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France

January 15, 2021

By Stephane Henry and Alexandre Ruiz

Back to International Employment Law

France

KEY DEVELOPMENTS FOR 2021


 

Recent decision restricting the definition of joint-employment

Companies belonging to the same group must coordinate their business activities and policies, to the extent that subsidiaries may be placed under the subordination of the parent company and lose some autonomy when acting as an economic player but also as an employer.

Pursuant to French law, "joint-employment" is defined as the situation where the relationship between two or more employers is so deep and integrated that those companies should be considered as one sole company with respect to their respective employees. Unlike a standard employer-employee relationship, in which a unique employer (for instance, a subsidiary which financial means are limited) bears the financial responsibility for its employees, these responsibilities are jointly borne by the subsidiary and the parent company in a situation of joint-employment.

French case law used to consider that there was a situation of joint-employment between two companies in case of confusion of (i) interests, (ii) activities, and (iii) management. In 2016, the French Supreme Court specified that joint-employment would be recognized only when a significant loss of autonomy of the subsidiary could be evidenced, for instance when the hiring process was conducted by the parent company (French Supreme Court, Labour section, 6 July 2016, n°14-27.266).

In a decision dated 25 November 2020 (n°18-13.769), the French Supreme Court went even further by stopping the use of the three abovementioned criteria to define joint-employment. According to the Court, the criterion to be taken into account to determine the existence of a joint-employment is the total loss of autonomy of the subsidiary. In this case, the Court of Appeal of Caen had recognized a situation of joint-employment between a subsidiary and its parent company due to the fact that the human resources were directly managed by the parent company and that strategic and commercial decisions were taken by the parent company. The Supreme Court held a more stringent position by considering that joint-employment involves a permanent interfering of the parent company with all aspects of the management of its subsidiary. Otherwise, the latter does not totally lose its autonomy (French Supreme Court, Labour section, 25 November 2020, n°18.13.769).

That more stringent definition of joint-employment should limit the legal risk exposure of a foreign parent company with respect to the workforce of their French subsidiaries, especially in the event of reorganization and collective dismissal.


 

Recent decision concerning the transfer of criminal liability relating to acts committed by an absorbed company

Pursuant to French legislation and the French criminal code in particular (article 121-1 according to which "none are held criminally liable for any but their own doing"), in case of a merger of two companies, the merging company could not be condemned for criminal acts committed by the absorbed company (i.e., a third party) before such merger.

However, in a recent decision rendered on 25 November 2020 (n°18-86.955), the French Supreme Court modified its position in this regard by stating that the merging company can be criminally sentenced to pay a fine for criminal offences committed by the merged company before the merger. The Court explained that the economic and operational continuity of the corporate body involves that the merged company should not be considered different from the merging company. It is worth noting that this French case law is in line with the case law of the Court of Justice of the UE (CJUE, 5 March 2015, C-343/13, Modelo Continente Hipermercados SA v. Autoridade para as Condiçoes de Trabalho) and the Europezan Coiurt of Human Rights (ECHR, 5th section, 1 October 2019, n° 37858/14, D. 2020. 475)).


 

Absence of any protection for an employee alleging discrimination in bad faith

Pursuant to French law (article L. 1132-2 of the French labour code), any employee denouncing facts of discrimination cannot be sanctioned, in order to avoid any possibility of retaliation by the employer against his employee.

With this in mind, the query arose as to what the options are of an employer facing the situation where an employee wishing to be protected against potential dismissal, claims knowingly and in bad faith that discriminative acts would have been committed against him or other employees of the company. Pursuant to French case law, it is clear that the bad faith of the employee cannot be deduced from the mere fact that the discrimination could not be proved.

In a recent case, an employee sued its employer pretending that he was discriminated by the employer due to his ethnical affiliation. Concomitantly, the employee seized a specific French body ("Défenseur des Droits") who is specifically in charge to check whether discriminative acts were committed. Such body decided to close the case with no further action.

The employee was then dismissed for serious misconduct, for proclaiming constantly that he was discriminated by his employer. He therefore challenged the validity of his dismissal.

The French Supreme Court recalled that an employee denouncing discrimination acts could not be sanctioned, unless his bad faith can be proved. In the present case, the Court pointed out that: (i) the employee never complained about any discrimination during the working relationship, (ii) he tried but failed to obtain, between two contracts, the payment of a significant financial package, and (iii) the alleged facts of discrimination were very evasive and not detailed. The Court considered that these three circumstances were sufficient to prove the bad faith of the employee and ruled that his dismissal was valid.


 

COVID-19 related measures

Covid-19

COVID-19 will still be a crucial issue in the coming year. Some investigations to check whether the company that received public subsidies met all the required criteria will be intensified over the next months. If it is proven that the situation of the company was not sufficient to benefit from the public subsidies (in particular, partial unemployment allowance), such company may have to reimburse such amounts and to pay penalties depending on the circumstances.

Reform of the retirement system

In 2019, a significant reform of the French retirement system had been adopted by the Parliament. The main aim of such reform, which gave raise to many criticisms in the public sector, was mainly to harmonize the many existing retirement schemes in France.

Due to the COVID-19 crisis, the Government decided to postpone the application of this controversial reform to 2021. However, the discussions did not really start and we cannot totally exclude that this reform will be postponed once again or even merely withdrawn in the next weeks/months.

Reform of the unemployment insurance

Adopted in July 2019, the objective of this reform about unemployment insurance was to save around 1.1 and 1.3 billion Euros per year in hardening the rules of indemnification.

For the same reasons than for the retirement, the French Government temporarily postponed the application of the unemployment insurance scheme.

The Government indicated to the trade unions that new discussions would occur in Autumn 2021 concerning this reform in order to adapt it to the current situation.

 

KEY DEVELOPMENTS FOR 2020


 

Recent decision concerning the status of Uber drivers

In France, the vast majority of Uber drivers are independent contractors (auto-entrepreneurs) and do not benefit from the French status of employee (and the corresponding protective rules that come with employee status).

In order to avoid a significant difference of treatment between certain categories of employees and Uber drivers, the French Government forced Uber (and the companies employing drivers according to the same business model) to provide the drivers with a minimum level of protection (e.g., insurance against work related accident) in 2016.

In spite of these measures, a former driver sued Uber in order to recognize that he should have been considered as an Uber employee rather than a mere independent contractor. The arguments put forward by the driver highlighted that he was fully subject to the decision making of Uber, including a prohibition to have his own clientele, prohibition to fix the prices, possibility to be sanctioned by Uber in case of wrong itinerary, etc.

The French Supreme Court confirmed the decision rendered by the Court of Appeal of Paris in 2019 and considered that the relationship between the claimant and Uber must be requalified into an indefinite-term employment agreement.

As a result of this decision, and given that the so-called independent contractor relationship had been terminated before this judgment, the claimant benefited from a severance package and an indemnity in lieu of notice.

Even if this decision does not prevail as being an automatic requalification into a permanent employment agreement for any Uber driver (as such requalification is rendered on a case-by-case basis), we believe that this may affect Uber's global business model (and other companies with similar business models), at least in France.

In addition, this decision may result in a reaction from the French Agency for the Recollection of Social Contributions (URSSAF). It may be keen to seek reimbursement of all the social contributions that have not been paid by Uber in France over the past three years. This would strongly affect the financial performance of the company and may even lead to Uber's French activities shutting down.

The best solution to help create some certainty in respect of employment status may be to establish a new and intermediary type of contract. Even though this contract would be less protective than a full and standard indefinite-term employment agreement, it would be more protective than the current independent contractor status.


 

Reform of the unemployment insurance system

Two new decrees have been promulgated to reshape certain regulations applicable to the French unemployment insurance system.

The main objectives of this reform consist of (i) fighting against the abusive recourse to short-term contracts (which represent 77% of total recruitments in France), and (ii) increasing the attractiveness of working compared to unemployment benefits (which are relatively high in France compared to other countries), in particular, by decreasing unemployment benefits for executive-level employees.

  • measures against the abusive recourse to short-term employment contracts
    Pursuant to this reform, only seven business lines using a high number of short-term employment contracts (agri-food industry, transportation, water purification industry, etc.) will be the first subject to a new 'bonus-penalty' system. Over a second phase, this system will be applicable to all companies registered in France. According to this system, the more a company uses short-term employment contracts, the more social contributions will increase (and vice versa).
  • implementation of new regulations that encourage any unemployed person to find a new job rather than remain unemployed
    In order to support employment, the Government has established new rules enabling the French unemployment agency to progressively decrease the benefits payable to executive-level employees.

 

Confirmation of the validity of the Macron scale

A scale setting the minimum and maximum compensation amounts to be paid to French employees for unfair dismissal (depending on their years of service) was published in 2017. The aim of this scale (i.e., the Macron scale) was to enable the employer to have a better view of the costs attached to dismissals in France.

Pursuant to the Macron scale, employment judges cannot, in principle, exceed the maximum compensation amount fixed in such scale in the event of an unfair dismissal. However, several employment tribunals challenged the validity of the Macron scale and awarded compensation to certain employees which exceeded the maximum awards set out in the scale. The judges did so on the basis that the scale did not provide the employees with fair compensation in light of the harm suffered.

Consequently, there was an intense debate concerning the applicability of the Macron scale. This debate was settled by two recent decisions rendered by the French Supreme Court and the Court of Appeal of Paris. It was confirmed that the Macron scale was lawful and enabled a 'proper compensation' of the harm suffered by employees.

 

KEY DEVELOPMENTS FOR 2019


 

New assessment tool to assess gender equality

Pursuant to the new Act (loi “Avenir Professionnel”, n°182/2018, dated 8 September 2018), a new assessment tool will be implemented with effect from 2019 to assess whether companies are complying with gender equality. This assessment grid will be based on 5 criterions with a possible total score of 100 points. The 5 criterions are as follows: (i) remuneration gap between women and men in the company concerned, (ii) chance for a woman to obtain a rise of remuneration, (iii) chance for a woman to be promoted, (iv) percentage of pay rise following a maternity leave and (v) number of women amongst the top ten remunerations.

  • If a company scores less than 75 points, it will have a three-year period to reach the threshold of 75 points (although the results must be published on the company's website each year). If it fails to score 75 points after the three-year period, the company will have to pay a fine that may amount up to 1% of the global wage bill.
  • This Act will come into force on 1 March 2019 and will initially apply to companies employing at least 1,001 employees. Companies employing between 251 and 1,000 employees will be subject to the same obligations, but will benefit from a transitional period until 1 September 2019. Companies employing between 50 and 250 employees will be subject to these new obligations from 1 March 2020.

 

Merger of complementary pension schemes

Over the last decade, all private sector employees were subject to a first complementary pension scheme (“Arrco”), while executives also benefited from a second complementary pension scheme (“Agirc”) and were entitled to higher pension allowances than those granted to non-executives. As of 1 January 2019, the complementary pension system for all private sector employees has been simplified as a result of the merger of Agirc and Arrco into a single pension scheme. Each employee, regardless of his/her status, will now benefit more from a harmonized complementary pension program.

his reform is the first step in relation to further significant reforms regarding the merger of all 42 French pension schemes.


 

Future key reform: prospective merger of all French pension schemes

In 2019, the French government intends to unify all 42 pension schemes currently in force in the private and public sectors. The rules and conditions applicable to the 42 schemes are very different from each other. For example, pension allowances granted to civil servants are based on remuneration granted over the last 6 months before retirement, while the reference period applicable to employees in the private sector corresponds to the last 25 years before retirement.

The proposed reform is expected to raise many discussions between the Government, unions and employers’ associations and Parliament. Needless to say this reform will be very challenging from a political and social perspective.

 

KEY DEVELOPMENTS FOR 2018


 

Macron Ordinances

On September 23, 2017, the French government enacted 5 ordinances amending some of the key provisions of the French employment code known as the ‘Macron Ordinances’.


 

Statutory Damages for Unfair Dismissal

Damages granted by employment tribunals will be capped depending upon the length of service of the employee and the size of the company. The cap ranges between 0.5 and 10 months of salary in companies employing less than 11 employees, and between 1 and 20 months of salary in companies employing more than 11 employees. Judges are not bound by this damages scale in case of harassment, discrimination and/or violation of a fundamental right.


 

Macron Ordinances – Increase in Legal Severance Pay

Any employee with more than 8 months of service is entitled to receive as severance pay 25% of their average monthly salary for each year worked in the company (instead of 20% previously) for the first 10 years of service (and 33% for the following years of service save where there is a more favorable formula provided by an applicable business sector CBA, in which case the later formula would apply.


 

Changes to Criteria for Redundancy Situations for International Group Companies

When an international group is considering whether there is a legitimate redundancy scenario in France, this will no longer be by reference to economic situation of the wider international group, but will instead be by reference to the economic difficulties faced in France alone.


 

Creation of a New Employee Representative Body

The staff delegates, the works council and the health and safety committee will be replaced by a new employee representative body (the “Social and Economic Committee”). This new representative body will have to be implemented in any company having at least 11 employees between January 1st, 2018 and the end of 2019, and is intended to perform the duties previously carried out by any staff delegates, works council and / or health and safety committee.


 

Implementation of the Collective Mutual Agreed Termination Agreement

An employer must enter into a company’s collective mutually agreed termination agreement detailing the maximum number of terminations contemplated and the number of job losses. Once concluded, the agreement must be sent to the French labor administration for approval within 15 days. If the administration does not approve the proposed agreement, the employer may abandon the project or insert the modifications requested by the administration and then re send the revised agreement. Once the collective agreement is approved, affected employees are entitled to leave the company in accordance with its terms and conditions. Employees must then benefit from a termination indemnity at least equal to the severance paid in the case of dismissal, and the employee has the right to challenge the validity of the mutually agreed termination within 12 months of termination.

 

KEY DEVELOPMENTS FOR 2017


 

Introduction of significant changes to the French Labour Code in relation to company-level agreements, redundancy, TUPE and changes to collective status

The Employment Law which came into force on 8 August 2016 (referred to as the El Khomri law n°2016-1088) introduced significant changes to the French Labour Code. Most of these changes will become effective in 2017 as and when dozens of implementing decrees will be issued. The key changes introduced are to:

  • Company-level agreements relating to working time, rest time, and vacation can now provide less favourable provisions than agreements entered into at a higher level if signed by unions representing more than 50% of the employees or by unions representing more than 30% of the employees and then approved by the majority of the employees through a specific referendum process. These new regulations relating to company-level agreements are applicable as of 1 January 2017 and will otherwise be more generally applicable as of 1 September 2019.
  • Redundancy plans, by defining more precisely the economic grounds which must be put forward in order to proceed with a valid redundancy. Effective as of 1 December 2016, the Labour Code provides a more detailed definition of “economic difficulties”, to be reflected or evidenced by objective criteria, i.e., a decrease in orders or turnover, or operating losses, erosion of reserve fund, or of the gross operating surplus, or by any other element likely to justify these difficulties. The Code will also then specify the minimum duration for relevant decreases in orders or turnover reflecting economic difficulties, i.e., at least one quarter for a company of less than 11 employees, at least two consecutive quarters for a company of 11 to 49 employees, at least three consecutive quarters for a company of 50 to 199 employees, and at least four consecutive quarters for a company of 300 employees or more.
  • The TUPE regulations which apply on a transfer of an undertaking, provide that all employment agreements assigned to the transferring business are automatically transferred to the purchaser. The transferor was therefore not allowed to implement redundancies prior to the transfer. Effective since 9 August 2016, article L. 1233-61 of the Labour Code allows the transferor to implement redundancies prior to a transfer in limited circumstances, thereby preventing the transfer of employment agreements to the purchaser.
  • The simplification of the harmonisation process where employees with different benefits derived from different collective bargaining agreements are brought together, for example by way of a merger.

 

New rules applicable to employment-related litigation at first instance and appeal level

Following the issuance of a Decree on 20 May 2016, and effective as of 1 August 2016, new litigation rules will significantly impact the litigation process applicable to employment-related claims, including mainly:

  • the obligation for the plaintiff to detail his/her claims and communicate his/her supporting evidence when initially filing claims in the first instance labour court;
  • employees filing a claim before the labour courts are no longer prevented from filing subsequent claims in connection with the same employment contract; and
  • in the case of appeal, appellants are no longer entitled to plead their case themselves, they must be assisted by a lawyer or union representative.

 

Revision of unemployment benefit scheme

The unemployment insurance scheme currently applicable in France is the result of a negotiated agreement between employers’ and employees’ organizations. The unemployment insurance scheme is financed through contributions paid on employees’ salaries. The amount and duration of benefit payments depend inter alia upon the period during which the claimant has contributed to the scheme and total contributions paid. Monthly unemployment benefits are usually equal to approximately 57% of the employee’s previous compensation (within the limit of €12,872 per month in 2016) and are served during a maximum two-year period, extended to three years for employees aged 50 or over.

The unemployment benefits scheme is being renegotiated by employers’ associations and employees’ unions organizations in the coming months as it is no longer sustainable considering the current unemployment level in France (the debt of the unemployment benefits scheme will reach €29.4 billion by the end of 2016 and €35 billion by 2018).

 

KEY DEVELOPMENTS FOR 2016


 

Merger of the consultation procedure with works council by reduction of topics under Rebsamen Act

As of 1 January 2016, the 17 topics to be discussed with works councils each year are organised into three consultation rounds regarding respectively (a) the strategy of the company, (b) its economic and financial situation, and (c) social policy, working conditions, and employment.

Furthermore, the Rebsamen Act has also modified the frequency of works council meetings as of 19 August 2015 to:

  • every two months in companies having less than 300 employees; and
  • every month in companies having 300 or more employees.

 

Merger of negotiations with unions by reduction of topics under Rebsamen Act

As of 1 January 2016, employers can now decide to reduce the number of mandatory negotiations to be conducted with unions each year from 12 to three, i.e., (a) professional equality between men and women and well-being at the workplace, (b) salary, working time, and profit-sharing ((a) and (b) to be conducted each year in any company), and (c) management of employment and career development - to be conducted every three years in companies which have 300 or more employees.


 

Increased flexibility for work on Sunday and evening work under the Macron Act

In certain areas in retail (under certain circumstances), some stores are entitled to open on Sundays and in certain international tourist areas, employees of retail shops including large department stores can work at night (i.e. between 9:00 p.m. and midnight), provided, in both cases, that employees are volunteering, eligible for increased compensation, and are entitled to accompanying measures (e.g., transportation means to be paid by employer) and to time off in compensation.

All those items are to be negotiated between employers and unions. Most French unions remain opposed to the softening of work schedules and to date, few company-wide collective agreements have been entered into.


 

Increased flexibility to renew fixed-term employment agreements under the Rebsamen Act

Most fixed-term employment agreements can now be renewed twice but the total duration of the fixed-term agreements, even renewed twice, must not exceed the maximum limits of 9, 18, or 24 months applicable depending on the terms of the fixed-term agreements.

Contributors

Image: Stephane Henry
Stephane Henry
Partner, Employment Law Department

Image: Suzanne Horne
Suzanne Horne
Partner, Employment Law Department

Image: Kirsty Devine
Kirsty Devine
Associate, Employment Law Department

Image: Alexandre Ruiz
Alexandre Ruiz
Associate, Employment Law Department

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