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The elements for determining the amount of the variable remuneration must not depend on the employer’s own will

A decision of the French Supreme Court of 9 May 2019 (No. 17-27448) provides an opportunity to emphasize the conditions for the validity of a variable remuneration scheme.

In the case at hand, the employee had brought an action before the Labour Court for constructive dismissal of his employment contract on the grounds that his variable remuneration clause allowed his employer to unilaterally determine the amount thereof.

The Court of Appeal had rejected this request, holding that, since the variable remuneration was based on the fees invoiced by the employee, the contractual clause was perfectly valid. The French Supreme Court nevertheless noted that the fees on the basis of which the variable remuneration was calculated were determined, on a case-by-case basis, by the management. In such circumstances, it considers that the variable remuneration depends solely on the appraisal of the employer, which makes the scheme illegal.

It is therefore necessary to be very careful when drafting variable compensation plans. Indeed, the variable remuneration must (i) be based on objective elements beyond the employer’s control, (ii) not make employees bear the company’s risk and (iii) not have the effect of reducing remuneration below the legal minimums.