Background

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.