On June 29 2011(1), the Supreme Court held that variable compensation and commission plans drawn up in a foreign language are non-binding on employees in France, even if the employees have a good level of understanding of the language in question.
The 'Loi Toubon',(2) codified under Article L1321-6 of the Labour Code, states that any documents which specify employee obligations, or of which the employee must have knowledge in order to perform his or her job, must be written in French.
Certain documents which originate from abroad or are intended for foreign persons can be drafted in English, but this does not apply to contractual elements. Case law at appeal court level has held that this exception also excludes accounting software and technical matters that employees need to understand in order to carry out their jobs, as well as documents relating to employee training for health and safety(3).
Although the Supreme Court decision is the logical application of this rule and follows previous case law, it is the first time that the Supreme Court has had the opportunity to try such a case and the decision will have a significant impact on multinationals with employees in France.
In this case, an executive sales director had a contractual bonus opportunity of 40% of his annual salary, subject to the achievement of targets defined at group level by annual bonus plans. As the bonus plans were defined at group level, they were written in English.
Following his termination, the employee claimed that he should have been entitled to his maximum bonus, because the targets were not provided to him in French. This claim succeeded despite the employee having a high level of understanding of English. The Versailles Court of Appeal held that while the targets were non-binding on the employee, they should be used to calculate a reasonable bonus payout based on certain data provided in the plans and the employee's performance.
The Supreme Court challenged this interpretation and held that such documents were non-binding on the employee if they were not written in French and could not be used by the court to calculate what the bonus payout should have been. As a result, the maximum payout should be granted for each year.
The financial consequences of this decision may well be significant, and go further than the obligation to translate and penalties under previous case law or the fine provided for by law.(4)
The remaining exception to the above rule appears to concern equity compensation plans implemented by a foreign parent company, which have been held to be valid even if they are drafted in a foreign language, on the basis that they are not contractual in the same way as variable remuneration plans. However, this possibility could be reduced by the Supreme Court in light of this recent decision.
For further information on this topic please contact Chris Ivey at Bird & Bird AARPI by telephone (+33 1 42 68 60 00), fax (+33 1 42 68 60 11) or email ([email protected]).
Endnotes
(1) Cass Soc June 29 2011 09-67492
(3) CA Paris October 1 2010 08-23998, CA Versailles March 2 2006 08-23998
(4) Article R1323-1 Labour Code: Fine of €750 for individuals, €3750 for corporate entities