The strict conditions that must be complied with to pay variable remuneration in France

Whilst an employer is perfectly free to offer variable remuneration to an employee, the validity of such remuneration is subject to compliance with a number of conditions developed by the courts, as follows:

– the variation of the remuneration must be based on objectives or targets the accomplishment of which are independent from the employer’s will,

– such variation may not transfer the company’s operating risk onto the employee,

– it cannot result in reducing the total remuneration of the employee below the legal minimum wage.

If any of the conditions is not met, the clause is deemed to be null and void and the court is entitled to fix the amount of the variable remuneration.

A recent case provides an excellent illustration of the strict position adopted by the courts, requiring an appreciation in concreto of the fact that the criteria must not depend on the employer’s will.

In a case of the Supreme Court of 9^th May 2019, the employment contract provided for payment of variable remuneration based on 20% of the fees paid for the various cases handled by the employee. However, the fees themselves were those used by the employer for the establishment of the operating account of the Senior Management (direction générale). In addition the employee was not entitled to negotiate or conclude contracts with clients and could not fix the price of the contract. Furthermore, the amount of fees retained by the employer for the purpose of calculating the variable remuneration could vary from one client to the other and thus reduce the amount of remuneration. Therefore, in fact the amount of fees used as a basis for the calculation of the variable remuneration was decided solely by the employer.

The Supreme Court therefore held that the conditions of the variable remuneration were illicit.

Employers should therefore pay particular attention when deciding the manner in which variable remuneration is to be paid, as the risk for the employer in failing to comply with the conditions established by the relevant court decisions is that a more favorable variable remuneration can be decided by the judge should the case go to court.