Halted bonuses

Dear Atty. Maan,

Our company recently announced that the 14th and 15th month pay will no longer be provided due to the company’s current income status. Although these payments are not part of our employment contract, we have been receiving them for the past few years. Can the company legally withdraw from providing these bonuses?

Eunice

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Dear Eunice,

As a general rule, the granting of a bonus is a management prerogative, something given in addition to what is ordinarily received by or strictly due to 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)

However, the following are exceptions to the rule that the grant of a bonus or special incentive, being a management prerogative, is not a demandable and enforceable obligation, except when the bonus or special incentive is:

Made part of the wage, salary, or compensation of the employee.

Promised by the employer and expressly agreed upon by the parties.

A company’s long and regular practice.

Under Philippine labor laws, the 14th and 15th month pay are generally not mandatory benefits, unlike the 13th month pay. However, if these additional bonuses have been consistently, regularly, and voluntarily granted by the employer over a considerable period, they may have ripened into an established company practice. Under the principle of non-diminution of benefits, an employer cannot unilaterally withdraw or reduce benefits that have become part of the employees’ regular compensation through established company practice, even if such benefits are not expressly provided in their employment contracts.

However, the determination of whether the bonuses have become a vested benefit depends on the circumstances, particularly the regularity of their payment, the conditions under which they were granted, and whether they were intended to be discretionary or dependent on the company’s profitability.

In Eastern Telecommunications Philippines Inc. v Eastern Telecoms Employees Union (G.R. No. 185665, 8 February 2012), the Supreme Court ruled that the regular and deliberate grant of additional bonuses may constitute an established company practice that cannot be unilaterally withdrawn. However, in Maternal v Coca-Cola Bottlers Philippines Inc. (G.R. No. 218010, 6 February 2023), the Court clarified that employees must establish the existence of such a practice.

Thus, the company’s financial difficulties do not automatically justify the withdrawal of the 14th and 15th month pay if these have already become established benefits. On the other hand, if the bonuses were expressly contingent on company profits or financial performance, their discontinuance may be justified.

Hope this helps.

Atty. Mary Antonnette Baudi