December 15, 2011

Can employees demand Christmas bonus from their employers?

It's the time of the year once again when everybody's expenses shoot up and all we have to rely on is the 13th Month Pay mandated by law. Those who have been consistently receiving Christmas bonus (or any additional benefits by any other name given by their employers during the holidays) are lucky because they have additional money to tide them over until the end of Yuletide. But what happens if their employer suddenly decides that it can't afford to give out Christmas bonuses to employees this time? Do employees have any legal recourse?

Generally speaking, bonuses are not a demandable and enforceable employer obligation. This means that employees generally cannot demand from their employer that they be given Christmas bonuses. In case they do and the demand is not granted, they also cannot ask the court to compel their employers to do otherwise.

Because it is not mandated by law, Christmas bonuses are typically considered as an act of grace. In the case of Producers Bank of the Philippines vs. National Labor Relations Commission (G.R. No. 100701, March 28, 2001), the Supreme Court defined "bonus" as "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. 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."

There is, however, an exception to this general rule. In fact, this exception applies to all types of additional benefits beyond the minimum labor standards given by employers to their employees, despite being referred to as "act of grace" or "act of generosity". In many cases where employers unilaterally decided to withhold such additional benefits for different reasons, the Supreme Court had ordered employers to continue giving the benefits if the same has "ripened into company practice" so much so that withholding the same would violate the doctrine of non-diminution of employee benefits. This is called the rule on long practice.

For the rule on long practice to apply to the giving of Christmas bonus, there must be a showing that: first, the giving of the bonus should have been done over a long period of time; and, second, that the act must have been consistent and deliberate on the part of the employer. In the case of Manila Electric Company vs. Secretary of Labor (G.R. No. 127598, January 27, 1999), the Supreme Court upheld the workers' demand for their Christmas bonus (among others) because it was found that Meralco had been giving their employees bonuses during the holidays since 1988, or for almost 10 years prior to the filing of the case. According to the Supreme Court, "the giving of the special bonus can no longer be withdrawn by the company as this would amount to a diminution of the employee's existing benefits."

But how long is "long period of time" before the giving of the benefits can be considered as having already ripened into company practice? Of the decided cases, the shortest period is two years. In the Meralco case state above, however, the Supreme Court separately ruled on the act of giving the Christmas bonus and the amount of Christmas bonus to be given. While it ruled that the giving of the bonus itself has ripened into company practice, the amount of bonus given did not, as it was not constant. The amount of Christmas bonus awarded to the employees was reduced from two months to one month, as this was a more equitable amount, according to the Supreme Court.

If you have questions for Atty. Allen, email feedback@herword.com.

Atty. Allen A. Liberato is head of Corporate Legal Affairs at strategic marketing communications firm TeamAsia. She earned her Bachelor's Degree from the University of the Philippines Diliman and her law education from the University of Perpetual Help under Dean Justice Isagani A. Cruz.

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Current Comments

6 comments so far (post your comment)

@Elaine: Christmas bonuses are taxable. The 13th month pay, however, is not taxable up to P30,000.00. Any amount exceeding this is already taxable.

@Janaki: Thanks for posting.

Posted by Atty. Allen on Monday, 01.2.12 @ 11:07am

thanks :)

Posted by Janaki on Thursday, 12.22.11 @ 12:34pm

We didn't receive a Christmas bonus because our fiscal year was changed to April to March. So the company would only be able to decide on the bonus in March 2012.

Posted by Ria on Wednesday, 12.21.11 @ 21:16pm

Yes, Janaki. You may repost. Thank you.

Posted by HerWord.com on Wednesday, 12.21.11 @ 14:53pm

This is very helpful. May I repost this in my blog? thanks :)

Posted by Janaki on Wednesday, 12.21.11 @ 14:46pm

are christmas bonuses and 13 month pay taxable?

Posted by Elaine on Friday, 12.16.11 @ 09:46am