Contracts must be performed in good faith

The court can check whether the parties are performing their contract in good faith. In a judgment of 20 December 2021, the Supreme Court recalls that the judge may not go too far and simply place himself in the employer’s position, even if he finds that the latter has not performed its contract in good faith. If the employer grants a specific (lower) bonus and does not execute the bonus plan in good faith, the judge cannot simply grant the maximum bonus without verifying whether the employee would have received it if the employer had exercised its rights in good faith.

An employer considered that its employee had only partially fulfilled the bonus conditions (including the requirement of “active involvement” in a specific project) and decided to award him only 25% of his bonus amount. The employee disagreed with this and went to court in order to obtain a higher bonus.
The Labour Court of Brussels agreed with the employee and decided:
  • that there had been a breach of the right of defence because the employee had not been given the opportunity to express his views on his inadequate performance;
  • that the employer should at least have informed the employee of the fact that his performance was assessed as unsatisfactory, as this would have given him the opportunity to rectify the situation if the remarks were justified, or to challenge the findings.
By reducing the bonus to 25% in this way, the employer did not perform the contract in good faith, according to the labour court. As a sanction, the employer was ordered to pay the maximum bonus. This had a heavy financial impact on the employer, because not only did the full bonus have to be paid, but this payment also had an impact on the severance payment and the compensation for loss of clientele.
However, the Supreme Court came back on the decision of the labour court: if the judge finds that a party has not executed the contract in good faith, he cannot apply any sanction he deems appropriate. Thus, he cannot take the place of the employer and award the maximum bonus. On the other hand, he can only consider what the result would have been if the contract had been performed in good faith and in a normal and careful way. 
Therefore, even if the employer has violated good faith, the court cannot simply award the maximum bonus:
  • without establishing that the employer would have awarded the maximum percentage of the bonus if he had performed the contract in good faith; and
  • without establishing that the normal exercise of the right (in this case, the right of the employer to assess the extent to which the bonus conditions have been fulfilled and the right to determine the bonus percentage in the light thereof) would have implied the granting of the maximum bonus.
Thus, the Court recalls in this judgment that the court may only reduce the right to its normal exercise or impose only the compensation of the damage caused by the abuse.

Action point
First of all, it is important to remember that contracts must be respected (“pacta sunt servanda”) and performed in good faith.

Furthermore, even if this obligation of “good faith” were not respected, the judge may not make the assessment in the employer’s place, nor may he simply invalidate the employer’s assessment. He may only ascertain whether the employer has exercised its right in a manifestly unreasonable way and he may only reduce the right to its normal exercise.


Related : Claeys & Engels

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