Employees’ rights to discretionary benefits Tamara Cohen

Introduction Discretionary bonuses - relied upon by employers to incentivise employees to increase their remuneration through improved performance. ambiguously worded and invariably provide that employees have no legal entitlement. Bonuses - veil of secrecy and swayed by subjective perceptions of line managers. Employees reasonable expectations often disappointed.

Spes middle ground between rights and interest disputes - a spes (legitimate expectation to a benefit). paper considers whether remedy exists for employee that establishes a spes that falls short of a legally enforceable right? employee might find relief through extended interpretation of the statutory unfair labour practice provisions, the implication of terms and application of reliance theory. positive obligation upon employers to exercise discretionary powers fairly and with regard to reasonable expectations of employees.

Legitimate expectations public sector employees, with interest of a status less than a legal right (referred to as a legitimate expectation) given procedural protection against unfairness and administrative abuse. traditionally used to challenge fairness of promotion and benefits decisions made by public sector employers. Gcaba v Minister for Safety and Security - administrative law doctrine of legitimate expectation has no place in determination of fair labour practices.

Unfair labour practice s 186(2) of LRA - unfair act or omission that arises between employer and employee involving unfair conduct by employer relating to provision of benefits to an employee. regulating unilateral exercise of employers’ powers. limited to benefits to which employee is contractually or statutorily entitled. HOSPERSA & another v Northern Cape Provincial Administration (2000) 21 ILJ 1066 (LAC) claimed acting allowance for having worked in a higher position for a period of time without increase in pay. court held that applicant failed to establish claim in law or contract. criticism of this approach - provision redundant as such disputes already enforceable in contract or law.

Extended interpretation of ULP Protekon (Pty) Ltd v CCMA and Others [2005] 7 BLLR 703 (LC) challenged employer’s decision to withdraw travel concessions and substitute them with disproportionate increase in remuneration. court disagreed that employee only to have recourse to s 186(2) where cause of action in contract law. concluded that, where employers enjoy discretion in terms of a benefit scheme or policy, CCMA not deprived of jurisdiction to scrutinise conduct. need for purposive interpretation in keeping with notion of ‘fairness’.

Contractual remedies Fedlife v Wolfaart - LRA not exhaustive of rights and remedies that accrue to an employee. s 8(3) of Bill of Rights - court must apply or if necessary develop common law to give effect to right in Bill of Rights to extent that legislation does not do so. collective bargaining powerful weapon but contractual remedies more appropriate alternative for individual employees.

Implied terms typical business relationship - parties’ relationship, the business deal and contract but contract generally relied upon when dispute arises. where contract written in broad and flexible terms can fail to reflect mutual expectations. terms may need to be implied into contract to give content to mutual obligations where statute, collective agreement or express contractual provisions unable to do so. where express contractual provisions confer absolute discretion on employers to determine discretionary bonuses implied terms can imply fairness and equity into employment contract.

Implied duty of rationality and good faith recent decisions in UK - discretion to be exercised rationally, reasonably and in good faith despite express contractual provisions reserving employer’s unlimited discretion to award performance bonuses. Clark v Nomura International plc claimant an equities trader earned income by basic salary and performance bonuses. Employment contract stipulated that bonus discretionary, not guaranteed in any way and dependent upon ‘individual performance.’ dismissed and not awarded annual bonus despite generating significant profits during nine months prior to dismissal. court held that employer had two contractual obligations - to assess bonus according to individual performance and not to do so ‘irrationally or perversely’. Court to establish expectations formed and to decide whether reasonable. employee’s expectations were that ‘individual performance’ based on productivity. Employer alleged that performance based on employee’s commitment to corporate goals and culture – factors that court found to be subjective, open to abuse and enabled employer to discriminate arbitrarily between employees. Awarded damages of £1.35 million.

Implied obligation of mutual trust and confidence requires both employer and employee to conduct themselves in a manner not likely to damage or destroy employment relationship. guards against employers abuse of power. requires employers to respect reasonable expectations of employees and act reasonably and fairly in exercise of discretionary powers. UK Horkulak v Cantor Fitzgerald International (2004) contract of employment entitled claimant to be paid discretionary bonus that was to be ‘mutually agreed upon’. court held that implied term required discretion to be exercised reasonably and in good faith and that employer may not exercise discretion so as to damage or destroy relationship of mutual trust and confidence between parties. employer required to give rational explanation and adequate reasons for discretionary decision. requirements of fair dealing and mutual trust and confidence recognized by SA judiciary (Murray v Minister of Defence )

Public policy considerations public policy represents legal convictions of community - shaped by constitutional values. responsible for importing considerations of fairness, justice and equity into employment contract. relied upon as basis for challenges to validity of contractual provisions. (Barkhuizen v Napier 2007 (7) BCLR 691 (CC)) considerations of fairness and reasonableness relied upon for equitable interpretation. court to establish whether implied term ‘necessary for the reasonable operation of the type of contract concerned’. unfettered discretion contrary to public policy - to be exercised within bounds of reasonableness.

Reliance theory where party’s conduct led other party to reasonably rely upon that conduct and to assume that consensus had been reached, contract will be deemed to be concluded on that basis. where expectation created by ambiguous contractual provision and exacerbated by misleading conduct of employer, court may find that employer bound by employee’s expectations. courts to have regard to surrounding circumstances to ascertain whether expectations have been created by the employer and whether they are reasonable in the circumstances.

Conclusion ideally employee’s reasonable expectations ought to coincide with express terms of employment contract. in reality employment contracts protect interests of employer and provide employers with wide discretionary powers in context of performance-related bonuses. unfettered discretion abhorrent to modern law of contract and considerations of fairness and equity have permeated the classic law of contract. fairness requires exercise of employer’s discretion to be reasonable, rational and in good faith and consistent with public policy considerations.