Employment Update, France - September 2008



The Law on the Modernisation of the Labour Market


Probationary periods
The Labour Code previously only provided a maximum probationary period for non management employees of 2 months, renewable once, merely indicating that the probationary periods for management employees should be defined by common practice. This common practice was generally understood to be limited to 3 months, renewable once.

Mutually agreed termination of employment contracts
The only previous options available to terminate employment contracts were dismissal, redundancy or resignation. Situations frequently arise where either or both parties are looking to separate, but the employee wants to benefit from unemployment coverage (which is not granted to those who resign) and the company does not have sufficient grounds to terminate.
The only satisfactory solution here would have been to go through the pretence of a dismissal procedure, settling after the event. If the grounds for termination did not comply with French legal requirements for "genuine and proper cause" the company would find itself at risk from claims from the employee until such time that a settlement could be executed (only possible after the termination letter has been notified to the employee, therefore leaving the employee the opportunity to dispute the grounds for termination before the courts).

New legislation

This law was definitively passed by Parliament on 12 June 2008 providing for a number of modifications to employment law in France, in particular extending the maximum duration of Labour Code probationary periods, increasing the Labour Code severance pay, and implementing the possibility for mutually agreed termination of employment contracts.

Probationary Periods
The new law has defined maximum notice periods as follows:

  • Blue collar employees: 2 months, renewable once;

  • Technicians, qualified blue collar employees and supervisors: 3 months, renewable once;

  • Managerial employees: 4 months, renewable once.

It should be noted however that any renewal must be expressly provided for in the employment contract.

Mutually agreed termination of employment contracts
The new law has introduced the possibility of termination by mutual agreement, under which the parties agree to terminate the relationship, subject to the payment of compensation from the company, at least as high as the severance pay the employee would have been entitled to in the event of termination, which is subject to the same social security and tax regime as if it were paid under a settlement agreement.

The parties must meet, discuss and reach an agreement on the termination, which must be reduced to writing. The parties are entitled to revoke the agreement within 15 days of its execution, the agreement then being ratified by the labour administration. Once ratified (or if the labour administration does not reply within 15 days), the termination will be considered to be immediately effective.

This option provides for more flexibility, enabling the parties to agree on the employee's termination, providing for compensation to the employee, without any payment in lieu of notice.

Termination indemnities increased for dismissals on personal grounds
The law has provided that termination indemnities are due to all employees after one year of service within the company, as opposed to two years as previously provided.

Furthermore, the termination indemnity has been brought in line with that for economic redundancies, i.e. 1/5 month's salary per year of service, plus 2/15 month's salary per year of service over 10 years.

Other provisions
The new law includes a number of other provisions, not least including the definitive repeal of the new hire contract, largely condemned by the courts in any case. All current new hire contracts in progress are therefore automatically transformed into indefinite term contracts.

Effect on Employers

Probationary Periods
It remains possible however for the employees' contracts and any applicable collective agreements executed after the date this law entered into force to provide for shorter probationary periods. Any collective bargaining agreements entered into prior to the date of the law will continue to apply indefinitely if they provide for longer probationary periods. However, where shorter periods are provided for, these shall cease to apply on 30 June 2009.

Mutually agreed termination of employment contracts
Whilst this would seem to be great news for companies looking to find an agreement with their employees over termination, there are a number of issues which should be taken into account.

In particular, it cannot be considered as a settlement agreement, in that the parties are still free to dispute its validity within 12 months following its execution. It is unclear as yet how this will be interpreted by the courts, but if invalid, the termination could be considered as null and void, could result in reinstatement, or possibly damages for unfair dismissal. In addition, the agreement does not in any way prevent the employee from claiming other sums related to the performance of the employment contract. It would of course be possible to enter into a settlement agreement following the mutually agreed termination, but this would appear to defeat the object of the termination agreement.

It can therefore be anticipated that companies may prefer to follow the standard termination procedure followed by a settlement, but the new legal provisions could provide for a useful tool in certain circumstances.

The Law on Social Democracy and Working Time


Employee relations and union representation
The Labour Code provided for the presumption that the five major post-second world war unions were considered to represent employees on a national basis. These unions (CFDT, CFE-CGC, CFTC, CGT and CGT-FO) were until now legally considered to represent employees, and this representation could not be disproved

Working time
The threshold for working time was fixed at 35 hours per week, providing very strict situations in which this threshold could be exceeded. In particular, an overtime quota was applied to employees to limit the number of overtime hours possible to a statutory maximum of 220 hours, some collective bargaining agreements reducing this to as little as 130 hours over the year. There was an obligation to obtain authorisation from the labour inspectorate if this quota was to be exceeded. Employees whose working time was calculated in days over the year were limited to a maximum of 218 days, which could only be exceeded in very limited circumstances.

New Legislation

A new law was passed on 20 August 2008 modifying both employee relations and union representation, and working time – considered by French press as "the end of the 35 hour week".

Employee relations and union representation
The first section of the law removes the presumption applied to the five post-war unions, and their representative nature is no longer guaranteed.
The 7 criteria to be taken into account for a trade union to be considered as representative are (i) respecting republican values, (ii) independence, (iii) financial transparency, (ii) a minimum of 2 years of activity within the geographical and activity sector, (v) the audience, based on the level of negotiation (vi) the influence of the union, and (vii) the number of members and subscriptions.

Working time
This section of the law does not in fact remove the legal threshold for working time at 35 hours per week, but rather enables companies to negotiate flexibility on this threshold and increase the actual number of hours worked. The main provisions of this section of the law are those relating to overtime quota and the terms applicable to working time calculated in hours or days over the year.

  • Overtime quota and payment: The maximum annual quota for overtime shall be defined by collective bargaining agreement, or in the absence of any such agreement, by legislative decree. The company shall be required to consult with the works council or employee representatives annually on the overtime hours worked within the company. It will be no longer necessary for the labour administration to authorise employees to work more overtime hours than defined by the quota, the terms and conditions of doing so being defined by collective agreement.

  • Working time in hours or days over the year: The law provides the possibility for both managers' and non managers' working time to be defined in hours over the year, but only for those employees who can be shown to be autonomous in the organisation of their work schedule.

The organisation of working time in days over the year is only possible for managerial employees who are considered to be autonomous, and employees whose working time cannot be determined in advance. The annual number of days to be worked is defined by collective bargaining agreement or in the absence of such an agreement by consultation with employee representatives, within the maximum limit of 218 days per year. However, the new law provides that the number of days worked may exceed 218 per year if the employee volunteers to work additional days. Any such additional days worked will be paid with a minimum premium of 10% of the employee's basic salary. The absolute maximum number of days that can be worked in total will either be defined by the applicable collective bargaining agreement, or will be limited to 235 days where no collective bargaining provisions are stipulated. In theory, the collective bargaining agreement could apply a higher limit, up to 282 days per year.

Effect on Employers

Employee relations and union representation
While the presumption will continue to apply for a temporary period, it is a major issue in that the next elections on a company level will define the representation held by each union. The aim of this law is to reinforce the implication of trade unions in small businesses in France, following the lead of other European countries.

Working time
The modification to the overtime quota will effectively remove the main blocking points on employees working a considerably higher number of hours, provided that companies are willing to pay the premium required.

With respect to employees whose working time is calculated in days over the year, they will no longer be limited by such stringent conditions, and will be in a position to volunteer to waive their right to certain days off in lieu. Employers will again be able to benefit from employees who are willing to work more time, bearing in mind the additional compensation that will be required.