The recent Labour Appeal court judgment delivered on 26 February 2019, in Solidarity OBO Scholtz v Gijima Holdings (Pty) Ltd [Case number JA131/2017] dealt with the subject of employee loyalty incentive scheme agreements, whereby an employee agrees to remain in the employ of the employer in return for him or her being paid a retention bonus by the employer to do so.
In this case, the agreement was entitled Employment Loyalty Incentive Scheme Agreement (ELISA). It is not unusual for employers to enter into such agreements with employees from time to time, to ensure that they remain in the employ of the employer for a specified length of time. This typically ensures continuity of service by an employee, and amongst other things, gives the employer peace of mind that the employee will not leave them in the lurch by resigning before the completion of the period for which the retention bonus has been paid.
The facts of the case were, by and large, not in dispute. The ELISA entered into by the employer and the employee, incorporated a clause which read that “Where the beneficiary terminates its employ with the company after the effective date and before the expiry of the initial period of 12(twelve) months, (the “initial Period”), the beneficiary shall repay the full amount received by the beneficiary in terms of A.5.1 of annexure A”.
The Labour Appeal Court judgment noted in this regard that “Apparent from Clause 7 above is that a beneficiary of the scheme, having received a benefit in advance, before the commencement of the relevant retention cycle, would be required to remain in the employ of the respondent for a period of 12 months in respect of each retention bonus already paid.”
The judgment continued that retention bonus agreements of this nature were not a new phenomenon, and that, for example, they had been dealt with in Bonfiglioli SA (Pty) Ltd v Panaino (2015) 36 ILJ 947 (LAC), which noted that “A retention bonus, as the phrase suggests, is paid in order to retain the services of an employee for a specified period. Payment of the retention bonus is contingent upon the employee entering into an agreement with the employer to complete a specific period of service with the employer. The bonus can be paid after the expiration of the period, during the period or at the beginning of the period, depending on the agreement between the parties. The purpose of a retention bonus is, inter alia, to avoid instability caused by employees, especially senior employees, who would constantly search for greener pastures; to retain institutional memory and to promote a seamless continuity of operations.”
In another judgment, Renaissance BJM Securities (Pty) Ltd v Group (2016) 37 ILJ 646 (LAC), retention agreements were deemed to be akin to hand-cuffs – “Retention agreements are therefore hand-outs with handcuffs or cheques with chains. The employee is given money and in return, he/she must give up his/her freedom to leave the employ of the employer. It curtails the employee’s right to jump ship even when the ship is being steered straight in the direction of an iceberg.”
In this case, the employer notified the employee, and indeed other employees who had signed similar agreements, that the agreement would not be continued beyond its initial three-year term. The employee objected to this.
None the less, the employer paid the employee the third, and final, retention bonus for year three of the agreement. Approximately one month later, the employee tendered his resignation.
The employer deemed this to amount to a breach of the retention agreement, and dealt with this by deducting the Rand value of the bonus from the payments due to the employee on termination.
The Labour Court subsequently held that the employer was entitled to make this deduction, and the employee then sought to appeal this judgment at the Labour Appeal Court.
The Labour Appeal Court upheld the Labour Court judgment, finding that “Clause 7.1 of the ELISA makes it plain that where a beneficiary terminates his/her employ with the company, after the effective date and before the expiry of the retention period of 12 months, he/she shall repay the full amount received in terms of A.5.1 of the annexure A to the agreement.”