Employees Entitled to Compensation for Delayed Target Setting by Employers
Background
In a recent ruling, the German Federal Labour Court (Bundesarbeitsgericht) has determined that employees have the right to claim damages if their employers fail to set performance targets for bonus payments in a timely manner. The court’s decision was issued in a case from North Rhine-Westphalia (reference number: 10 AZR 57/24).
Key Findings
According to the court, employers are legally obligated to provide employees with clear performance targets within a reasonable timeframe. Failure to do so constitutes a breach of duty and entitles employees to seek compensation for any resulting financial losses. This applies to both individual target agreements and company-wide bonus systems.
Employer’s Responsibility
The court emphasized that the employer bears the primary responsibility for setting performance targets. Employees have no obligation to actively participate in this process or to propose targets themselves. If the employer fails to set targets on time, the employee is not considered to have contributed to any resulting damages.
Case Details
The case in question involved a manager who had a contractual right to variable compensation based on achievement of certain targets. According to the company’s policy, targets were required to be set by March 1st. However, the manager received a delayed and unspecific target that included only general revenue and profit goals.
Following the bonus payout, the manager received a variable compensation of €15,586 gross. However, he claimed that the delay in setting targets had resulted in a loss of €16,035 gross and filed a lawsuit for damages.
Court Decision
The Labour Court initially dismissed the manager’s claim, but the Higher Labour Court overturned this decision, agreeing that the employer’s tardy target setting had caused financial harm to the employee. The Federal Labour Court upheld this ruling, ordering the employer to pay compensation.
Implications for Employers
This ruling highlights the importance for employers to establish clear and timely performance targets for employees who are eligible for variable compensation. Failure to do so can result in legal liability and the obligation to pay damages for any financial losses incurred by the employee.
Best Practices for Employers
To avoid potential legal issues, employers should implement the following best practices:
- Establish clear policies and procedures for setting performance targets.
- Communicate targets to employees in a timely and transparent manner.
- Provide employees with regular feedback and support throughout the performance cycle.
- Document all communication and target-related decisions carefully.
- Be willing to adjust targets if circumstances change significantly.
By following these best practices, employers can effectively manage performance expectations, ensure fairness, and mitigate the risk of legal disputes with employees.
