Law firm specialising in employment law
and social security law.
Law firm specialising in employment law
and social security law.
When targets are set unilaterally by the employer, the latter can no longer change them alone during the period for which they were set. In a ruling of 8 April 2021, the Court of Cassation recalled that targets can only be changed at the beginning of the financial year.
Column published in actuEL RH can be read by clicking on the link below: https://www.actuel-rh.fr/content/remuneration-variable-limites-au-pouvoir-de-modification-des-objectifs-par-leemployeur or can be read below.
In some sectors, it is common practice to stipulate in the employment contract, where the position lends itself to it, so-called "variable" remuneration, in addition to basic monthly remuneration.
The amount of variable remuneration then depends, in whole or in part, on the employee's attainment of targets set by the employer.
These targets attributed to the employee may be set in two ways: either via an explicit clause in the employment contract or via an amendment signed by both parties, or unilaterally under the terms of a company policy or a letter informing the employee of the level of his/her targets.
It is settled case-law that the targets set by the employer must be realistic and achievable in the light of the economic situation of the sector of activity. The employee must also be informed at the beginning of the financial year (or the frequency provided for in the contract) of the targets assigned to him/her.
Such conditions mean that targets have sometimes not been correctly set at the beginning of the period, as the parties can see once the implementation period has already started (due to lack of knowledge of the market or taking into account special circumstances, as could be seen in 2020 due to the Covid-19 crisis, for example).
In this case, what can the parties do? Is it possible for the employer to change the targets to adapt them during the financial year, and if so, how can it do so?
These are practical questions that we are regularly asked. To help us answer them, the Court of Cassation regularly decides questions of this nature.
When targets are set by agreement between the two parties (whether in the employment contract or by amendment), the situation is relatively simple since changing the targets must naturally respect the formalities initially followed. Thus, any subsequent change must necessarily be the subject of an express agreement of the employee [1].
In this spirit, the clause reserving for the employer the right to change at any time the rate and the terms of the variable part of the salary which have been fixed by agreement between the parties is considered null and void [2].
Moreover, if the clause provides that the targets must be reviewed periodically (for example every year or over a certain period), this frequency must be strictly observed by the employer. Failing this, the company may be liable for the full variable remuneration due for the period during which the targets have not been set[3].
2/ Changing targets when they are set unilaterally by the employerWhen the targets are set unilaterally by the employer, the situation is in practice more complex to understand for employers. Setting targets unilaterally can lead to the idea that the employer can then change them as it wishes.
However, it isn’t so simple.
In the event that the targets are set unilaterally, the employer cannot change them unilaterally during the period for which they were set.
In a recent ruling of 8 April 2021[4], the Court of Cassation recalled that the employer can only unilaterally set targets at the beginning of the financial year, even if they were obviously not realistic.
In this case, an employee had achieved her first two targets by the second half of the year. In order to rebalance the situation, her employer had not paid her the full variable remuneration to which she was entitled if the targets were met.
To justify its position, the employer stated that at the time the targets were set, the employee knew that they were not realistic since she had already exceeded them (in this case, the targets had been set late).
For the Court of Cassation, this argument is ineffective and cannot allow the employer to unilaterally change the targets in progress or at the end of the financial year when it becomes aware of the level of their performance.
In practice, this means that if the employer wishes to change the targets during the period, it may do so only with the employee's consent. Otherwise, it must respect the targets that it has set itself.
[1] Cass. soc. 8 janvier 2002 pourvoi n° 99-44.467
[2] Cass. soc. 27 février 2001 pourvoi n° 99-40.219
[3] Cass. Soc. 4 juillet 2007, pourvoi n° 05-42616
[4] Cass. Soc. 8 avril 2021, pourvoi n°19-15.432