Friday, March 2, 2012

France: Recent Developments

The French Supreme Court limits the types of employees eligible for "cadre dirigeant- exempt" status under French wage & hour law

By a recent decision of the French Supreme Court dated January 31, 2012, the French Supreme Court has clarified its position with the practical effect of significantly reducing the type of employee eligible for "exempt" status.

As many may remember, the "35-hour-a-week law", voted in 1998 (and which created much debate), did not provide that everyone in France would work 35 hours a week! Rather, managers "cadre"--considered to have great flexibility in their schedule and autonomy in the performance of their duties-- would not benefit from a reduction in the hours per week worked. Instead, they work only 218 days a year. As a practical matter this meant that those persons considered as "cadre" would be entitled to approximately 10 extra floating holidays per year.

Yet another category of employee, the "cadre dirigeant", "managing directors" were not practically impacted by the 35 hour a week law as their working hours and days worked both remained intact. Indeed, persons in this category do not benefit from many of the wage & hour law protections such as overtime pay, as well as no limits on the number of daily or weekly hours, and no prohibition for Sunday work either. As a result, many employers allowed the highest paid and most autonomous of their managers to be in this third category.

The French Labor Code sets forth the four conditions necessary to fall within the "cadre dirigeant" category:

► great responsibility
► great latitude in the organization of working time
► ble to take decisions in a largely autonomous manner
► compensation amongst the highest levels

In a recent case, the High Court has proclaimed that even, if the employee satisfies the four conditions for the "cadre dirigeant" status set forth in the French Labor Code, only employees actually involved in decision making and defining the strategy of the company from a social, economic, and financial perspective may be deemed as "cadre dirigeant".

In this recent case, the last condition was not fulfilled. As a result, the employee was deemed not be a “cadre dirigeant” and thus entitled to extra pay for overtime worked.

Based on the foregoing, companies should review whether the employees that are deemed as "cadre dirigeant" do satisfy the newly defined conditions set forth by the French Supreme Court in order to avoid legal risk and possibly litigation.

New French law further restricts the “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 making a profit on these services is prohibited except in very limited cases (temporary work agency, etc.).

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

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 dated 18 May 2011, unexpectedly modified this long-standing practice by significantly restricting it.

On 28 July 2011, a new law was passed expressly providing for a definition of “lending with no profit purpose.” According to the new law, the lending of employees has no profit purpose when the “loaning” company only charges the “borrowing” company the paid salary, the related social security contributions and the business expenses relating thereto.

The law also adds new requirements for the validity of the lending of employees with no profit purpose:

► Prior written consent of the employee concerned and amendment to their employment contract (mentioning the place of work, the working time and the job position); the employee must also be re-instated 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 reduce risk, such as criminal sanctions, with respect to the works council information and consultation process.

Roselyn Sands / Giani Michalon, Ernst & Young Societe d'Avocats