Negotiated redundancies and French law

The Ministry of Labour has launched its first assessment on a voluntary procedure for terminating a permanent employment contract, which was introduced by law on 25 June 2008. This method of ending an employment contract has become increasingly popular. While it is clear that this new method is useful, it has evidently been used by employers to avoid their obligations under existing redundancy law, which requires them to consult representatives over redundancies.

An alternative procedure to terminate an employment contract was created in law on 25 June 2008 (Articles L. 1237-11 to 16 of the French Labour Code (in French)); the so-called ‘rupture conventionnelle’ or ‘negotiated termination’. The procedure, which is quite flexible, allows for an employer and an employee, after a number of meetings, to mutually agree to terminate an employment contract and negotiate its end.

The procedure is not particularly formal and begins with planned meetings in which both parties explain their point of view. The employee can be assisted by another employee or an employee representative.

During these meetings, both parties agree on the terms and conditions for terminating the contract, including the termination date and the amount of compensation (which must be at least at the level of severance pay provided for in cases of dismissal).

Then both employer and employee have 15 calendar days to withdraw from the agreement in writing, after which time the agreement is sent to the local labour authorities where it is certified within a maximum of 15 days.

Procedure becoming steadily more popular

It can be seen from statistics published by the Agency for Research, Studies and Statistics (DARES) of the Ministry of Work, Employment and Health, that this approach for terminating an employment contract was popular among very small companies, with fewer than 50 employees, in the first half of 2010.

Its use has been growing, and in December 2010 there were 24,149 cases, bringing the total number of such terminations since August 2008 to 478,667, representing an increase on previous years.

A total of 254,871 uses were registered for the whole of 2010, against 223,796 for the first 17 ​​months of the law coming into force.

Statistics show that the approach has been used to terminate the contracts of workers over 50 years old more than for any other category.

DARES published statistics for early 2011 (in French) on 23 March, which show that 20,008 agreements were approved in January (against 24,149 in December 2010) and 1,585, or 7%, were rejected.

According to an article (in French, 24 March) in Le Figaro, ‘the slight decrease of 17% in January compared to December 2010 is identical to that recorded a year earlier’.

An advisor of Xavier Bertrand, Minister of Labour, said the number of dismissals fluctuates throughout the year for no apparent reason.

This method of ending someone’s employment contract is increasingly popular and now represents 11% of the total number of terminations of permanent employment contracts, which itself was up 11.5% overall in 2010. The rate at which the labour authorities refuse such dismissals has dropped by two percentage points and has stabilised at 7% of all such agreements received.

Unions in favour of the new law

On the whole, the main trade unions endorse this law, and have permitted its use to avoid the previous practice of ‘false dismissal’, where an employee waived their legal right to challenge their dismissal in return for compensation and the right to unemployment benefit (sometimes known as a compromise agreement).

In this scenario the employee was required to act as a dismissed worker even though this was not the case.

The new procedure allows both parties to reach a compromise, within a legal framework, and the termination of the employment contract is legitimate. Employees may receive severance pay and unemployment benefits after a negotiated termination.

However, it seems the approach is often being used by companies as a collective system of early retirement, financed by the unemployment insurance scheme UNEDIC. Moreover, Stephane Lardy, Confederal Secretary of Force Ouvrière, denounced the approach and was quoted in the article in Le Figaro as saying: ‘Some companies use multiple ‘packets’ of these dismissals to avoid having to implement a social plan.’ FO is calling for better guidance on certification procedures.

First decision from Supreme Court

In its decision of 9 March (in French), the Social Chamber of the Supreme Court prohibited any attempt by companies to circumvent existing legislation on redundancies.

In the event of downsizing, current law states that when at least 10 employees are made redundant over a period of 30 days, the company is obliged to develop a social plan or ‘employment protection plan’ (PSE).

The Court stated that negotiated terminations must be included in the overall number of redundancies when an employer consults employee representatives.

In the particular case referred to in the decision of 9 March, the company had cut its workforce using several conventional terminations and in so doing had avoided the cumbersome and costly procedure of developing a PSE.

The Court had to decide whether it was possible to exclude all negotiated terminations when calculating whether an employer had reached the thresholds that trigger an obligation to consult and develop a PSE.

It should be noted that negotiated terminations cannot be used in the context of a specific plan for the preservation of jobs (Article L1233-3 of the Labour Code (in French)).

The Supreme Court stated that Article L. 1233-3 of the Labour Code must be combined with Article 12 of the National Agreement of 11 January 2008 on the modernisation of the labour market, according to which ‘negotiated terminations should not affect the procedures for collective redundancies due to economic reasons incurred by the company’.

Employers therefore cannot waive their obligations under law by using the negotiated termination method for dismissal. The judges concluded that:

…when [employers] have an economic cause which constitutes the need for downsizing, negotiated terminations must be taken into account to determine the procedure for information and consultation of employee representatives, and the obligations of the employer about an employment protection plan.

This decision does not affect the validity of the negotiated terminations but does affect the validity of the redundancy procedure.

Hélène TISSANDIER, Université Paris-Dauphine - HERA