Elisabeth Laherre Ludivine Pons October 25 2017 New compensation rules applicable in case of unfair dismissal Coblence & Associés | Employment & Immigration - France Elisabeth Laherre, Ludivine Pons Employment & Immigration BackgroundMinisterial Order 2017-1387AnalysisBackgroundDuring his campaign, soon-to-be President Emmanuel Macron committed to reforming French labour law, which he considered to be too complex and ill-equipped the existing economic system and an obstacle to the long-awaited economic recovery in France. As such, the Labour Code was to be reformed and with it industrial relations in France.Four months after the elections, the new government has upheld its promise and enacted five ministerial orders, one of which is dedicated to the so-called 'visibility and securing of working relationships'.(1)In its report to Macron, the government explained why the Labour Code must be amended – particularly regarding the compensation rules applicable in the case of unfair dismissal.A damages scale, which will be mandatory for the judge and parties, will be introduced to provide security and clarity regarding the consequences of potential litigation. While no entrepreneur – especially in small and medium-sized companies – recruits employees with the intention of dismissing them, the uncertainty regarding the cost of terminating an employment contract may discourage them from hiring employees on a permanent contract basis.This scale, through the predictability that it provides, is meant to remove this uncertainty and allow the creation of jobs in France in small and medium-sized enterprises.Ministerial Order 2017-1387Implementation of mandatory scaleMinisterial Order 2017-1387 is intended to respond to the goal defined above: in the case of unfair or constructive dismissal, the damages owed to the employee will be determined by a scale based on the seniority of the employee and the size of the company. Therefore, the amount of damages will no longer be determined by the judge at his or her own discretion.The application of this scale concerns only damages due for unfair dismissal, without prejudice to other severance indemnities that could be owed to the employee by the employer.Minimum damages are as follows:three months' gross salary (instead of six months, as required at present) for employees with at least two years' seniority in a company with at least 11 employees; orbetween half a month and two-and-a-half months' gross salary in companies with fewer than 11 employees.The maximum damages is set at 20 months' gross salary for employees with at least 30 years' service at a company which has at least 11 employees. However, the ministerial order did not define a maximum for companies with fewer than 11 employees. The limit will likely be the same as defined for companies with at least 11 employees.Employee's length of service at the company (full-year basis)Minimum damages (in months of gross salary)Maximum damages (in months of gross salary)0N/A1112233.53344355366377388389391031011310.51231113311.5143121531316313.51731418314.51931520315.52131622316.52331724317.52531826318.52731928319.52932030 or more320In the case of unfair dismissal in a company normally employing fewer than 11 workers, the minimum damages due to the employee are different, as described below.Employee's length of service at the company (full-year basis)Minimum damages (in months of gross salary)0N/A10.520.5314151.561.5728292.5102.5Mandatory severance indemnities in total amount due to employeesAnother significant step has been the official recognition of the possibility for judges to deduct mandatory severance indemnities (whether legal or deriving from the applicable collective bargaining agreement or the employment contract) from the damages owed to the employee by applying the scale.The objective of such provision is to provide judges with the possibility to limit the total amount paid to the employee in connection with his or her dismissal.Other significant provisionsIn the following situations, the aforementioned scales do not apply:If the dismissal is considered null and void due to a violation of fundamental freedoms or specific protections (eg, protected employees such as pregnant women, employees on sick leave as a result of a work-related illness or accident and employee representatives), harassment or discrimination, the damages due to the employee will be determined by the judge at a minimum of six months' gross salary, without prejudice to the payment of severance indemnity.In case of violation of the priority of rehiring in case of redundancy, the damages due to the employee will be at least one months' salary (instead of the existing two months). This minimum does not apply to employees with less than two years' service or to companies with fewer than 11 employees.In the event of nullity of redundancy, the damages owed to the employee will be at least six months' salary (instead of the existing 12 months). This minimum does not apply to employees with less than two years' service or to companies with fewer than 11 employees.If the company fails to reinstate an employee who is the victim of a work-related illness or accident or to offer a new position to the employee when he or she has been declared unfit, the damages due to the employee will be at least six months' salary (instead of the existing 12 months).AnalysisThe main objective of this ministerial order was to simplify the working relationships between employers and employees and provide clarity regarding the potential consequences of terminating an employment contract.If the idea of a legal scale to limit the amount of damages due to employees in cases of unfair dismissal can be considered consistent with the government's goal of providing better clarity, it also serves as a limit on the amount of damages which can be provided. Therefore, there is a risk that there will be an increase in the number of litigations based on violations of fundamental freedoms or specific protections, harassment or discrimination for which the limitation of damages is not applicable.This risk could have a major impact on the way that companies manage employees to avoid these potential litigations – for example, by carefully evaluating each employee's workload to limit anomalous pressure which could qualify as evidence of moral harassment.For further information on this topic please contact Elisabeth Laherre or Ludivine Pons at Coblence & Associés by telephone (+33 1 53 67 24 24) or email ([email protected] or [email protected]). The Coblence & Associés website can be accessed at www.coblence-avocat.com.Endnotes(1) 2017-1387, September 22 2017.