Solidarity obo Scholtz M v Gijima Holdings (Pty) Ltd

Mr Scholtz was employed by Gijima Holdings (Pty) Ltd as a programmer from 1 June 2004. On 18 September 2012, he concluded an Employee Loyalty Incentive Scheme Agreement (ELISA) with the respondent in terms of which he would receive a retention bonus equal to 50% of his annual guaranteed salary. The bonus was payable in advance each September from 2012 to 2015, with the employee required to remain in employment for 12 months following each payment. Mr Scholtz received his first retention bonus (R36,590.40) in September 2012, his second (R73,180.80) in September 2013, and his third (R109,771.20) in September 2014. The ELISA contained Clause 7.1, which stipulated that if a beneficiary terminated employment after the effective date and before the expiry of 12 months, the beneficiary must repay the full amount received. On 18 June 2014, Gijima notified all beneficiaries that the ELISA was terminated. After employees complained, Gijima sent a further letter on 20 June 2014 confirming termination but advising that the September 2014 payment would still be made. Mr Scholtz received this payment in September 2014. At the end of October 2014, he resigned, with his last working day being 28 November 2014. Gijima deducted the R109,771.20 retention bonus from his terminal benefits in November 2014. Solidarity, acting on behalf of Mr Scholtz, claimed this deduction was unlawful.

• Whether the employer was entitled to deduct the retention bonus from the employee's terminal remuneration following his resignation before the expiry of the 12-month retention period
• Whether the ELISA was validly terminated by the employer unilaterally
• Whether the deduction constituted an unlawful deduction under section 34 of the Basic Conditions of Employment Act (BCEA)
• The interpretation and enforceability of the ELISA as a reciprocal contract
• Whether the employee's acceptance of the retention bonus after purported termination of the ELISA bound him to the retention period

The appeal was dismissed with costs. The Labour Court's judgment dismissing the claim for unlawful deduction was upheld.

The binding legal principles established are: (1) A retention bonus agreement (ELISA) is a reciprocal contract where payment of the bonus by the employer creates an obligation on the employee to counter-perform by remaining in employment for the specified retention period. (2) Where a retention bonus agreement clearly provides that the employee must repay the full amount if employment is terminated before the expiry of the retention period, the employer is entitled to deduct that amount from terminal benefits upon premature resignation. (3) By signing a retention bonus agreement and accepting payment under it, an employee consents to deduction of the retention bonus from salary if employment is terminated precipitately before the retention period expires. (4) Termination of a retention bonus agreement requires written agreement signed by both parties where the contract so provides; unilateral termination is ineffective. (5) Where an employee urges the employer to perform under a purportedly terminated contract and accepts the benefit of such performance, the employee cannot then claim the contract was terminated and avoid corresponding obligations. (6) Section 34 of the BCEA, which regulates deductions for loss or damage, does not apply to deductions made pursuant to a retention bonus agreement where the deduction represents recovery of money paid in advance for services not rendered.

The Court made several obiter observations: (1) Retention bonuses are described as "hand-outs with handcuffs" or "cheques with chains" - the employee receives money but gives up freedom to leave employment. (2) The Court observed that Mr Scholtz acted in bad faith by accepting the retention bonus payment and resigning one month later, noting that if he did not wish to be bound, he should not have urged payment or should have refunded the money upon receipt. (3) The Court noted that various inconsistent versions were given during trial by the appellant regarding entitlement to retain the bonus, including claims of compromise which were not supported by the pleadings or evidence. (4) The Court commented that it was difficult to discern in a bilateral contract how there could be performance without counter-performance, as the two are inextricably linked. (5) The Court noted the purpose of retention bonuses includes avoiding instability caused by employees constantly searching for better opportunities, retaining institutional memory, and promoting seamless continuity of operations.

This case establishes important principles regarding retention bonus agreements in South African labour law. It clarifies that: (1) retention bonus agreements are reciprocal contracts requiring counter-performance by the employee; (2) acceptance of a retention bonus after purported termination of the agreement binds the employee to the retention period; (3) employees cannot accept the benefit of a retention bonus and then resign shortly thereafter without repaying the bonus; (4) the nature and purpose of retention bonuses is to retain employees for specified periods in exchange for advance payment; (5) deductions based on contractual agreements do not fall within the ambit of section 34 of the BCEA which deals with deductions for loss or damage. The case reinforces the principle that parties must act in good faith in employment contracts and cannot accept benefits while repudiating corresponding obligations. It provides guidance on the interpretation of retention agreements and the consequences of premature resignation after accepting retention bonuses.