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Variable Remuneration: Will it be paid if the company leaves the company before the pay date?

You can compensate your employees differently based on their performance. This may take the form of bonuses awarded in return for achieving targets. But should you give them to employees who have left your company before their due date?

Variable Compensation: The Case of Target Bonuses

You have to pay your employees for the work done. You can pay them a fixed fee for this. and/or differential compensation based on their individual or collective performance.

Important

If the employee’s pay is all variable, it cannot be less than SMIC or the minimum amount paid by you. Collective agreement.

For this, you can set qualitative or quantitative objectives through their agreement or unilaterally by communicating with them at the beginning of the training. They should be based on objective, achievable criteria that are beyond your control.

If you’d like to learn more about variable pay, we recommend you check out our documentation ” Tissot Social Enterprise ACTIV “. You can also download our sample clause to add to your employees’ employment contracts.

Depending on the level of achievement of the set targets, you will pay bonuses to your employees. But many questions may arise regarding its payment. Specifically, knowing whether target bonuses should be paid to employees who leave your company. The Court of Cassation reiterated its position in a recent ruling.

Variable Pay: Impact of employee leaving before his pay date

In a case submitted to the Court of Cassation, an employee’s employment contract provided for the payment of a bonus based on individual objectives that could reach 10% of his annual salary. More specifically, the employee’s personal performance was set at 70%, assessed by a financial indicator, a quality indicator and a management indicator.

The employee took several claims to the Industrial Tribunal in view of the expiry of his contract of employment in 2017. In particular, the request for back pay related to part of the contractual bonus for the purposes for 2017.

After winning the case at first instance, the Court of Appeal held that the employee cannot claim a portion of the contractually awarded performance bonus in 2017. It held that the objectives bonus can only be given to an employee on a pro rata basis. If a contractual or customary arrangement provides or a utility within the company is proven, the payment has left the company before the due date. However, the employee did not provide this evidence.

The employee challenged this decision. For his part, this performance bonus is a variable part of his salary, paid in return for his performance. According to him, it was earned in proportion to the time he spent in the company during the financial year.

The Court of Cassation sided with him. According to him, a bonus is a variable part of an employee’s salary, paid in return for his performance. However, the opening of the right to an element of remuneration relating to the period of service may be conditional upon its expiry date. But entitlement to wages earned during this period of full service cannot be conditional on the date of payment.

The case is therefore remanded to the Court of Appeals for retrial.

Good to know

When a bonus is not a differential payment given in exchange for employee performance, the company is not entitled to its payment in proportion to the time spent in the company by those who leave the company before the payment date. Unless they provide proof of use or agreement to this effect.

Cour de cassation, social chamber, 6 July 2022, n° 21-12.242 (In the event that an employee leaves during the year, the target bonus is paid at a rate that makes up the variable part of the salary paid in exchange for his performance. For the time he spent in the company during the financial year)

Amelie Giannino

Lawyer in Social Law and Editor at Tissot Editions

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