Two modifications of the French Labour Code in 2011, one of which became effective on 1 January 2012, have increased the obligations of contractors under French law.  A law dated 16 January 2011 has introduced fines in case of non-compliance with the provisions of French sub-contracting law while a decree dated 28 June 2011 has modified and increased the amount of information that any client of a service provider must require.

  1. French law concerning sub-contracting

The Law n°75-1334 dated 31 December 1975 was adopted in order to protect sub-contractor against the risks of non-payment by the main contractor. This Law is mandatory in France, and any contractual provision aiming to avoid it is deemed to be null and void.

Pursuant to this Law, subcontracting shall be understood as the process by which a Contractor entrusts, by means of a subcontract, and under its responsibility, all or part of the execution of a contract it executed with a Principal to another person known as the Subcontractor.

Requirements for validity:

Under French law, the Contractor which wants to use a subcontractor has to obtain the Principal’s consent regarding the identity and the payment terms of the Subcontractor and to provide the Principal with a copy of the subcontracting agreement upon request. Moreover, the main contractor must, under public law contracts, indicate to the Principal the nature and value of each service he plans to subcontract.

The Law sets out a strong duty on the Contractor. Indeed, should the Subcontractor not be accepted or the conditions of payment not be approved by the Principal, the Contractor shall nevertheless be obligated to the Subcontractor but will be deprived of the possibility to invoke the subcontracting agreement against the Subcontractor, and therefore to make a claim against the Subcontractor for breach of contract.

In addition to this already very strict sanction, article L8271-1-1 of the French Labour Code as created by the law dated 16 January 2011, any breach of this obligation can be sanctioned by a fine up to €7,500, which can be pronounced by Labour Inspectors, police officers, customs agents and various other public authorities.

Direct payment and direct action:

The Law distinguishes between public contracts which benefit of a direct payment and private contracts which benefit of a direct action.

With respect to public subcontracts, accepted subcontractors shall be paid directly by the public Principal. This is called the “direct payment”. However, this principle does not apply when the value of the subcontract is below a threshold of €600.

With respect to private subcontracts, if the Contractor fails to pay the accepted Subcontractor, the Subcontractor has the right to claim directly from the Principal the payment of its services, in case the Principal has not already paid the corresponding amount to the Contractor. This principle, known as “direct action”, is a mandatory rule under French law and any clause that would deprive the Subcontractor of this right will be deemed as null and avoid.

Personal joint guarantee:

The Law provides that the payment of all sums due to the Subcontractor by the Contractor of a private entity must be guaranteed by a guarantee obtained by the Contractor from a bank. However, this guarantee is not required if the Contractor has delegated to the Subcontractor payments from the Principal up to the amount of the services executed by the Subcontractor.  In case of non compliance with this provision, the Sub-contractor may claim that the sub-contracting agreement is null and void, thereby depriving the Contractor from any claim under breach of contract.  However, failure not comply with this provision is (not yet) sanctioned by any fines.

  1. Compliance with Employment Law:

According to article L8222-1 of the French Labour Code, any recipient of services which amount is superior to € 3,000 must require from its co-contractor documents in order to ensure that its co-contractor does not employ undeclared labour or illegal immigrants. The list of documents that the recipient of the services must request has been modified and extended from January 1st 2012 by Decree n°2011-672.

The provider of services established in France must provide, at the execution and every six months, a proof of its registration (if any) and a certificate proving filing of social declarations and payment of social security contributions issued by the French social protection body in charge of collecting such contributions to be paid by the co-contracting party and dated less than six months. The certificate must state company’s identification, number of employees and total wages paid. The recipient of services is under the obligation to verify with the relevant body that the certificate is genuine.

The subcontractor established outside France must provide, at the execution and every six months, a proof of its registration (if any), a document stating its individual identification number or otherwise a document stating the party’s identity, address and contact details or, if any, the details of the party’s tax representative in France, and a document attesting to the legal validity of the co-contractor’s social situation in accordance with Regulation (EC) n°883/2004 dated 29 April 2004 or an international social security agreement and, if permitted by the legislation of country where the registered office is located, a certificate issued by the relevant social protection body and proving that social declarations and payment thereof are up-to-date.

In case of failure to comply with these provisions, the recipient of the services may be condemned to the payment of the social charges with the provider of the services failed to pay by not declaring its employees to the French administration.