Friday, September 23, 2011

France: Summer Developments in French Labor Law

By Roselyn Sands and Giani Michalon, Ernst & Young Société d'Avocats, France

The French “days per year” (“forfait jours”) system is upheld in France yet subject to certain conditions

France is well-known for its 35-hour a week working time limit.

However, fewer know that managerial employees (“cadre”) and, under certain conditions (notably the autonomous nature of the employees duties) some non-managerial employees (“non cadre”) may work on the basis of a number of days per year (i.e usually 218 days worked/year) instead of a set number of hours per week.

The only limit expressly placed was the compulsory daily rest (11 hours) and weekly rest (35 hours).

Under French law, employees under the “day-a-year” system are entitled to some additional days off which may range from 0 to 10 days.

However, this system never placed any other maximum number of hours worked.

As a result, this French System was challenged before both the French courts and the European court on the grounds that it violated the European Social Charter as employees could be required to work as many as 45 hours per week.

A long-awaited decision on the validity of such mechanism was rendered on June 29, 2011 by the French Supreme Court.

In this case, an employee was hired in 2001 as a managerial employee to the days per year system (i.e. 217 days/year) pursuant to the applicable Collective Bargaining Agreement (CBA) of the Metallurgical Industry.

Following his resignation in 2006, the employee challenged his working time before the French Labor Court claiming notably for overtime payments given the failure of the employer to limit the number of days worked or control his workload.

Unlike what many commentators contemplated, the French Supreme Court did not throw out the validity of working time system based on a number of days per year.

However, according to the French Supreme Court such system, to be valid, must be subject to certain conditions which will ensure respect for the general principles relating to protection of health and safety of employees.

The French Supreme Court recalled notably that such system must be collectively bargained so as to guarantee respect of the maximum working time duration and the mandatory provision on daily and weekly rest.

As a consequence of this decision, employers should verify that the “day-per-year” system in place complies with the French Supreme Court ruling. Companies must not only ensure that the CBA provisions allow them to have employees working on the basis of a number of days per year, but also that such conditions are properly respected from a practical standpoint. Employment contracts should also be reviewed.

Otherwise, concerned employees will be in a position to challenge the working time duration and seek overtime payment.

This decision may therefore increase company’s exposure and collective bargaining is anticipated at an industry-wide or a company-wide level in order to mitigate this risk.

Increased dividend payments may trigger mandatory employee’s bonus payment

A new law dated July 28, 2011 requires the payment of bonuses to employees in certain cases when the employer decides a dividend distribution.

The new rules apply to employers (i) with 50 employees or more on a mandatory basis, (ii) those under 50 employees on a voluntary basis, and (iii) those whose share capital is owned at least at 50% by the State or its French public establishments.

The bonus has to be paid to all the employees when the dividend per share distributed to the shareholders is higher than the average of the dividends per share distributed in the two previous fiscal years.

Nevertheless, when a company belongs to a group, the amount of dividends which triggers the bonus payment will be the one distributed by the controlling company.

The new rules apply to distributions decided by the ordinary general meeting of shareholders (the agreement is subject to the modalities applicable to the signing of a profit-sharing agreement) or that the employer will grant on its own (in case of failure of the agreement negotiations).

An anti-abuse rule would apply: the bonus cannot replace remuneration increases or bonuses either agreed or paid on a voluntary basis or mandatory basis.

Up to EUR 1,200 per employee and per year, the bonus is exempted from social security contributions (except the general supplementary social contribution (CSG), the French contribution to the reimbursement of the social security debt (CRDS) and the flat social contribution "forfait social").

The payment of this bonus must be negotiated through collective bargaining between employer and union representatives at the company or group level.

Such collective bargaining agreement must be concluded within 3 months as from the dividend distribution and before October 31, 2011 for dividend distribution made prior to the publication of the law (ie. July 29, 2011).

If the parties cannot agree on the bonus modality or amount, the employer may take an unilateral decision subject to prior information and consultation of the works council.

Failure to start the negotiations would expose employers to criminal sanctions although the law provides for exemptions.

New French Law further restricts the possibility of “lending” of employees even if not for profit (“prêt de main d’oeuvre à titre gratuit”)

In France, the “lending” of employees to another company with the intention or result of having made a profit on these services is prohibited except in very limited cases (temporary work agency, etc.).

However, the “lending” of employees with no profit has been accepted by French case law.

Indeed, the “lending” of employees (with no-profit purpose) is a common and frequent practice especially within companies of the same group.

A recent decision of the French Supreme Court of May 18, 2011 unexpectedly modified this long-standing practice significantly restricting it.

A new law of 28 July 2011 clarified the situation: it provides expressly for the first time that “lending” of employees has no-profit purpose when the “loaning” company only charged the “borrowing” company the paid salary, the relating social security contributions and business expenses relating thereto.

However, this new law also adds new requirements for the validity of the “lending” of employees with no-profit purpose, notably:

- Prior written consent of the employee concerned and amendment to his/her employment contract (mentioning the place of work, the working time and the job position); the employee must also be reinstated within the loaning company with the same functions and remuneration at the end of the loan;
- A written agreement between the loaning and the borrowing companies with specific details of the arrangement;
- Information and consultation of employee’s representatives (works council or staff delegates and health and safety committee) of both companies concerned prior to the implementation of the loan system;
- A probationary period may be contemplated and is mandatory if the “lending” results in a significant modification of the employee’s terms and conditions of employment.

Even though this new legislation secures the common practice of the “lending” of employees for no-profit purpose, companies must comply with the new restrictive conditions to avoid any risk/criminal sanctions with respect notably to works council information and consultation process.

Greater flexibility yet reinforcement and reconfirmation that in France, French is the official language

In March 2011, the French Supreme Court introduced a significant slice of flexibility when it comes to variable remuneration based on objectives to be reached by employee.

Indeed, it adopted a quite favorable decision for employers considering that, under certain conditions, an employer may unilaterally modify the objectives determining an employee’s variable remuneration. Earlier case law required the employees’ written consent for any changes (even more favorable) to the remuneration of the employees.

In a recent decision of June 2011, the French Supreme Court has decided that any document providing for the objectives to be reached by an employee must be in French; otherwise it is not binding on the employee concerned.

In that case, an employee’s remuneration included a fixed part and a variable part subject to individual objectives determined annually.

Following his termination, the employee filed a claim before French Labor Court and notably claimed that the documents fixing his individual objectives were not binding on him given that they were written in English.

The French Supreme Court recalled that, pursuant French Labor code, “any document including obligations for the employee or provisions knowledge of which is necessary for the performance of his/her work must be written in French”.

As a consequence, it decided that the documents were not enforceable against the employee.
It is quite common for multinationals to communicate by e-mail or on the intranet with their employee in English either for basic information but also to provide for policies enforceable within the company or bonus plan.

Employers should review employee documentation drafted in English to avoid the risk of non-enforceability.