2014 Labor Law, Q20

Lito was anticipating the bonus he would receive for 2013. Aside from the 13th month pay, the company has been awarding him and his other co-employees a two to three months bonus for the last 10 years. However, because of poor over-all sales performance for the year, the company unilaterally decided to pay only a one month bonus in 2013. Is Lito’s employer legally allowed to reduce the bonus? (4%)

Quick check

Is an employer legally obligated to pay a performance bonus during a year of poor sales performance?

Under what circumstance does a bonus become a demandable employee right under labor law?

Does reducing a multi-month performance bonus due to low sales violate the non-diminution of benefits rule?

What legal characterization distinguishes a voluntary bonus from regular statutory wages?

Choices available with full access.

What option is available to management when company sales decline significantly after years of bonus grants?

Choices available with full access.

Unlock the full Labor Law answers

Learn more about these topics

1. Bonus Management Prerogative
Under Philippine labor jurisprudence, a bonus is a gratuity granted by an employer to inspire workers toward business productivity and profit realization. As a general rule, the grant of a bonus is an act of generosity rooted in management prerogative rather than a demandable statutory obligation. An employer cannot be compelled to pay bonuses when the enterprise suffers poor sales performance or financial losses, unless the bonus has been converted into an unconditional contractual obligation or wage component by agreement or long-standing practice regardless of profitability.

2. Non-Diminution Exception
The principle of non-diminution of benefits under Article 100 of the Labor Code prohibits employers from unilaterally eliminating or reducing benefits already enjoyed by workers. However, for a bonus to fall under the protection of non-diminution, it must be proven that the benefit was granted consistently, deliberately, and unconditionally over a long period without dependence on business profits. If a bonus has historically been contingent upon business prosperity or sales performance, reducing or withholding it during lean years does not violate the non-diminution rule.

3. Profit Contingency Rules
When a bonus is tied to company earnings, financial milestones, or sales targets, it retains its character as a profit-sharing gratuity rather than a fixed wage component. An employer's continuous payment of multi-month bonuses during prosperous years does not automatically transform the benefit into a demandable right if company earnings decline. In times of poor overall sales performance, management retains the inherent authority to adjust or scale down bonus amounts in accordance with the enterprise's reduced financial capacity without committing an illegal reduction of benefits.

About these questions and answers
The questions reproduced here are the official texts of the Philippine Bar Examinations, published by the Supreme Court. They are reproduced for study purposes.The suggested answers are the author’s own.

They are not official answers, have no connection with the Supreme Court, the Office of the Bar Confidant, or any bar review institution, and are not endorsed by any of them. Official answer keys, where released, should be preferred over anything here.Nothing on this page is legal advice, and reading it creates no lawyer-client relationship. Do not rely on any suggested answer in an actual legal matter. Consult counsel on your own facts.Suggested answers reflect the law and jurisprudence the author considers applicable as of the date shown.

Where a question comes from an earlier examination, the suggested answer applies the law as it now stands, which may differ from the law in force when the question was given, and may therefore differ from what would have been the correct answer at that time. Where the difference is material, the answer notes it.The practice scoring feature measures wording overlap with the suggested answer. It is not a grade, carries no official weight, and says nothing about whether your reasoning is sound.Errors are possible. If you find one, please tell me and I will correct it.Last reviewed: October 2026