Spain: Is it lawful to condition Payment of Variable Remuneration on the Worker Remaining with the Company on 31 December?

Variable Remuneration: is it legal to condition its payment to the fact that the worker remains in the company on 31 December? A clause on variable remuneration, which is based on the objectives achieved on 31 December each year and that requires the worker to remain in the company on that date, is declared valid. This way, if the worker leaves the company voluntarily, the fact of denying the variable payment is not solely a decision of the company and neither does it produce unjust enrichment for the company. Furthermore, the worker’s right to receive the agreed remuneration is not infringed.

The company and the trade union sections agreed on a variable remuneration system established on the basis of the objectives achieved on 31 December each year. Also, in order to receive payment, it was necessary to remain registered with the company on that date, except for workers in cases of death, retirement and permanent disability, who will be paid proportionally depending on the days of employment at the company.

In the case at issue, the worker voluntarily left the company on 12-09-2015, requesting the accrued variable to date. As the company refused to pay, the worker filed a claim for payment, which was dismissed in the first instance, but which was admitted on appeal. As the company was in disagreement, it filed an appeal for the unification of doctrine before the Supreme Court.

The issue under debate focuses on determining whether an agreed variable remuneration, which is calculated based on the objectives achieved on 31 December of each year and requires being registered with the company on that date, should be paid, in proportion to the time worked, to a worker who voluntarily terminates before the end of the year.

To resolve the issue, the Supreme Court recalled that its case law declared a similar clause as illegal for the following reasons: for leaving the payment of variable remuneration in the hands of the company; for unjust enrichment; and for infringing the worker’s right to receive the remuneration as agreed during the provision of services (WS art.4.2.f). Applying these reasons to the judged matter, the Supreme Court recognises the following:

1. a) The aforementioned clause requires that the worker continue in the company until the end of the temporary period of accrual of the bonus (the end of the calendar year), because it is calculated on the basis of the objectives achieved on 31 December of each fiscal year, unless, due to reasons beyond the control of the employee, he/she cannot continue to provide services. On the contrary, if the worker voluntarily leaves the company, the literal text of the variable remuneration system agreed by the company with the union sections prevents its payment. Therefore, it is considered that this clause, correctly interpreted, does not leave its validity and compliance to the discretion of the employer. Although only death, retirement (forced or voluntary) or permanent disability are mentioned as causes beyond the worker’s control, the Supreme Court understands that other causes that prevent the worker from working for the company on 31 December, must also be included.
2. b) Nor can the doctrine of unjust enrichment be applied to this case, because the company’s action was justified by the agreement reached with the trade union sections, which conditioned the accrual of variable remuneration to the fact that the worker remained in the company until the end of the year. It is not illegal to agree on a variable remuneration above the minimum wage established in the collective agreement, conditioned on the permanence of the worker, who must continue in the company until the end of the accrual period. Said contractual justification excludes unjust enrichment.
3. c) In this judged case, the employer paid the agreed remuneration. The problem was that the agreement that set this variable remuneration established a condition consisting of employment with the company until the final accrual date, so the right to the agreed remuneration does not include the payment of the variable when the worker has voluntarily breached said condition.

Based on the abovementioned reasons, the Supreme Court upheld the appeal for the unification of doctrine and resolved the debate raised by confirming the ruling of the first instance, dismissing the claim.

Note: The Supreme Court has interpreted the clause, but in relation to a disciplinary dismissal of the worker, establishing that the clause was abusive for leaving the fulfillment of the obligation to the discretion of one of the parties, since, if the company dismisses the worker before this date, even if the rest of the requirements had been met, the variable remuneration would not be paid.

For more information on these articles or any other issues involving labour and employment matters in Spain, please contact Iván Suárez (Partner) of Suárez de Vivero at isuarez@suarezdevivero.com or visit www.suarezdevivero.com.