BAG: Missing bonus targets mean full payout

The Federal Labor Court ruled that employers must communicate bonus targets at the start of the performance period. If they fail to do so, employees are entitled to the full bonus amount as damages. The decision clarifies that unclear or delayed target-setting violates contractual obligations.

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Ruling: Full bonus due if targets missing

The Federal Labor Court (BAG) ruled on April 22, 2026 (case no. 10 AZR 28/25) that employers must communicate bonus targets at the beginning of the performance period. If they fail to do so, employees are entitled to the full bonus amount as damages. This means if your employer didn’t share the specific goals for your bonus calculation at the start of the year, you may be owed the full bonus amount.

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Why the court decided this way

The court found that bonus agreements require clear, upfront targets. The employer’s bonus policy stated that targets would be set at the beginning of each year, but the company failed to communicate them. This violated the employment contract and a company-wide agreement (Betriebsvereinbarung). Without knowing the targets, employees couldn’t align their work to meet them, making it impossible to fairly assess performance later.

What happened in this case

A finance manager at a U.S.-based company in Germany had a contract promising a 15% annual bonus based on individual and company performance. The company’s internal rules required setting and communicating specific financial targets (like sales and profit goals) at the start of each year. For 2022, the company never shared these targets with employees. Instead, it later claimed the targets weren’t met and paid only 49% of the bonus. The employee sued for the difference.