Employers: set targets in good time, otherwise there is a risk of claims for damages

Failure to set targets: employee sues for damages

An employee with management responsibility had agreed variable remuneration linked to company and individual targets in his employment contract. A company agreement also stipulated that the targets had to be set by March 1th of the respective year.

The employer had not set any targets for the employee for 2019. The company targets and specific figures were only announced in October 2019; individual targets were still not set for the employee concerned. Nevertheless, the employee received variable remuneration for achieving the personal targets.

The employee brought an action before the labor court on the grounds that his employer was liable to pay him damages as he had not been given the individual and company targets in good time. He therefore had no opportunity to react to the targets and achieve them. Had the employer communicated the targets to him in good time, he would have been able to achieve them. 

The employer countered that the target had been set in good time and was appropriate. The plaintiff could only demand a performance target. 

After the employer had prevailed in the first instance, the Regional Labor Court overturned the ruling in the second instance and ordered the employer to pay damages. The employer's appeal to the Federal Labor Court (BAG) was unsuccessful. 

Reasons given by the BAG

The BAG ruled in favor of the employee. It was of the opinion that the employer had culpably breached its obligation under the works agreement to set the relevant targets. The late announcement of the targets had destroyed their motivational and incentive function, and a subsequent determination in October was therefore ineffective. Consequently, the employee had a claim for damages in the amount of the lost variable remuneration.

The BAG denied contributory negligence on the part of the employee due to a lack of cooperation on the grounds that the employer alone bore the burden of initiative for setting the targets. 

Employer's responsibility for targets: Important consequences of judgment

For companies, this ruling means that they must design internal processes in such a way that targets for variable remuneration are communicated clearly and on time, as otherwise they will be liable for damages, even if the targets are missed. Internal processes within the company must be timed so that the targets can be communicated in good time within the bonus year. 

Particular caution is required if a date for communicating the target has been set in (company) agreements. 

In this case, the BAG considers the burden of initiative to lie solely with the employer. It remains to be seen whether contributory negligence on the part of the employee due to a lack of cooperation can be considered or is generally excluded, as the written reasons for the BAG's judgment are not yet available and only the press release is available so far. The BAG has so far assumed contributory negligence on the part of the employee (BAG, judgment of 12.12.2007 - 10 AZR 97/07) if the employee fails to address the employer about the target agreement. For the employer to be fully liable, however, it is sufficient for the employee to ask the employer to start negotiations - the employee does not have to propose specific targets.

BAG press release of 19.2.2025 on the judgment of 19.2.2025 - 10 AZR 57/24