AT Christmas time, many children look forward to gifts from Santa Claus and many employees look forward to a bonus payment from their employers. In many boardrooms, the question may have been asked whether an employee has been naughty or nice this year and whether he/she should be rewarded with a bonus package and what size it should be. In other boardrooms, the deliberations may be focused on whether the employer has the ability to pay a bonus this year, irrespective of whether the employee was naughty or nice.

With a lacklustre-performing local economy, challenges in the global economy, the uncertainties of the IMF negotiations, and dim expectations for the economy for next year, many employers may wish to put their “profits” into a reserve account rather than to make further payouts to employees. On the other side of the coin, employees facing the same set of circumstances may wrestle with their employers for that bonus payment as they argue that they need to recover from the blows of a poor-performing economy and prepare themselves for a challenging 2013. In some circles, the issue of legal entitlement may weigh in. Is an employer obligated to make a bonus payment at the end of the year?

There is no statutory requirement for a bonus payment to be made to employees in Jamaica. However, in some cases, the employer’s legal obligation to pay may arise by virtue of the employment contract.

Where the obligation to pay and the mechanism for determining the amount of bonus are expressly stated in such contracts, there should be little difficulty with interpretation and application of such a clause. For example, the contract for a senior manager may state that he/she is entitled to a certain percentage of profits or a specified amount of dollars if he/she meets a specific target or if the company or his/her department meets a predetermined target.

Some contracts may also state that the usual practice of the employer is to make a bonus payment depending on the performance of the business each year. It may be argued that this kind of contractual provision, without more, does not create an enforceable right that an employee may rely on as the basis for demanding a bonus payment. This clause may be unenforceable because of uncertainty. It does not specify any performance parameters which would trigger the bonus payment. Further, it does not give any indication of the amount of bonus payment that may become due.

In some situations it is possible to establish legal obligations by reference to the parties’ course of conduct. The course of conduct may be relevant both in circumstances where there is an uncertain term in the employment contract (as in the example mentioned above) and where there is no express term in the contract relating to bonus. In both instances, it would be important to establish that the written contract does not represent the complete agreement between the parties, or in other words that parole or external evidence is admissible to prove implied terms of the contract. The relevant course of conduct is specifically dependent on each set of circumstances. As an example, an employer who has, for the last 10 or 15 years, been paying employees the equivalent of the last six weeks of salary as a bonus payment may be said to have established a course of conduct binding on both parties so that the employee may be able to demand that his/her agreed remuneration includes the stated annual salary plus six weeks pay as annual bonus.

A further variation in circumstances and contract may be seen where the contract (either the original written contract or further memorandum, such as the bonus pay slip or advisory) expressly states that the bonus payment is a gratuitous payment from the employer. In this situation, the payment is made from the “kindness” of the employer’s heart and there is no intention to create any binding obligations or entitlements. Where bonus payments are made as gratuity, the employer is vested with the discretion whether to make the payment in any year and also to determine the amount of any payments that he/she decides to make.

The question of entitlement to bonus payments is a matter of contract. If the entitlement exists, ideally it should be inked more firmly than an agreement with Santa Claus and in those cases the employee should know by now whether he may legitimately expect it this year. Otherwise, the bonus payment may be like a gift from Santa Claus and the employee simply has to wait for word from the North Pole.

Andrea Scarlett-Lozer is an Associate at Myers, Fletcher & Gordon and is a member of the firm’s Commercial and Intellectual Property Department. Andrea may be contacted via andrea.scarlett@mfg.com.jm or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.