Variable remuneration: where parties fail to agree, the court must determine the amount itself
Where variable remuneration is provided for in an employment contract, but its annual amount is set by mutual agreement between employer and employee, what happens if the parties fail to reach agreement? The Court of Cassation has reaffirmed that, in such circumstances, the court itself must determine the amount due.
The settled rule is that, where the right to variable remuneration arises from the contract and no agreement has been reached for a given year, the court must determine the amount by reference to the criteria set out in the contract and to the agreements concluded in previous years. Where the targets on which variable remuneration depends have not been fixed, the court must fix them by reference to prior years.
In this case, the contract provided for variable remuneration to be set each year by mutual agreement after discussion. For one given year, no agreement had been reached: discussions had stalled over both the targets and a proposed change to the structure of the variable remuneration. The contract did not allow the employer to fix the targets unilaterally, and neither party had asked the judge to fix them.
The Court of Appeal dismissed the employee’s claim on those grounds. The Court of Cassation overturned that ruling: faced with a contractual entitlement to variable remuneration and an absence of agreement, it was incumbent on the court, even without a specific request, to determine the variable remuneration itself, by reference to the contractual criteria and to the agreements reached in previous years.
The practical recommendation is to always state that the employer will determine the targets for variable remuneration and to avoid references to mutual consent with regards to the targets or the amount of the variable remuneration.
