THE COURT OF APPEAL OF SWAZILAND
the matter between:
VON WISSELL (PTY) LTD :
JAMES BASSON :
TEBBUTT J. A.
THE RESPONDENT :
THE APPELLANT :
crisp issue in this appeal is whether an employee, who is entitled,
in a written contract with his employer, to an incentive bonus to be
paid to him annually, loses that entitlement if he lawfully resigns
during the year.
1st March 1989 Appellant company entered into a written agreement
with Respondent in which it employed Respondent as its Butchery and
Abattoir Manager for a period of four years from 1st March 1989 to
28th February 1993 at a basic salary of El,800 per month, reviewable
annually. Clause 3 of the agreement goes on to read as follows (as
the whole of it is germane to this judgment, I set it out in extenso)
addition during the month of December in each year while this
Contract of employment is in
provided the results of the EMPLOYER'S business warrant it and
depending on the EMPLOYEE'S performance the EMPLOYEE will be
considered for an annual merit bonus which however shall at all times
be in the discretion of the EMPLOYER.
apart from the annual merit bonus referred to above, the EMPLOYEE
shall be entitled to an incentive bonus of an amount equal to FIFTEEN
PER CENTUM (15%) of the nett profit attributable to the Butchery and
Abattoir sections of the EMPLOYER'S business. This incentive bonus
shall be paid to the EMPLOYEE annually after completion and
finalisation of the audit of the annual financial statements. This
bonus will only be paid after completion and audit of the financial
statements as at the end of February in each financial year provided
that if this Contract of employment is terminated by the EMPLOYER
giving notice to the EMPLOYEE then the incentive bonus shall be
calculated up to the date of termination of employment and shall be
paid to the EMPLOYEE as soon as it has been established."
agreement further provided that it could be terminated
either party giving to the other not less than 60 days notice in
writing of termination.
27th September 1990 Respondent gave Appellant 60 days notice of
resignation effective as at 30th November 1990. Appellant refused to
pay him an incentive bonus or any part of it for the financial year
ending February 1991. Respondent thereupon brought a claim in the
High Court for payment of the said incentive bonus, among other
claims. Appellant denied that any incentive bonus had accrued to
Respondent for the period 1st March to 30th November 1990, due to
Respondent's having resigned as at the latter date.
the matter came before Sapire A.C.J., the parties agreed that, in
terms of Rule 34 of the High Court Rules, the Court should first
decide, as a legal point, the issue whether on an interpretation of
Clause 3 of the agreement any incentive bonus had accrued to
Respondent during the period in question. Sapire A.C. J proceeded to
do so, ruling in favour of the Respondent.
judgment in this regard reads as follows:
is my view that what is intended in this case is that an Employee,
whose contract comes to an end during a financial year, is to be paid
the incentive bonus for that portion of the year during which the
contract was in force, but that
Employee is to wait until the completion and finalisation of the
audit of the financial statements before he is entitled to be paid.
The bonus is then to be paid in respect of the period up to the
termination of the contract."
is against that ruling that Appellant now appeals.
Clause 3 is silent as to the period over which the net profit of 15%
is to be calculated, it is, in my opinion, clear from the wording of
the Clause that the intention of the parties was that it was the
annual net profit on which the 15% incentive bonus was to be
calculated. The merit bonus, referred to in Clause 3 is an "annual
merit bonus." As to the incentive bonus Clause 3 sets out that
"quite apart from the annual merit bonus," the employee
shall be entitled to an incentive bonus.
the two together in this manner prima facie suggests that each bonus
will be an annual one.
prima facie impression becomes certain, in my opinion, by the terms
of the next sentence viz "this incentive bonus shall be paid to
the employee annually after completion and finalisation of the audit
of the annual financial statements" (my emphasis). It was argued
on Respondent's behalf that this sentence only sets out the time for
the payment. I cannot agree. The time when the incentive bonus is
payable is set out in the
paragraph. The sentence I am presently dealing with is, in my view,
clear. Its purpose is to set out, by the use of the words "be
paid to the employee annually," that it is an annual incentive
bonus and when the words "an incentive bonus of an amount equal
to 15% of the nett profit" are linked to the completion and
finalisation of the audit of the annual financial statements"
(my emphasis) the purpose becomes even more clear. It is only after
the finalisation of the year's statements that the incentive bonus
can be calculated. In the light of these considerations an
interpretation that the incentive bonus is anything other than an
annual one would be untenable.
bonus is an "incentive" one. Dictionary meanings of
"incentive" tell us that it is "something that rouses
or encourages a person to some action or effort" or "payment
or a concession encouraging effort or work." It is a spur to the
employee to work diligently and productively. As his bonus is
calculated on the annual results it is obvious that the incentive for
him to work diligently and productively, so as to earn his bonus by
the creation of profit, should be operative over the whole of the
year in question.
parties, however, saw fit to legislate for the position where the
employer denies the employee that opportunity by giving the employee
notice of termination, by including the proviso in the last paragraph
of Clause 3. For the sake of
I repeat it. It reads:
provided that if this contract of employment is terminated by the
employer giving notice to the employee then the incentive bonus shall
be calculated up to the date of termination of employment and shall
be paid to the employee as soon as it had been established."
proviso, as I shall hereafter refer to it, seeks in the case where
the employer gives the employee notice. to distinguish it from the
normal position where the incentive bonus is earned by the employee
working for the full year, in two respects. Firstly the profit, if
any, on which the incentive bonus is to be calculated must be
determined at the date of the termination of the employee's
employment and not at the end of the financial year and when the
audited accounts are finalised. Secondly, the amount of the bonus is
to be paid to the employee immediately upon calculation of that
amount. The employee did not have to wait until the accounts for that
year had been finalised and audited before getting paid what was due
to him upon termination of his employment by the employer.
purpose of the proviso is obvious. It is a protection for the
employee against the employer's having the benefit of his diligent
work and productivity and then unscrupulously giving him notice
shortly before the end of
year in order to avoid having to pay him an incentive bonus.
is highly significant that no similar provision appears in-so-far-as
the employer is concerned. To my mind the reason for this is obvious.
The parties deliberately omitted any such provision, despite knowing
full well that the employee enjoyed protection in terms of the
proviso. That they did so shows, in my view, that they intended that
before the employee could claim his incentive bonus he would have to
work a full year and should he choose to terminate his employment
before doing so, he would forfeit his right to claim his bonus.
would also give rise, I feel, to the equitable result that the
employee who gives notice during the year should not obtain the
benefit of the profits earned over the entire year, during a portion
of which he made no contribution thereto.
Flynn, who appeared for the Respondent, advanced two main arguments
in regard to the proviso.
submitted, firstly, that the parties did not insert a similar
provision because they considered it unnecessary to do so. They
considered that the employee, so Mr. Flynn argued, would be entitled
to a pro rata incentive bonus even if he left his employment during
do not think this argument is sound. Indeed the very-converse
construction seems to me to be the more probable one. The intention
of the parties, as gleaned from the insertion of the proviso, appears
to be that no incentive bonus would normally be earned or be payable
if the employee did not work for the full year and if either party
terminated the contract during the year. However, to afford the
employee protection against an unscrupulous termination of his
employment by the employer, the proviso was inserted to cater for the
termination by the employer of the employment of the employee - and
for that case alone.
Flynn's second argument was that the equities would be better served
for both the employee and the employer were the employee to receive
his incentive bonus, even if he resigned during the year.
proviso, he submitted, merely fixed the time of payment of the bonus
if the employer terminated the agreement. Otherwise, the time for
payment remained as earlier provided for in the agreement viz after
completion and finalisation of the audited annual accounts. By having
to wait until then, the profit would probably be greatly different
from the profit calculated at an earlier stage of the year in that
annual charges such as depreciation, annual subscriptions and the
like would then have to be taken into account in arriving at the
profit. This would redound to the benefit of the employer. The
employee would also know of this factor and realise that it
probably affect his bonus, so Mr. Flynn argued, if he resigned during
I do not think this argument is sound. While it may well be that the
profit may be affected by the taking into account of annual charges,
the argument overlooks the fact that the employee would be deriving
the benefit of profits to which he had not contributed, even
assessing the bonus on a pro rata basis. Moreover, I fail to see why
the employee has to have his bonus calculated at a time when no or
meagre profits may have been earned when the employer gives him
notice - a situation calling for a protective provision in his favour
- whereas he can benefit from profits determined after a full year's
training when it is he who has chosen to leave his employment and not
make a full contribution to that profit. That situation, in my view,
gives rise to a manifestly illogical and inequitable situation. It
would also be illogical to calculate any incentive bonus for the
employee when he resigns during the year on a pro rata basis of the
full year's profits but to do so, when the employer terminates the
contract on the period up to when such termination takes place, as
set out in the proviso.
Mr. Flynn queried why a distinction should be drawn between the
position where the employer gives notice and where the employee does
so. I have no problem with that. In the first instance the employee
cannot control the
of the employer who may choose to terminate his services. In the
second instance, it is the employee who voluntarily chooses to leave
his employment. The fact that his doing so may be prompted by
circumstances such as ill-health, the effluxion of a residence permit
or the like can surely be no concern of the employer. A symphathetic
employer might in such circumstances choose to assist the employee
but on a strict interpretation of the contract, he would not be
liable to pay the employee his incentive bonus.
my reading of the contract, on its termination by either party, no
incentive bonus would normally be payable to the employee. However,
where the employer does so, thereby preventing the employee from
earning the bonus, an incentive bonus becomes payable on the terms
set out in the proviso.
its inclusion in the agreement. However, where the employee
terminates his employment, his entitlement to the bonus ceases upon
follows that the appeal succeeds, with costs. The following order is
appeal succeeds with costs.
ruling made by Sapire A.C.J. is set aside and the following
ruling is made for the contention advanced by the Defendant. The
Plaintiff's claim for an incentive bonus
provided for in Clause 3 of the agreement accordingly fails.
The costs in the Court a quo shall stand over for the determination
by the trial Judge.
H STEYN J.A.
on this 7th day of October 1996