Variable remuneration – no entitlement to the full target income during parental leave

Facts of the case

The parties are in dispute over a claim for further variable remuneration for the year 2022. The claimant has been employed by an insurance company since 1999 as a decentralised organisational manager in the field. His role consists of supporting the sales partners assigned to him. The remuneration is based on a general works agreement which provides for an annual gross target income consisting of a fixed component and a variable performance-related remuneration. The so-called performance-related remuneration depends on the sales performance of the sales partners assigned to the employee.

The employee took a total of 62 calendar days of parental leave in 2022. His sales partners achieved a turnover of around €2.5 million in the 2022 calendar year, resulting in a target achievement rate of 148.1%. The company calculated a performance-related bonus of €43,062.74, but reduced this by €7,416.36 for the 62 days of parental leave. The employee is demanding payment in full. He argued that the collective agreement – unlike the superseded collective agreement – contained no explicit provision for reduction and that the variable remuneration was linked exclusively to quantitatively measured sales performance.

The decision

The Federal Labour Court (BAG) held that the pro rata reduction of the so-called production-related remuneration was lawful. The key reasoning was that, during parental leave, the employment relationship is suspended by operation of law, meaning that the principal reciprocal obligations – the performance of work and the obligation to pay remuneration – are suspended. The principle of ‘no work, no pay’ follows from this reciprocal relationship. There was no need for an explicit reduction provision in the company-wide agreement, as the loss of the entitlement to remuneration follows directly from the law.

The Federal Labour Court interprets the company-wide agreement to mean that the production-related remuneration – just like the fixed component – is remuneration based purely on work performance. The fixed and variable components form a single target income and are mutually interdependent (in legal terms: ‘synallagma’). The performance-related nature of the remuneration is supported in particular by the combination of both remuneration components into a single income, the substantial amount of the variable component, and the absence of other purposes such as loyalty to the company or a bonus-like character. The fact that the collective agreement – unlike the previous arrangement – did not contain an explicit reduction clause does not preclude this; there was no deliberate waiver of the statutory principle. In this specific case, it was also the case that the employee did not bring about the achievement of targets directly through his own performance, but only indirectly through the sales partners under his supervision.

Implications for practice

Variable remuneration components that form part of a uniform target income within a synallagmatic relationship may be reduced on a pro rata basis for periods during which the employment relationship is suspended – in particular parental leave – without the need for an explicit reduction provision in a works agreement. Employers may invoke the statutory principle of ‘no work, no pay’. The decisive factor is the structure of the variable remuneration: if it is performance-related and forms part of the synallagmatic remuneration, the statutory principle applies. The situation may be different if performance-related pay exclusively and directly remunerates a work outcome achieved through one’s own performance – in which case the period in which the outcome was achieved may not be relevant.

Practical tip

When drafting company-wide agreements on variable remuneration, companies should consider whether to include an explicit reduction clause for periods of leave – even if this is not strictly required following this ruling. A clear provision increases legal certainty and avoids disputes. During target-setting meetings, it is advisable to openly discuss the implications of upcoming parental leave and adjust the target figures where necessary.