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Reaching an agreement with an employee in France: what are your options?

Written by
Capstan Avocats, the law firm setting the benchmark for labour law in France.
Authors
Gonzague Talvard
Capstan Avocats
France
01.06.21
4
Settlement, conciliation and mediation are all options when settling a dispute with an employee in France, but what are the advantages of each method?

There are many considerations that may lead a company to look to conclude an agreement to end a dispute with an employee.  

While agreeing on the key terms of the agreement is the most substantial phase of the negotiation process, formalising the agreed terms into a legal document is at least as important. There is no point in negotiating hard if the result of these negotiations is not faithfully recorded in a form guaranteeing both parties that mutually agreed commitments are fulfilled and ensuring the legal certainty expected, particularly by the employer, in return for the ‘price’ paid: that this agreement puts an end, once and for all, to all litigation. 

Settlement: the most widely used model

Settlement is by far the most widely used framework for ending a dispute. 

Article 2044 of the Civil Code defines it as: 

‘a contract [drawn up in writing] by which the parties, by mutual concessions, put an end to a dispute that has arisen, or prevent a dispute from arising’.  

The scope of application of settlement is broad; it can relate to a dispute arising during the employment relationship, and therefore concerning the performance of the contract (harassment, discrimination, breach of the employer’s safety obligations, etc.), as well as to a disagreement linked to the termination of the contract. a settlement may be concluded without the employee having first referred the matter to the courts; it is sufficient that a dispute exists and that it can be justified. It can also be concluded during the course of legal proceedings, at any stage of the procedure. 

It was previously held that a settlement could only definitely resolve the points in dispute that justified its negotiation, but the Court of Cassation now accepts more widely that it may also entail the employee’s definitive waiver of other elements relating to the contractual relationship, subject to appropriate drafting. The stakes for the employer are high, because having paid a settlement indemnity putting an end to a dispute over dismissal, it does not expect the employee to ‘reappear’ later, this time, for example, seeking to recover payment of overtime or variable remuneration or claiming compensation for a loss linked to allegedly faulty performance of the employment contract. However, only sufficiently precise wording is likely to provide this security, meaning employers should avoid the use of overly general standard clauses.  

A conciliation report: what are the advantages?

Evolving legal norms have brought another model for agreement with an employee back into favour: the conciliation report (PV de conciliation), drawn up before the conciliation office of the industrial tribunal (CPH). 

Its (relative, but real) revival is due in particular to the combination of two phenomena: 

  • The gradual lowering of the social exemption ceiling for termination payments. This is now a maximum of 2 PASS (‘Plafond Annuel de la Sécurité Sociale’, yearly social security ceiling): EUR 82,272 for 2021. As this ceiling must be assessed taking into account any redundancy payment already made, the proportion of the settlement payment that is exempt from social security contributions (but nevertheless subject to Generalised Social Contribution, ‘CSG’ and Contribution to Reimbursed of Social Debt, ‘CRDS’) may be reached quickly.  
  • The extension of the Pôle Emploi deferral of compensation (calculated according to the amount of the termination indemnity), which can be as long as 150 days, leading the employee to ‘lose’ the benefit of part of the settlement indemnity received. 

 

However, the specific legal regime governing lump-sum conciliation indemnities gives them additional advantages that the ‘classic’ settlement indemnity lacks: 

  • The conciliation indemnity is exempt from CSG and CRDS contributions (within the limit of the fixed conciliation scale set by Article D. 1235-21 of the Labour Code), whereas the settlement indemnity is subject to them (on the other hand, the other social exemption limits still apply, in particular the 2-PASS ceiling). 
  • On the other hand, the amount of the lump-sum conciliation indemnity is not taken into account in the calculation of the specific Pôle Emploi deferral of compensation. 

 

In principle, a lump sum conciliation indemnity only covers disputes relating to the termination of the employment contract. In order to purge any existing or future disputes relating to other aspects of the contractual relationship, it is therefore important to ensure the wording is adapted to the case in question: conciliation report templates proposed by the CPH may often not be sufficient. 

Drawing up a conciliation report in principle requires a referral to the CPH, which makes the effective date of the agreement dependent on hearing deadlines. Solutions do exist, however, and are sometimes proposed by the CPHs themselves when all the parties express the wish to obtain an earlier hearing date for the sole purpose of ratifying an agreement already reached. 

Mediation: an emerging alternative

Finally, a few words about the emerging practice of mediation, and in particular judicial mediation. 

Strictly speaking, mediation is not a form of agreement but a framework designed to promote an amicable solution to an existing dispute. More and more courts of appeal are suggesting the parties enter into a mediation process when they believe the nature of the dispute lends itself to it, as a final chance to reach an amicable solution. Mediation is never compulsory; it requires the agreement of all the parties concerned. The mediator is appointed by the court but paid by the parties, usually for a three-month mission, which is renewable. 

If mediation is successful, the agreed terms are recorded in a settlement agreement or similar. If the mediation is unsuccessful, the court is informed, without knowing the reasons for the failure, and the trial resumes. The success rate of mediation is close to 70%, which shows the potential benefit of this tool.  

Although the appropriateness of an agreement must obviously always be assessed on a case-by-case basis, it is nevertheless clear that negotiations have a bright future ahead of them.