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France: Can the employer unilaterally modify the employee's objectives?

In a decision of March 2, 2011, the employment section of the French Supreme court set out the conditions which permit an employer to unilaterally modify an employee's targets.

In the case at hand, a sales engineer had signed an addendum to his employment contract which provided that he would receive a monthly fixed salary and a variable payment in the event of achievement of targets determined unilaterally by the employer within the framework of an annual variable compensation plan. Following a modification of the employee's targets, the employee considered that his contract had been unilaterally modified and therefore he initiated a claim before a Labor court to have his employment contract judicially terminated due to the employer's breach of contract.

Pursuant to the French Supreme court's traditional case law, the Court of appeal upheld the employee's arguments considering that if the determination of targets can be solely determined by the employer, any modification of the basis of calculation of the variable remuneration resulting from the modification of the targets "should have been subject to the prior consent of the employee since the direct consequence of the modification was the reduction of his variable payment".

The French Supreme court rejected the Court of appeal's analysis and found that the sales engineer's employment contract clearly stipulated that the determination of the targets conditioning the employee's variable payment was determined at the employer's sole discretion. Consequently, the modification of the employee's targets could not constitute a unilateral modification of the employee's employment contract.

Pursuant to this decision, when the employment contract provides that the targets conditioning the employee's variable payment are unilaterally determined by the employer, the latter can modify them without the employee's consent.

However, the French Supreme court further found that the new targets must be:

-        achievable; and

-        known by the employee at the beginning of the plan period.

Court decisions rendered in cases of poor performance have concluded that the achievability of the targets should be evaluated in particular in light of the employee's prior targets, the market situation and the targets/results of the other employees.

Hence in light of this decision, the targets can only be modified by the employer at the beginning of each plan period and not during the course of the year in which the targets/plan apply.

Therefore, from a practical standpoint, it is advisable to include in employment contracts and variable remuneration plans a specific provision providing for the possibility for the employer to unilaterally modify the employees' targets. In the absence of such provision, the employee's prior consent will be necessary for any modification of his/her targets.

In addition, it is important for the employer to ensure that the two conditions mentioned above are met. Concerning the new targets being known by the employee, the employer will need to obtain the employee's signature on a document which sets out his/her new targets and which is dated prior to the beginning of the variable remuneration plan period to be able to prove that the employee was made aware of the modification.

This new case law should not be interpreted as allowing employers to unilaterally modify other terms and conditions of variable remuneration plans. Indeed, modifying the other terms of the plan (e.g., calculation formulae of the remuneration) would still be considered by the courts as a modification of the employment contract requiring the employee's prior and express consent.

French Supreme court, March 2, 2011, N° 08-44.977

Source: Baker & McKenzie - GAI

For more information or to contact Baker & McKenzie, please click here.

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