© 2011 winston & strawn llp...didoing bibusiness in france: the bibasics of french employment...

D i B i i F Th B i fDoing Business in France: The Basics of French Employment Law

Brought to you by Winston & Strawn’s Labor and Employment

Relations Practice Group

© 2011 Winston & Strawn LLP 2

Today’s eLunch PresentersToday s eLunch Presenters

Sébastien Ducamp Labor and Employment Relations

Paris

SDucamp@winston com

Barbara HartLabor and Employment Relations

Paris

BaHart@winston [email protected] [email protected]


General presentationGeneral presentationPurpose of this eLunch?

Based on our substantial experience in employment counseling for major international industries, we selecteda few topics that we thought could be of interest to in‐house legal counsel, Human Resources managers anddirectors, and in general, to anyone who has or is about to set up a business in France.

This presentation is by essence subjective and incomplete.

During the eLunch, we will provide you with an overview of the following topics:‐hiring an employee and negotiating an employment agreement,g p y g g p y g ,‐managing the employment relationship (via three examples of practices that might create legalissues),‐terminating an employment agreement


Hiring and negotiating an employment agreementHiring and negotiating an employment agreement

Hiring: Key Elements

Freedom governs the hiring process.

Main restrictions to take into consideration are (i) the immigration rules restricting the access to the national ( ) g glabor market, (ii) the protections against discrimination, and (iii) the compliance with contractual non compete provisions.

Freedom to hire restricted by immigration rules:y g Total freedom for EU citizens (free movement among EU is a fundamental principle of EU law): no work

permit required. However, temporary exemptions for Bulgarian and Romanian citizens (work permit needed).

For non‐EU citizens: a work permit is required.

Sanction: up to 5 years' imprisonment and/or fine of €15,000 maximum for the representative of the employer/fine of €75 000 maximum for the companyemployer/fine of €75,000 maximum for the company.

Decreasing difficulties to obtain a work permit whereas the managerial status and level of compensation is increasing.

Note: in case of temporary assignment of managerial employees (assignment within the French subsidiary of the group), it is now pretty easy to obtain a work permit.



Hiring: Key Elements Freedom to hire: restricted by non‐discrimination rules

An employer may choose any candidate to provide a free position within his company without justifying its choice.

However, discrimination in hiring based on origin, sex, sexual orientation, age, family situation, pregnancy, genetic ethnicity race political opinion trade union membership/activity religion physical appearancegenetic, ethnicity, race, political opinion, trade union membership/activity, religion, physical appearance, name, health, disability is prohibited.

Sanctions: damages for the victim of the discrimination. Criminal liability: up to 3 years' imprisonment and/or fine of €45,000 maximum for the representative of the employer/fine of €225,000 maximum for the company.

Practical advice: no questions to candidates that are not directly connected to the nature of the job. Keep d f it i f l ti / l ti f did trecords of criteria of selection/non‐selection of candidates.

Freedom to hire: restricted by non‐compete undertaking towards the previous employer

S li t b b d b t t ith th i i l If th Some applicants may be bound by a non‐compete covenant with their previous employers. If the new employer is aware of the existence of this covenant and still hires the applicant, there is a risk of condemnation for unfair competitive practice.

Practical advice: always make sure that the contract contains a clear provision stating the employee represents that he/she is free from any undertaking towards his/her former employer. In the event of false representation there is no other option than dismissing without delay the employee for gross misconduct


representation, there is no other option than dismissing without delay the employee for gross misconduct.


Hiring: Offer Letter and Administrative Requirements Offer letter: a binding commitment

An offer letter is binding for the company, even if retracted before the employee's acceptance. The offer letter must contain or make reference to all the contractual provisions.

Risk 1: if retracted by the company, risk of payment of damages plus notice period.

Risk 2: the employee would be entitled to refuse to sign a contract that would contain more restrictive provisions than the offer letter.

Practical advice: rather than an offer letter, send a letter of intent, stating for a limited time period to accept the offer, and mentioning that only the employment agreement will be the binding offer.

Administrative registration: a preliminary requirement before the employee joins the company

Before the employment becomes effective, there is an obligation to send administrative forms to the French social security authorities.

Criminal liability: up to 3 years' imprisonment and/or fine of €45,000 maximum for the representative of the employer/fine of €225,000 maximum for the company. Minimum of 6 month's damages to the employee.



Negotiating an Employment Agreement: Key Elements of Understanding Characterization of an employment relationship

Distinction between an “employee” and an “independent contractors”: three combined elements qualify an employment relationship: personal performance of work (manual or intellectual, but also artistic or sporting), remuneration (in money or in kind) and a relationship of “subordination”. The “subordination” is characterized by the performance of a work under the authority of an employer that provide the employeecharacterized by the performance of a work under the authority of an employer that provide the employee with the means to perform his/her duties, has the power to give instructions and to control the work done, and to sanction the employee.

The qualification of an “employment agreement” compared to a service agreement does not depend on the parties’ volition, but on the judge, who scrutinizes the nature of the relationship.

Practical advice: before entering into a service agreement with an independent contractor in France always Practical advice: before entering into a service agreement with an independent contractor in France, always control the conditions of work, the nature of the services rendered, the level of “integration” of the independent contractor with the other employees, and the means used by the independent contractor to perform his/her duties.

Risks: in the event of a requalification of an independent contractor agreement into an employment agreement: potentially high criminal (up to 3 years' imprisonment and/or fine of €45,000 maximum for theagreement: potentially high criminal (up to 3 years imprisonment and/or fine of €45,000 maximum for the representative of the employer/fine of €225,000 maximum for the company) risk of payment of heavy social security charges. High risk of liability towards the “employee.”



Negotiating an Employment Agreement: Key Elements of Understanding

• a limited contractual freedom: principles of “labor public order”

EU Provisions

C tit ti dpels

.Constitution and

constitutional rights

Labor code and Acts

Industry‐field Collective

norm

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pwer norm

Bargaining Agreements

Company collective rules (CBA or internal rules)

Contract he upp

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the low

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Negotiating an Employment Agreement: Key Elements of Understanding

EU, constitutional rights, and French law provisions contain countless imperative provisions, to which the collective bargaining agreements and the contract can only depart in a more favorable way.

For example: • Individual and collective liberties (including the right to strike),

• Protection against discrimination,

• Protection of pregnancy, maternity and paternity leave, family event leave,

• Working time, bank holidays, paid holidays,

• Minimum wages,

• Health and safety at work,



Negotiating an Employment Agreement: Key Elements of Understanding Provisions from the industry‐field collective bargaining agreements are an important

source of obligations for the employer: The traditional level of collective bargaining in France is the industry‐wide level, called the “branch,” which

is between the nationwide level and the company level.

Provisions of industry‐wide agreements, which may be concluded at national, regional, or district level s (there are some 250 national industry‐wide agreements in force) regulate individual employment relationships (job classification, conditions of employment, working conditions, wages) as well as collective employment relationships.

In most cases, the provisions of industry‐field collective bargaining agreements have an imperative effect d h d d l land govern the individual employment agreement.

In conclusion: the employment contract can either contain: same provisions set forth in the Collective Bargaining Agreement or in the law (informative provisions such as

f t th l l th f ti i d)reference to the compulsory length of notice period),

provisions that are more favorable to the employee than the ones set forth in the law or the Collective Bargaining Agreement (for example, a compensation that must be above the minimum compensation set forth in the collective bargaining agreement), and

provisions that are neither imposed (optional) nor covered by the law or the Collective Bargaining Agreement (ex. N li it ti titi t)


Non‐solicitation, non‐competition covenant).


Negotiating an Employment Agreement: A Practical Approach on How to Structure the Contract?

Step 1: identification of the needs and verification of compliance with the upper norms (part‐time or full‐time/fixed term or indefinite term, etc.)

Step 2: determination of the industry‐field collective bargaining agreement

Step 3: determination of the employee's status based on the employment grid of the p p y p y gcollective bargaining agreement (position, hierarchical level, status, minimum) compensation, specific welfare and retirement schemes, duration of work, etc.

Step 4: drafting in the contract of general informative provisions of the CBA and Step 4: drafting, in the contract, of general informative provisions of the CBA and additional provisions depending on the job specifics.


Managing an employment relationship:3 l f ti th t t i i F3 examples of practices that create issues in France

Managing A Variable Compensation PlanContext:

in many international companies, variable compensation plans are defined at the level of the parent company, and implemented worldwide. In France, the setting up of a “U.S.” variable compensation often gives rise to legal issues due to the difference in legal cultures.

Two main issues:

plans make reference to parameters that are solely defined by the employer, whereas, a condition provision is applicable only if the parameters of application of the said condition are pre‐determined, or pre‐determinable in the contract, but not dependent on one party's volition.

plans often state for a principle of possibility offered to the employer to unilaterally modify the conditions of the plans often state for a principle of possibility offered to the employer to unilaterally modify the conditions of the plan., whereas, the employer cannot unilaterally alter the contractual provisions of a variable compensation plan without the consent of the other party.

Practical approach:

when possible:

F h b l d ft d i F h propose French sub‐plans, drafted in French,

set forth fixed‐term plan, stating that in the absence of a new variable compensation plan, after the end date, there will be no variable compensation.

set forth revisions clauses, stating that in the event of non‐agreement on new conditions, some determinable rules would apply (application of an index rate that can't be directly influenced by the employer),


don’t propose contractual commission plans, but unilateral plans (out of the scope of the contract): unilateral and/or discretionary plans


Implementing a U.S. Stock‐Option Plan in FranceContext:

Implementation of a U.S. stock option plan to French employees gives rise to potential risks, notably in the event of a dismissal of the employee.

Three main issues:

risk of payment of social security charges if the plan is not qualified under French tax law,

Non‐application of the restrictive covenants of the plan because of absence of proof of remittance of the plan to the employee

risk of condemnation of damages in the event of unfair dismissal on the ground of loss of chance risk of condemnation of damages in the event of unfair dismissal, on the ground of loss of chance.

Practical approach:

prepare a sub‐plan that will comply with French tax provisions and pay attention to fulfilling administrative requirementsrequirements.

always make sure that the employee is given a counterpart of the plan and keep records of such remittance. Make the employee sign an undertaking stating that he or she has read and understood the restrictive covenants.

But, based on French case law, there is no possibility to protect the company against payment of additional damages in the event of an unfair dismissal.



Implementing Company Policies in FranceContext

Most U.S. public companies are obliged to set up company policies that are applicable to their subsidiaries (for example: whistleblowingprocedures, ethics codes).

Issues:

Companies barely pay attention to the actual enforceability of such policies. A wrongful implementation of a policy can, in somecircumstances, give rise to criminal sanctions (example of violation of data privacy rules) or give rise to a financial exposure (sanction based on a policy that would not be enforceable, giving damages to the employees).

Practical Approach:

In order to be enforceable against employees in France, those policies must follow the following processes:

checking the compliance of these policies with French and EU laws (especially for whistleblowing policy, as the French legislation is very restrictive),

translation in French,

submission of the project to the employees' representative bodies (Works Council and the Health and Safety Council, if any),

“break‐up” of policy content, in order to, depending on the subject matter, integrate the provisions into the company’s internalregulations (règlement intérieur) or in the contract, or via a sample “information notice” to the employees, and

as far as data processing is envisaged: declaration of the data processing to the French data protection Authority (CNIL); specific consultation of the Works Council and the Health and Safety Council, personal information of the employees about their right of access to and rectification of their personal data, and, If the data are transferred outside the EU, setting up a EU‐compliant data transfer (registration to Safe Harbor, corporate binding rules or specific inter‐co mpany agreement).


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Termination of an employment agreement: i k iquick overview

The Mutual Separation Agreement:Context:

The mutual separation agreement is a new, flexible process of termination (implemented in June 2008) that has become a useful means of termination (more than 72,000 agreements between August 2008 and March 2009). The principle is a free negotiation between theemployer and the employee to terminate the employment agreement with final control by the labor administrative authority.

Duration of the process: in a nutshell, around 1.5 months due to the following steps:

Two meetings with the employee to negotiate the conditions of the termination 10 working days

Waiting period for both parties to exercises their right of withdrawal 15 calendar days

Control of the labor inspection of the mutual separation agreement 15 working days

Cost of the process:

no notice period

minimum Cost: indemnity of an amount not less than the statutory severance indemnity

Issues:

limited security: the agreement is a mutual separation agreement. By signing this agreement, the employee only waives his rights to challenge the nature of the termination, but not the other claims he or she could have.

Practical advice:

Only use this simple and fast means of termination when there is no potential or existing conflict with the employee in connection with the performance of his/her employment. For example, we don't recommend to use mutual separation when a


potential dispute on payment of variable compensation exists.


The procedure of dismissal

Context

Under French law, any dismissal must be based on a real and serious cause, i.e., on an existing element of facts which are serious enough to justify a dismissal. Both the law and the jurisprudence set up protection of employees in France requiring the employer to comply with complex procedures and a reasonably strong riskemployees in France, requiring the employer to comply with complex procedures, and a reasonably strong risk of condemnation.

Practical advice

Based on our practice we can see that risks of condemnation to payment of damages for unfair dismissal canBased on our practice, we can see that risks of condemnation to payment of damages for unfair dismissal can be substantially reduced by following the following basic tips:

“be prepared”: anticipate when possible, the decision to be made. Collect and records elements of evidence.

“be objective and practical”: analyze the pros and the cons of a decision to be made via an analysis of the reasonable risks.

“think international”: understand and accept the differences in terms of legal procedures and the cultural differences!



Dismissal for personal grounds: common procedureConvening to a preliminary meeting

5 Working Days

Preliminary meeting

2 Working Days

Notification of the dismissal

End of the employment agreement

Notice Period, if any

Variation of the process depending on: The position of the employee (i.e., protected employee or not)

End of the employment agreement


p p y ( , p p y )

A specific cause of dismissal (e.g., disability)


Dismissal for personal grounds (main reasons): Professional Insufficiency

Results insufficiency: to justify the dismissal, the insufficiency must result from the personal failure of the employee to achieve his goals (e.g., if the failure is due to the market situation, the dismissal has no real and serious cause)

Incapacity of adaption to new duties: to justify the dismissal, the employer has to establish the that the employee was trained to theses next duties (e.g., complementary training, supplementary technical information, etc.). If not, the dismissal has no real and serious cause.

Misconduct Simple misconduct: Positive act or deliberate failure to act by the employee which does not require the proof

of a specific intent of the employee

Serious misconduct: action or successive actions by the employee of such gravity that it prevents the Serious misconduct: action or successive actions by the employee of such gravity,that it prevents the continued presence of the employee in the company during the notice period. The threat to the business requires immediate action against the employee.

Willful misconduct: fundamental breach of the employment agreement. This type of misconduct requires a proof of serious misconduct committed with the intent to cause prejudice to the employer (burden of the


proof of serious misconduct committed with the intent to cause prejudice to the employer (burden of the proof requested by the courts is very high).


Dismissal for economic reasons: Restricted reasons (defined by the Labor Code and/or the jurisprudence)

Economic difficulties Economic difficulties encountered by the company shall be permanent and serious to (i) account for the dismissal of the

employees and (ii) to establish that such terminations could not be possibly avoided

When a company is a part of a group the economic difficulties must be appraised at the level of the group world‐wide(same sector of activity of the companies within the group)

Company’s necessity to adapt to technological mutations Technological mutations which have an impact on employment (e.g., new hardware or software implementation)

Obligation of the company to do its best to adapt the employee to such changes (training) before a potential dismissal

Necessity to safeguard the company’s competitiveness Appraised at the level of the entities within the same sector of activity in the group worldwide

Total and final closure of the company’s activity The closure must be final (i.e., suppression of employment positions in France)

The closure must NOT result from the employer’s fault in the management of the company

Reasons highly scrutinized by the courts



Dismissal for economic reasons: an increasing complexity depending on (i) the number of l d d/ (ii) h i f hemployees concerned and/or (ii) the size of the company

Common obligations for all measures of dismissal for economic grounds (individual and collective)

Determination of the dismissal and relocation orders: the employer has to determine the order following which employee(s) of the same professional category is/are to be hit by the contemplated measure. The same system applies to proposing the redeployment of the affected employees. The order should be established according to legal criteria (family charges, seniority, etc.) which are not limiting.

Research for redeployment positions in France and worldwide: under French law, the employer is obliged to do its utmost to redeploy the employees concerned by a measure of dismissal (i) in another position in the same company or (ii) in any affiliated company worldwide. This research of available positions has to be concrete and personalized.

Specific relocation program: in small companies, the employer must propose a specific relocation program which allows the employee to benefit from various measures in consideration of a shortened notice. In big companies, the specific relocation program is set up via specific relocation measures during an extended notice period.

Additional obligations for the measures of collective dismissal Information and consultation of the personal representatives: one or several meetings depending on the number of the number of

employees impacted and the size of the company. The company has to provide all needed information regarding the restructuringproject and the collective redundancies project.

Mandatory informing of the labor authority regarding the measures of dismissal and/or the notification of the dismissal


Mandatory informing of the labor authority regarding the measures of dismissal and/or the notification of the dismissal.


Dismissal for economic reasons: specific obligations in the event of massive lay‐offs : the Social Plan

Setting up a social plan is mandatory in any collective layoff of 10 or more employees in a company of 50 or more employees or more in a 30‐day period: if not, the process for collective dismissal is void and all employees can be reinstated.

Purpose of the Social Plan: to reduce the number of dismissals by proposing alternative measures other than the internal obligation of redeployment, e.g.:

Voluntary termination measures;

External redeployment (outplacement) of the employees;

Financial incentive measures (creation of a company, research of employment,etc.);( p y, p y , );

Supplementary training in order to increase the possibilities of redeployment;

Decreasing of the work duration within the company;

Development of new activities.

Long process: setting up a Social Plan entails a very long process because of the obligation to involve the personnel representatives and the labor administrative services. In practice, it takes from 4 to 12 months to set up the process and the length of application of a social plan is of about 12 months.

An expensive process: implementing a social plan is expensive. The costs of the termination vary between 6 to 18 months of compensation per employee impacted (risks of damages for unfair dismissal not taken into account).


Cost of a termination of an employment agreement: Summary of costsSummary of costs

Nature of termination

Resignation Mutual separation agreement

Dismissal for personal grounds

Individualdismissal for economic grounds or small collective layoff

Dismissal and social plans

Comments

layoff

Notice period Yes No Yes (except forgross or willful misconduct

Yes except in the event of application of a specific retraining program

Yes, usually longer notice or specific retraining program

Paid vacation Yes Yes Yes (except in the event of willful misconduct

Yes Yes

Compulsoryservance pay

No Yes, as a minimum Yes, except forgross or willful misconduct

Yes Yes, usually with additional severance paymisconduct severance pay

Risks of damages for unfair dismissal + reimbursement of unemployment allowances

No No Yes, Yes Yes For employees with more than 2 years of service: minimum of 6 months of wages + reimbursement ofreimbursement of employment allowances

Risk of nullity of termination (reintegration or dditi l

No No No* No* Yes (if social plan is declared void) : specific damages

t d

* Exception:dismissal for a discriminatory


additional damages)

granted reasons

Additional costs No No No No Yes (total between 6 and 18 months)

Questions?


Thank You.


Contact InformationContact Information

Sébastien Ducamp Barbara HartpLabor and Employment Relations

Paris+33 (0)1 53 64 82 08

[email protected]

Labor and Employment RelationsParis

+33 (0)1 53 64 82 13 [email protected]


© 2011 winston & strawn llp...didoing bibusiness in france: the bibasics of french employment...

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