The Court of Cassation confirmed this in three cases handed down on 27 September 2023 (1).
These three Court of Cassation cases provide an opportunity to review the employer’s obligations in the event of variable pay being awarded to an employee.
• Information on the calculation of variable pay at the beginning of the exercise period
Some employees receive variable pay in addition to their fixed salary. This variable compensation can sometimes represent a very large proportion of total remuneration.
The principle of this variable compensation is usually the subject of a clause in the employment contract or an additional clause, and the method of calculation must be clearly explained (6). The amount is often fixed on the basis of objective criteria, i.e. on the basis of individual objectives linked to the employee’s performance, or on the basis of collective objectives linked to the company’s performance, over a period defined in advance.
The objectives to be achieved may be defined qualitatively, quantitatively or in a combination, either unilaterally or jointly by the employer and employee. It is the employer’s prerogative to set these targets, although this is subject to certain restrictions.
If they are set jointly, neither the amount nor the structure of the variable compensation may be changed without the employee’s agreement.
In practice, targets are very often set unilaterally by the employer, which allows him to dispense with the need for the employee’s express agreement. However, the employer must ensure that the stated objectives are realistic and achievable, and that the right to set them unilaterally is provided for in the contract.
According to the Court of Cassation, an employee’s objectives may be set by the employer as part of his managerial powers (2), but subject to certain unavoidable conditions that the case law has consistently specified.
The objectives set must be achievable (3), failing which the employee cannot be blamed for failing to achieve them (4).
Employees must also be able to check how the variable part of their remuneration has been determined. The employer is therefore obliged to provide them with the information required for this calculation.
Where the variable portion of remuneration is based on the achievement of annual targets, the Cour de cassation has judged that these targets must be communicated to the employee at the beginning of the exercice (5), so that the employee knows in advance how his or her salary will be determined. The employer may not oppose this on the grounds of the company’s interests (6).
Likewise, targets may be set on a half-yearly basis, provided that the employee is aware of them before the start of each half-year.
Lastly, targets set in a foreign language cannot be enforced against the employee (7) unless a French translation is quickly circulated (8).
In fact, any document containing obligations for the employee or provisions of which knowledge is necessary for the performance of his work must be drafted in French (9).
• Communication of the elements used to calculate the variable part, including those based on confidential parameters
As explained above, employees must be able to check that their variable compensation has been calculated in accordance with the terms and conditions laid down (10), including in the case of a variable compensation scheme based on a unilateral undertaking by the employer.
In the cases leading up to the Court of Cassation’s decisions of 27 September 2023, the Court judged that all the elements making up the variable part of remuneration must therefore be made known to employees, regardless of whether one of the parameters is based on confidential data. Not only must the targets be communicated to the employee at the beginning of the exercise, but the data used to calculate the variable pay must also be communicated to the employee.
In this case, the employees received a variable annual bonus based on objectives, in accordance with a unilateral undertaking given by the employer. Claiming they had no knowledge of these targets or of the methods used to determine one of the components of the bonus – the business result multiplier (BRM) – and that they had therefore been unable to verify the calculation of their variable compensation, they brought claims before the Labour Court for payment of the balance of the bonus.
In dismissing their claims, the Labour Court judged that the employer had respected his obligation to manage the variable pay system for the year in question. The reason it had not provided the BRM was that this was discretionary data that should be kept confidential in view of the competitive sector, which has worldwide objectives.
The Labour Chamber of the Court of Cassation, however, took the opposite view.
In order to accede to the employees’ request, the Court reiterated a principle of case law that is not new : when paid by unilateral undertaking, a bonus constitutes an element of pay and is compulsory for the employer under the conditions laid down by that undertaking. These conditions, i.e. the targets and data used as a basis for calculating variable pay, must be communicated to the employee.
An employee’s claims for payment of bonus balances could not be dismissed when the Labour Court had found that one of the elements composing the variable part of the remuneration was based on confidential data that had not been brought to the employee’s attention at the beginning of the exercise.
• Inevitable sanction for not having set targets: full payment of variable compensation
When the variable part of the remuneration provided for in the employment contract depends on the achievement of targets set unilaterally by the employer, and the employer has neither set the targets to be achieved nor laid down verifiable methods for calculating the variable part, the employee is paid the variable part in full (11).
When the objectives are defined unilaterally by the employer as part of its management powers, the employer may modify them as long as they are achievable and the employee has been informed of them at the beginning of the exercise. The proof that the targets set unilaterally are achievable then lies with the employer (12).
In matters of variable compensation, the possibility of verification granted to the employee is inescapable and admits of no exception, not even when it concerns the interests of the company, which could be linked to trade secrets.
In the decisions commented on above, the Cour de cassation has therefore imposed on employers’ total transparency in the calculation of employees’ variable compensation.
(1) Cass. soc. 27-9-2023 n° 22-13.082 F-D, Sté Alcatel Submarine Networks, Cass. soc. 27-9-2023 nos 22-13.083, 22-13.057.
(2) Cass. soc. 22-05-2001 n° 99-41.838.
(3) Cass. soc. 2-12-2003 n° 01-44.192.
(4) Cass. soc. 13-01-2009 n° 06-46.208.
(5) Cass. soc. 2-3-2011 n° 08-44.977 ; Cass. soc. 30-3-2011 n° 09-42.737.
(6) Cass. soc. 18-6-2008 n° 07-41.910.
(7) Cass. soc. 29-06-2011 n° 09-67.492.
(8) Cass. soc. 21-09-2017 n° 16-20.426.
(9) Article L. 1321-6 of the Labour Code.
(10) Cass. soc. 24-9-2008 n° 07-40.717.
(11) Cass. soc. 10-7-2013 n° 12-17.921 ; Cass. soc. 25-11-2020 n° 19-17.246.
(12) Cass. soc. 15-11-2023 n° 22-11.442.
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