Employment Update, France - October 2007

09 October 2007

Christopher Ivey

The Work, Employment and Purchasing Power Law came into force on 1 October 2007

This law is intended to "reassert the value of work" in France, and will imply a significant number of changes in respect of overtime, employer contributions, income support, deferred director compensation, and other tax measures. For the purposes of the present article we have concentrated on those elements which are likely to most significantly affect employers, i.e. social security contributions and overtime.


Currently, all overtime payments are subject to the same tax and social security contributions applicable to basic salary payments.

The general reduction of employer contributions ("Fillon Reduction") is a graduated reduction of contributions depending on the level of employee compensation.

At present, it applies to all employees who earn less than 1.6 times minimum wage, and amounts to 26% of minimum wage for companies employing 20 or more employees, and 28.1% for those companies with less than 20 employees.

Until now, the Fillon Reduction was calculated on the basis of a multiplier established by dividing the employee's monthly remuneration by the number of hours paid during the month.

New legislation

Under the new legislative provisions, employees will be entitled to a fixed deduction of employer social security contributions per overtime hour worked. The exact amount of this reduction will be defined by a decree, and is likely to depend on the size of the company (more or less than 20 employees). Managerial employees whose working time is calculated with reference to the number of days worked over the year may waive their right to take days off in lieu. The deduction applicable in such circumstances will be based on 7 hours of overtime.

The new legislation will also significantly modify the basis of calculation for the Fillon Reduction. The multiplier will be based on the ratio between minimum wage and the employee's monthly remuneration, excluding additional and overtime hours. There is therefore no longer any reference to the number of hours worked, but instead to minimum wage provisions.

Effect on employers

The scope of the modification to tax and social security contributions payable on overtime is intended to reduce the cost of overtime for companies, therefore encouraging employees to "work more to earn more". It should be noted however that overtime compensation rules are defined by statute and collective bargaining agreements, and that while social security contributions may be reduced, employers will still be required to pay overtime hours at a premium.

The modifications to the Fillon Reduction are intended to neutralise the effect of overtime hours worked on social security contributions. At present, employees who work overtime reduce the reductions on social security contributions that employers are entitled to obtain, whereas in the future, overtime hours will not have any such effect.

Until now, certain large temping companies were able to reduce their social security contributions by taking into account time not actually worked (on-call periods and compensation for untaken annual leave). As from 1 October 2007, only time actually worked will be taken into consideration, as calculations will be based on remuneration rather than working time.

Case law

Taking annual leave without the employer's authorisation is not necessarily misconduct


Labour code provisions stipulate that the employer define dates on which its employees may take annual leave within the annual holiday period. The employees must be informed of the dates on which they are entitled to take annual leave at least one month prior to the date itself. Employees who take annual leave without the authorisation of their employer may therefore be considered to have committed serious misconduct, or at the very least to have given the employer fair grounds for termination.

The instant case

Where the employer does not fulfil its obligations in defining employees' annual leave dates, is it still possible for it to claim serious misconduct on the basis of undeclared and unjustified absence? Here, the employee informed the employer that he intended to take leave (but did not state the exact dates he wanted), and requested on three occasions (by registered letter) that the employer define dates for annual leave. The employer failed to respond to the employee's request, and the employee took the time off despite not having obtained express authorisation.

The employer claimed that the employee's absence was unjustified and therefore constituted serious misconduct. However, it was held that the employee taking annual leave under such circumstances could not be considered as serious misconduct, particularly given the employer's inability to fulfil its own obligations in respect of annual leave. It was however held that the dismissal was fair if based on absence but not on misconduct.

Effect on employers

This case clearly illustrates the employer's obligations in terms of defining annual leave dates for its employees. However, it is still unclear what an employee should do if the employer fails to respect such obligations.

Until now it has been held (11 October 2000 no 98-42.540, 14 November 2001 no 99-43.454) that the employer is to assume all consequences of its failure to respect its obligations, and could not take action against the employee on this basis. In the instant case, the letters sent to the employer did not include the exact dates that the employee intended to take as leave. It could therefore be assumed that if the employee's letters stated exact dates, the employer would not have been in a position to terminate the employee on the grounds of unauthorised absence. This issue is therefore uncertain and remains open for confirmation.