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In a recent case, the French High Court ruled that a clause agreed upon by the parties may condition the definitive award of the full amount of a welcome bonus to the employee’s presence in the company during a defined amount of time and stipulate an obligation for the employee to reimburse a portion of the bonus equivalent to the portion of the defined period that the employee has not spent in the company due to resignation.
The employee in question was hired as a Financial Markets Operator on January 1st, 2016. The employment contract included a clause stating that an initial welcome bonus of €150,000.00 would be paid within thirty days of starting the position, and if the employee resigned within 36 months of starting, a portion of the bonus would have to be repaid.
The employee resigned on March 16th, 2017. As a result, the employer initiated legal proceedings before the Labour Court to reclaim part of the bonus based on the contract’s provisions.
However, the Court of Appeal dismissed the employer’s claim, stating that it was not valid to make the definitive award of the welcome bonus contingent on the employee not resigning during a defined period of time. This condition, which imposed a cost to the employee in the event of resignation, was deemed to infringe upon the employee’s freedom to work.
The employer appealed the decision to the French High Court, arguing that such a clause did not violate the employee’s freedom to work.
The High Court agreed with the employer, stating that a clause agreed upon by the parties, which aims to secure an employee’s long-term loyalty and isn’t related to the employee’s work, can condition the definitive award of a full welcome bonus to the employee’s presence in the company for a specific period after receiving the payment. It can also provide for the partial reimbursement of the bonus based on the portion of the defined period that the employee has not spent in the company due to resignation. According to the High Court, this does not unjustifiably or disproportionately infringe upon the freedom of employment.
Resignation and not dismissal
It is important to note that the judgment in this case only addressed resignation since that was the issue at hand. It remains uncertain whether the same solution would apply in cases of dismissal, including cases of serious or gross misconduct, as termination in those instances is initiated by the employer. The question also remains unanswered in the case of mutual termination. Therefore, caution should be exercised when drafting such a clause.
Partial rather than total reimbursement
The Court’s solution emphasizes that any infringement of the freedom to work caused by such a clause must be proportional to the aim of securing employee loyalty. Consequently, a clause requiring full reimbursement of the welcome bonus would likely be deemed unlawful as an unjustified and disproportionate infringement of the employee’s freedom to work.
Equal treatment
As with the payment of any bonus, the employer must observe the principle of equal treatment in awarding the welcome bonus. Payment of the bonus must be based on objective and relevant criteria, justifying a difference in treatment with employees in comparable situations, to avoid potential discrimination.
Bonus independent from the remuneration of the employee’s activity
it is crucial to highlight that the partial reimbursement of such a bonus is only admissible if it does not serve as compensation for the employee’s work. Its sole purpose should be to foster loyalty and ensure the employee’s presence in the company for a specific period. Remuneration is the obligatory consideration for work, and the employer cannot demand reimbursement if the work for which the payment is intended has been completed. Therefore, the purpose and aim of the welcome bonus must be carefully and precisely specified and should not in its amount be connected to the remuneration for the position e.g. a certain percentage of the employee’s salary
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