v. Leogardo, Jr., 122 SCRA 267 (1983); Globe Mackay Cable and Radio Corporation v. NLRC, June 29 (1981)). Article 100 of the Labor Code prohibits the elimination or diminution of benefits enjoyed by an employee.

Financial Decline is an Exception

However, if the fiscal condition of the employer declines, he may not be forced to distribute bonuses which it can no longer afford to pay. (Traders Royal Bank v. NLRC, 189 SCRA 274 (1990)) Otherwise, the employer would be penalized for his past generosity to employees.  A decrease in bonuses does not necessarily constitute a diminution of the employees’ salaries.  Bonuses are not part of labor standards in the same class as salaries, cost of living allowances, holiday pay, and leave benefits, which are provided by the Labor Code. (Producers Bank Of The Philippines v. NLRC, March 28, (2001).)  In Manila Banking Corporation v. NLRC, 179 SCRA 602 (1997), the Supreme Court made the following pronouncements:

“By definition, 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. 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 employee’s basic salaries or wages, especially so if it is incapable of doing so.”

Christmas Bonus as an Act of Generosity

Clearly then, a bonus is an amount given ex gratia to an employee by an employer on account of success in business or realization of profits. How then can an employer be made liable to pay additional benefits in the nature of bonuses to its employees when it has been operating on considerable net losses for a given period of time? (Producers Bank Of The Philippines v. NLRC, March 28, (2001).)

Thus, an employer incurring serious financial losses is under no obligation to continue giving Christmas bonus to his employees.  “No company should be compelled to act liberally and confer upon its employees additional benefits over and above those mandated by law when it is plagued by economic difficulties and financial losses. No act of enlightened generosity and self-interest can be exacted from near empty, if not empty coffers.”

About Nicolas and De Vega Law Offices If you need assistance in labor-related issues, compliance with DOLE issuances, and company employment policies,  or business-related concerns, we can help you find solutions. Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website www.ndvlaw.com.