Damages for Late Communication of Company Targets: Employer Liable for the Full Target Bonus
The Federal Labour Court (Bundesarbeitsgericht, BAG) clarifies: a target setting requires timely notification of the company targets as well (BAG, judgment of 22 April 2026 – 10 AZR 28/25).
Background
Variable remuneration is frequently linked to the achievement of targets that consist of company targets (such as revenue or earnings figures) and individual targets. It had been disputed whether the employer is also obliged to communicate targets where the amount of the bonus depends largely on company targets over which the individual employee has hardly any influence, and what the consequences of late communication are. The BAG decided this in its judgment of 22 April 2026 – 10 AZR 28/25.
Facts
The claimant had been employed as Manager Finance since 1999. She was entitled to an annual bonus of 15% of her annual salary (target bonus EUR 16,351.78). The details were governed by a works agreement (Betriebsvereinbarung); under it, the amount of the bonus depended on the achievement of company targets, which entered the calculation through a so-called financial modifier. An annex to the works agreement containing the details, to which the agreement referred, was missing. The company targets for the 2022 financial year were communicated to the employees only after the end of the financial year, at a town hall meeting. EUR 8,012.37 gross was paid (modifier of 49%). The claimant sought damages in the amount of the difference to the full target bonus. The Labour Court and the Regional Labour Court dismissed the claim; the appeal on points of law (Revision) was successful. The BAG awarded the claimant EUR 8,339.40 gross plus interest.
Legal assessment
Basis of the claim
Under section 280(1) sentence 1 of the German Civil Code (Bürgerliches Gesetzbuch, BGB), a creditor may claim damages for a breach of duty arising from the obligation; under sentence 2 this does not apply if the debtor is not responsible for the breach. If the debtor does not have to perform under section 275(1) to (3) BGB, the creditor may claim damages in lieu of performance under section 283 sentence 1 BGB subject to the conditions of section 280(1) BGB.
Setting targets for target-based remuneration is a determination of performance by the employer, which must be made at reasonable discretion (section 315(1) BGB). If the target setting is not made, or not made in time, the targets can no longer be achieved in the target period; the employer’s performance in the form of the bonus, which is tied to target achievement, can no longer be rendered in the agreed manner. The employee is then entitled to damages under sections 280(1), (3), 283 sentence 1, 275(1) BGB (see also the case law referred to by the BAG, including BAG, judgment of 12 December 2007 – 10 AZR 97/07; BAG, judgment of 19 February 2025 – 10 AZR 57/24).
Duty to communicate company targets as well
According to the BAG’s decision, the employer’s duty covers not only individual targets but also company targets, insofar as they determine the amount of the variable remuneration. The communication must precede the target period or be made early enough for the employee to still align their conduct accordingly. Communication only after the end of the financial year is not sufficient. The fact that the individual employee can influence the achievement of company targets only to a limited extent does not change this: the purpose of target setting, to create a performance incentive and transparency about how remuneration is calculated, requires that the targets are known in advance.
Responsibility for the breach
Responsibility is presumed under section 280(1) sentence 2 BGB. The employer must exculpate itself. According to the decision, a legal error as to the existence and scope of the duty to communicate does not exculpate the employer.
Amount of damages and burden of proof
Under section 252 sentence 1 BGB, the damages to be compensated also include lost profit. Under sentence 2, profit is deemed lost if it could have been expected with probability in the ordinary course of events or under the special circumstances. In addition, the damage may be estimated under section 287(1) sentence 1 of the German Code of Civil Procedure (Zivilprozessordnung, ZPO). The BAG regards 100% target achievement as the ordinary course of events. The employer may object that a lower level of target achievement would have occurred had the targets been set properly; it bears the burden of presentation and proof for this. A reference to an economically poor financial year is not sufficient. The employee’s individual influence on the company targets is irrelevant. The claim is directed at the difference between the target bonus at 100% target achievement and the amount already paid.
No contributory negligence
The BAG denies contributory negligence on the part of the employee (section 254 BGB). The burden of initiative for the target setting lies with the employer; the employee is not required to demand communication of the targets.
Recommendations for employers
Timing: communicate company targets and individual targets at the beginning of the target period, or at the latest at a time when they can still influence conduct.
Documentation: document the communication and its receipt in a verifiable manner (e.g. in text form to all eligible employees); mere information after the end of the period is insufficient.
Adjustments: if targets are adjusted during the period, this should be done on the basis of a contractual or collective adjustment clause and communicated to the employees.
Attainability: targets must be realistically attainable at the time they are set.
Governing documents: check works agreements and their annexes for completeness; missing annexes make proper target setting and the taking of evidence more difficult.
Provisions: for past cases with omitted or late target setting, assess the liability risk in the amount of the target bonus less amounts paid, and check any applicable exclusion and limitation periods.
Conclusion
The decision significantly strengthens the position of employees under target-based remuneration. An employer that communicates company targets only after the end of the target period risks liability for the full target bonus, without being able to rely on a weak financial year. Employers should therefore secure their target-setting processes in terms of timing and form. Please contact us with any questions on the design and review of bonus and target agreements.
As of: 27 October 2026
NIETZER Rechtsanwälte · Attorneys at Law (USA) · Heilbronn · www.unternehmensrecht.com
This article is for general information purposes only and does not constitute legal advice in an individual case.
