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Employee entitlements on an employer’s insolvency

Written by
Capstan Avocats, the law firm setting the benchmark for labour law in France.
If an employer finds itself in financial difficulties that involve liquidation or restructuring, employee entitlements could be at risk. Compulsory insurance schemes in some jurisdictions can provide employees with important guarantees.

When a company faces financial difficulties and enters a court-supervised liquidation or rescue procedure, employees may worry that not just their jobs but also their accrued entitlements are at risk. Some jurisdictions seek to protect basic employee entitlements in these circumstances, and France does this through a scheme called the AGS. The AGS is an insurance scheme that steps in when a company in court-supervised insolvency or rescue proceedings is no longer able to pay certain debts owed to its employees. Schemes like the AGS aim to ensure that the claims they protect are guaranteed (within limits) and paid out promptly and fairly. In doing so, the AGS provide a measure of social protection, funded by mandatory contributions paid by all employers.  

Which entitlements are covered?

The protected entitlements are set out in the French Labour Code, and different rules apply depending on whether the insolvent company is going through a liquidation procedure (liquidation judiciaire), a safeguard procedure (procédure de sauvegarde) or an administration procedure (redressement judiciaire).   

The AGS covers all sums due to employees on the date of the opening of administration or liquidation proceedings. These claims are not, however, guaranteed when the safeguard procedure is used. 

The AGS also covers all claims arising after the date of the opening of an administration, liquidation or safeguard procedure, resulting from the termination of employment contracts. This includes things like redundancy pay, pay in lieu of notice, and compensation for dismissal without real and serious cause. To be covered by the AGS, however, employment contracts must be terminated within the time limits set out in the law.  

It is important to note that the AGS does not guarantee any unpaid wages past the opening date of the relevant insolvency or rescue proceedings. Beyond this point, the company is controlled by bodies set up under the relevant insolvency or rescue procedure. In practice, however, wages are unlikely to go unpaid outside of cases where a company is being liquidated (liquidation judiciaire). Where a company is liquidated, and up to a limit of one and a half months’ work, claims relating to the performance of the employment contract (e.g. unpaid wages) due during the observation period, the 15 days (or 21 days in some cases) following the liquidation decision, and during any provisional maintenance of activity are covered. 

What amount is guaranteed?

AGS advances are limited to the following amounts (all claims combined): 

  • Six times the monthly ceiling used to calculate unemployment insurance contributions (EUR 87,984 for 2023), for employees whose employment contract was concluded at least 2 years before the opening date of the insolvency or rescue proceedings;  
  • Five times this ceiling (EUR 73,320 for 2023) for employees whose employment contract was concluded between 6 months and 2 years before this date; and 
  • 4 times this ceiling (EUR 58,656 for 2023) for employees whose employment contract was concluded less than 6 months before the opening date. 

How does the scheme work in practice?

The court-appointed representative in the relevant collective procedure is in charge of requesting the intervention of the AGS by presenting statements of eligible claims. The AGS will then advance funds to the representative, allowing these claims to be met. It is then up to the representative to pay the employees the amounts they are owed. The AGS will then seek, where possible, to recover the sums advanced from the insolvent company. 

For more information about employment law

Côme de Girval
Attorney - France