Sources of rules and practice


Provide an overview of the primary sources of law, regulation and practice that govern or affect executive compensation arrangements or employee benefits.

In France, the term ‘executive’ includes managers, directors and employees whose functions include a management duty without necessarily being part of the company’s management. For the purpose of this chapter, ‘executive’ will refer either to company officers who are not employees subject to the French Labour Code but to the Commercial Code, or to upper managers holding a work contract who are subject to the Labour Code.

Where the executive holds an employment contract, his or her minimum compensation arrangements will be governed by the Labour Code and the applicable sectoral collective bargaining agreements, usages or unilateral employer decisions, and internal rules of a company as for any other employee. In practice, the main source of compensation will be each individual work contract.


What are the primary government agencies or other entities responsible for enforcing these rules?

Labour courts have exclusive jurisdiction for litigation matters arising from work contracts (hence, issues on contractual compensation and benefits). The Ministry of Labour also controls and sanctions the application of these rules in the field mainly using labour inspectors.


Governance requirements and shareholder approval

Are any types of compensation or benefits generally subject to specific corporate governance requirements or approval by shareholders or government agencies? What is the general process for obtaining approval?

Where an executive is a company officer, any kind of compensation granted should be subject to corporate approval as provided for by the commercial code governing private companies, and the company’s articles of association.

The adoption of stock option plans and free shares plans are also subject to a particular corporate process. In addition, the AFEP-MEDEF code of conduct (market place best practices - non-mandatory) provides for some general principles regarding long-term compensation of executive officers, in particular where the award of stock options and performance shares is considered.


Under what circumstances does the establishment or change of an executive compensation or benefit arrangement generally require consultation with a union, works council or similar body?

Compensation may be freely set by the company, but prior consultation of the elected staff representative bodies is required in the event of the implementation of a collective compensation plan, or a change to this plan (including termination of this plan). No approval is required, but an opinion (whether positive or negative) should be issued by such body before such implementation or change becomes effective. This duty would not apply before changing the terms of a single executive’s compensation package.

Prohibited arrangements

Are any types of compensation or benefit arrangements prohibited either generally or with respect to senior management?

Generally speaking, there is no prohibition, but specific rules and restrictions apply in state-owned companies and any subsidiaries within which the remuneration of company officers has been limited to €450,000 annually since July 2012.

Publicly traded companies are also subject to particular rules. Indeed, their corporate officers (administrators, general directors, deputy general directors, chairpersons of the board or permanent representatives of corporate directors) and parents, children and spouses of said officers may not receive company loans, bonds or current receivables; such agreements are null and void. In addition, elements of remuneration, compensation or benefits and conditional rights in respect of defined benefit pension plans, are prohibited where their benefit is not conditional upon compliance with conditions linked to the performance of the beneficiary, assessed in relation to the performance of the company are prohibited.

Furthermore, according to the AFEP-MEDEF code of conduct, only highly specific circumstances may allow the award of an extraordinary compensation to executive officers.

Any agreement in publicly traded companies that is not a current operation in normal conditions is a regulated agreement, which should be authorised by the board of directors (or other relevant corporate body as determined by the company’s article of association) and subsequently approved by the shareholders’ meeting.

Finally, particular rules apply with respect to the variable remuneration of employees in the banking and investment sector, voiding arrangements through which the amount of this variable compensation affects the company’s regulatory capital.

Rules for non-executives

What rules apply to compensation and benefits of non-executive directors?

As far as compensation is concerned, non-executive directors are subject to the same rules as those applicable to other board members. Accordingly, further to section L225-45 of the Commercial Code, they may receive a fixed annual amount of fee. The amount of said fee is not regulated. According to the AFEP-MEDEF code of conduct, the board is responsible for determining their compensation and must provide reasons for its decision. The attendance fee is subject to a particular tax and social security treatment (it is not considered to be a wage).

In addition to this attendance fee, members of the board may also receive exceptional remuneration if they are requested to perform a particular task (section L225-46), but this shall then be deemed to be remuneration and subject to a particular corporate authorisation process. According to the AFEP-MEDEF code of conduct, it is not desirable to award variable compensation, stock options or performance shares. If such awards are granted, the board must indicate and justify the reasons for this allocation.


Mandatory disclosure of executive compensation

Must any aspects of an executive’s compensation be publicly disclosed or disclosed to the government? How?

Publicly traded companies and companies controlled by publicly traded companies shall publish in their annual reports the total compensation (eg, basic salary, profit-sharing, fees or life insurance premiums) and benefits in kind paid to each corporate officer, as well as the criteria by which they were calculated or the circumstances in which they were granted. The report shall also mention the commitments of all kinds made by the company for the benefit of its corporate officers, corresponding to elements of remuneration, compensation or benefits due or likely to be due as a result of their duties or after their exercise, in particular pension commitments, with the methods for determining these commitments and estimating the sums that may be paid in this respect. Since 2019, the annual report of publicly traded companies should also include a comparison between the level of compensation of the chairman of the board of directors, the chief executive officer and each deputy chief executive officer and the average compensation and median compensation of the company’s employees, along with the evolution of these ratios over at least the most recent five financial years, presented in a manner that allows comparison.

Non-publicly traded companies enjoy a lesser obligation, which consists of publishing in their annual reports the overall attendance fees allocated to directors. This report should also show the amount of remuneration and benefits of any kind that officers received during the year from controlled companies or the company that controls the company in which the mandate is exercised.

Also, except where a collective agreement provides otherwise, some information as to the remuneration of corporate officers must be given to the staff representatives.

Employment agreements

Common provisions

Are employment agreements required or prevalent? If so, what provisions are common? Are any terms prohibited or unenforceable?

An employment contract requires the execution of specific functions distinct from the company’s management, performed under a subordination link with the company. This is the reason why, in many cases, company officers do not hold an employment contract; the terms and conditions of their duty are determined through unilateral decisions by the relevant corporate body (eg, the board of directors). These decisions would usually encompass the level of fixed salary and variable bonus, benefits in kind (eg, company car) and post-termination restrictive covenants (non-compete and non-solicitation, etc). Company officers may, however, also hold employment contracts if they perform specific and distinct duties (eg, finance director or sales manager).

Standard clauses would refer to the place of work, basic salary, working time, functions, description of the mandatory health and retirement scheme, notice period as provided for by the applicable collective bargaining agreement; contracts will often also include a variable bonus based on the achievement of targets and benefits in kind. Post-termination restrictive covenants are also very common.

Change-in-control benefits are normally not included in the work contract but are rather unilaterally granted by the company or its shareholders as the case may be in the course of its performance, in the event of a sale of the company being contemplated.

Incentive compensation

Typical structures

What are the prevalent types and structures of incentive compensation? Do they vary by level or type of organisation?

There are two main types of incentives compensation: ‘cash’ awards and share ownership schemes, such as stock options and free shares.

Cash awards often take the form of variable bonus plans based on targets and, as the case may be, retention bonuses.

In practice, ownership schemes are more prevalent in larger companies and remain rare in small entities where cash variable bonuses are more common.


Are there limits generally on the amount or structure of incentive compensation? Are there limits that adversely affect the tax treatment of the compensation relative to the employer or the executive?

Under French law, any salary or benefit granted in the framework of the execution of a work contract or a company officer duty is subject to national dues (social security contributions), as well as a specific tax called CSG/CRDS. The company is responsible for their payment to the collecting agency, including the employee or company officer’s share of those contributions, which will be deducted from the gross amount of the compensation. The employee or company officer, however, is subject to income tax and is responsible for its declaration to the tax authorities (it being specified that since January 2019 income revenue is docked at source).

Cash incentive compensation does not enjoy any favourable treatment and is subject to national dues and income tax.

There is no mandatory limit on the amount or structure. In the banking and investment sectors, however, French regulations recommend that variable remuneration is based on achievement of individual and collective targets related to performance, and a significant part of the variable remuneration is paid over several years and takes the form of shares.

As for publicly traded companies, the AFEP-MEDEF code of conduct provides similar recommendations with respect to the variable part of company officers’ compensation, including the requirement that this variable part be proportionate to the fixed compensation and be consistent with the annual review of the performances of the executive officers and the corporate strategy.

Ownership schemes are subject to a different tax regime and are also subject to particular restrictions. No stock options or free shares may be granted to employees and company officers already holding more than 10 per cent of the issuing company’s share capital (the limit is one-third of the share capital when stock options are granted during the two years following the funding or the purchase of the company by its employees or its company officers). Also, for listed companies, free shares or options granting access to the subscription or purchase of shares cannot be awarded to the chairman of the board, the managing director, the deputy managing director or the members of the executive board unless the company:

  • proceeds to the award of options and/or shares; or
  • has set up a profit-sharing agreement or a voluntary profit-sharing agreement, for the benefit both of all of its employees and at least 90 per cent of all of the employees of its subsidiaries.

The PACTE Law (Action Plan for Business Growth and Transformation Law, dated 22 May 2019 added a new alternative but only for free shares: the unilateral payment by the company (ie, excluding any employee’s contribution) of an additional amount to the company savings plan, to all employees eligible for such contribution and at least 90 per cent of all eligible employees of its subsidiaries.

In addition, the allocation of free shares is limited to 10 per cent of the capital of the issuing company or 15 per cent in small and medium-sized non-listed companies. The limit is 30 per cent of the share capital when the award relates to all employees; otherwise, the ceiling remains at 10 per cent or 15 per cent (article L225-197-1 of the Commercial Code).

Moreover, the law has limited the delta of free shares between each employee, which cannot exceed a ratio of 1:5. Thus, if 50 free shares are distributed to an employee, other employees must receive at least 10 free shares each. Since the Macron Law, dated 6 August 2015, which applies to free shares plans voted by shareholders’ meetings taking place after this date, this 1:5 ratio is no longer applicable provided that the free shares represent less than 10 per cent of the share capital (or 15 per cent in small and medium-sized companies).

As regards stock options, the number of options granted but not yet exercised is limited to one-third of the issuing company’s share capital. Options granting access to the purchase of shares are limited to 10 per cent of the capital of the issuing company.


Is deferral and vesting of incentive awards permissible? Are there limits on the length or type of vesting and deferral provisions?

Deferral and vesting are permissible.

As far as cash award plans are concerned, quite often plans will mention that an award is granted on condition that the executive is still working for the group at the vesting date so issues may arise should the executive’s corporate officer duties or work contract be terminated before this date. The drafting of such clauses remains a sensitive issue.

For ownership schemes, minimum acquisition and conservation periods are required in order to benefit from a favourable social and tax regime.

For stock options, a minimal conservation period exists for those allotted before 28 September 2012. The minimal conservation period is five years for stocks allocated before 28 April 2000, and four years before 28 September 2012.

For free shares, before August 2015, the minimum acquisition period was at least two years upon final allocation of the shares (article L225-197-1, paragraph II of the Commercial Code).

For free shares plans adopted during a shareholders’ meeting taking place after 7 August 2015, the minimum acquisition period is at least one year and no minimum conservation period is required. However, the total duration of the minimum acquisition period and any conservation period shall be a minimum of two years.

When connected to a savings plan, remuneration is blocked for five years except in specific cases strictly defined by statutory law.

Specific rules are applicable to company officers as regards sale of the shares allocated in that respect.

Are there limitations on the individuals or groups eligible to receive the compensation? Are there aspects of the arrangement that can only be extended to certain groups of employees?

Generally speaking, as far as employees are concerned, there are no limits on who can participate. The grant is discretionary. However, note that under French law, the ‘equal work, equal pay’ principle applies and that discrimination is prohibited. Differences between employees are possible if justified by objective reasons. Accordingly, an incentive plan must in principle be offered to all employees who are in a similar situation in terms of responsibilities and position within the French entity.

Note that listed companies may only grant free shares or stock options to employees of their subsidiaries, as defined by the French Commercial Code.

In any event, to benefit from the favourable tax and social regime, no free shares or stock options may be granted to an employee or a corporate officer holding more than 10 per cent of the share capital or if the effect of the grant is to increase his or her shareholding to more than 10 per cent of the share capital.

Concerning corporate officers (who do not have an employment contract), the French Commercial Code provides for some limits in the event of free shares or stock options award. The incentive plan must comply with those limits in order to benefit from the favourable tax and social regime.

In particular, a restrictive list of officers is provided for by this code:

  • the chairman of the board of directors;
  • the chief executive officer;
  • the deputy chief executive officer;
  • the members of the management board; and
  • the manager of a joint-stock company.

Corporate officers of a subsidiary are eligible only if the granting company is listed.

Recurrent discretionary incentives

Can it be held that recurrent discretionary incentive compensation has become a mandatory contractual entitlement? Is this rebuttable?

Although French case law recognises the existence of discretionary compensation, recurrent incentive compensation may under certain circumstances be construed before the courts as a mandatory contractual entitlement. In this last case, it cannot be rebutted without the express consent of the beneficiary.

Effect on other employees

Does the type or amount of incentive compensation awarded to an executive potentially affect the compensation that must be awarded to other executives or employees?

The general principles to abide by are equality and non-discrimination. The criteria to define the amount of incentive compensation should be objective and applied to all employees in the same situation on the same basis (ie, an equal work and equal compensation principle).

Mandatory payment

Is it permissible to require repayment of incentive compensation under certain circumstances? Are there circumstances under which such repayment is mandatory?

In France it is not permissible to require an employee to repay incentive compensation that he or she has received, unless the payment was the result of an error and was not due.

Can an arrangement provide that payment is conditioned on continuing employment until the payment date? Are there exceptions?

Arrangements often provide for a presence condition, and, if not complied with, entail forfeiture.

Nevertheless, the arrangement can only make the payment subject to the employee’s presence until the date of acquisition of the benefit and not until the date of payment.

Furthermore, the condition must not be purely potestative (ie, dependent solely on the employer’s will) and must not correspond to an unlawful financial penalty which is prohibited under French law. (The clause providing for the loss of cash award options or shares only in the event of dismissal for misconduct is not valid. On the contrary, a clause providing for the loss in case of dismissal whatever its ground, is valid.)

Equity-based compensation

Typical forms

What are the prevalent forms of equity compensation awards in your jurisdiction? What is a typical vesting period? Must the arrangements be offered to a broad group of employees, or can the employer select the participants?

The prevalent form of equity compensation is awarding stock options at a preferential price or free shares, which enjoy favourable social and tax treatment when conditions provided for by French regulations are met (notably minimum acquisition and conservation periods as mentioned in question 11).

As mentioned in question 12, the grant is discretionary. Nevertheless, the ‘equal work, equal pay’ principle applies and discrimination is prohibited.

Must equity-based compensation be granted by the company’s board of directors (or its committee) or can the authority be delegated to officers or employees of the company? Are there limitations or requirements that apply to delegation?

Statutory law reserves the right to decide to grant free shares or stock options to the extraordinary general meeting. The extraordinary general meeting will authorise the board of directors or the management board to allocate free shares or stock options, as the case may be, and for a period that it fixes and which may not exceed 38 months.

Once the authorisation has been granted by the extraordinary general meeting, the board of directors or the management board grants the options or shares to their beneficiaries and sets the conditions under which they will be granted.

Tax treatment

Are there forms of equity compensation that are tax-advantageous or disadvantageous to employees or employers?

As described above, the forms of equity compensation that are advantageous are mainly stock options and free shares.

The tax regime remains complex and the level of tax advantage was falling until 2017, when some tax advantages were reintroduced, particularly for free shares.

Capital gains from stocks or free shares are exempt from social security contributions, subject to a declaration by employers to its collection agency, as mentioned in question 20. Capital gains from stocks are, however, subject to the CSG/CRDS taxes, as well as to specific contributions (30 per cent to be paid by the company and 10 per cent by the employee). Prior to the Macron Law, the same regime applied to capital gains from free shares. Now, capital gains from free shares issued through a shareholders’ meeting taking place after 30 December 2016 are subject to:

  • CSG/CRDS taxes, whose rate depends on whether or not a €300,000 threshold has been exceeded;
  • a specific employer’s contribution amounting to:
  • 30 per cent for shares allocated through a shareholders’ meeting taking place after 30 December 2016 but before 1 January 2018; or
  • 20 per cent for shares allocated through a shareholders’ meeting taking place from 1 January 2018; and
  • a specific employee’s contribution amounting to 10 per cent on the fraction of the capital gain that exceeds a €300,000 threshold.

A more favourable regime applies to small and medium-sized companies which have not granted dividends since their funding, up to a certain threshold (€40,524 for 2019).

When free shares are connected with a company savings plan, the gain on a subsequent disposal of the shares, including the benefit related to the acquisition gain, is exempt from income tax.

It should also be noted that the PACTE Law of 22 May 2019 increased the tax exemption threshold for the discount authorised in the event of a capital increase reserved for employees.


Does equity-based compensation require registration or notice? Are exemptions, or simplified or expedited procedures available?

For free shares and capital gains on stock options, the exemption from social security contributions is subject to the annual notification to the collecting agency of the identity of the employees or officers to whom free shares or stock options were definitively granted during the previous calendar year, and the number and value of shares allocated to each of them.

Failing to comply with these declaration duties will mean that employers will be ordered to pay social security contributions, including the employee’s part plus additional indemnity to the French administration in charge of collecting social security contributions.

Withholding tax

Are there tax withholding requirements for equity-based awards?

In France, social contributions are withheld on salary elements. Equity based awards are also subject to withholding social contributions where applicable. In addition, docking at source for income revenue was implemented in January 2019.

Inter-company chargeback

Are inter-company chargeback agreements between a non-local parent company and local affiliate common? What issues arise?

In large groups, such agreements are common. The amount of chargeback deductibility for French employers depends on various conditions that need to be carefully assessed.

Stock purchase plans

Are employee stock purchase plans prevalent or available? If so, are there any frequently encountered issues with such arrangements?

In large groups, employee stock purchase plans are prevalent and available. A typical issue concerns the condition of presence, which is often part of the plans in order to be able to acquire or sell the stocks. This becomes a possible source of litigation in the event that an employee is terminated or transferred, and the condition of presence is no longer fulfilled.

Employee benefits

Mandatory and voluntary employee benefits

Are there any mandatory benefits? Are there limits on changing or discontinuing voluntary benefits that have been provided?

Mandatory benefits include health benefits, pension and unemployment benefits, business expenses and paid holidays.

The French benefits system is not based on private insurance but on state insurance, where state entities (the state social security and family affairs body, the state unemployment agency, etc) manage the scheme.

A change or interruption of voluntary benefits is subject to specific rules and processes that must be complied with in order for these modifications to be unenforceable.

Typical employee benefits and incentives

What types of employee benefits are prevalent for executives? Are there tax or other financial incentives or disincentives for such employee benefit arrangements?

The most common benefits for executives are individual variable bonus plans. As explained above, there is no tax or financial advantage for those schemes. From that standpoint, equity incentives remain more advantageous.

Termination of employment

Rules for termination

Are there prohibitions on terminating executives? Are there required notice periods? May executives be dismissed without cause?

There are no absolute prohibitions on termination of executives’ employment contract specifically; however, a dismissal needs a genuine and serious cause, which can be based on a personal or economic motive, and must respect the procedure laid out in the Labour Code. Mandatory notice periods should be respected by executives, the length of which varies according to seniority level and applicable sectoral collective bargaining agreement, if any, but employers have the option to put them on gardening leave.

The dismissal conditions for corporate officers are different, depending on the company’s legal form.

The principle of ‘free removal’ applies to corporate officers, but depending on the legal form of the company, some limits can restrict this freedom. There are no general and legal notice periods.

Mandatory severance pay

Are there statutory or mandatory minimum severance requirements? Are there any other mandatory, post-employment benefits?

Upon the expiry of his or her work contract, an employee is entitled to mandatory payments of severance pay, holiday pay and compensation for the notice period in case of gardening leave. Also, health and contingency schemes must be maintained post-employment, for free and for a maximum 12-month period, subject to some specific requirements.

A minimum severance pay is provided by the Labour Code after eight months of seniority. Bonuses and variables compensation should be taken into account when calculating the minimum severance. This severance is not due in the case of a dismissal for serious misconduct. These rights cannot be waived.

Company officers are not entitled to any severance except in the event that the relevant corporate body has decided differently following the applicable corporate rules.

Typical severance pay

What executive severance payment level is typical?

Generally, a mandatory minimum severance is provided by the applicable sectoral collective bargaining agreement. If not, the Labour Code specifies that the severance cannot be less than one-quarter of the average monthly wage multiplied by years of seniority, and one-third of the average monthly wage multiplied by years of seniority for each year accumulated as of 10 years of seniority (article R1234-2 of the Labour Code).

The reference wage is the most advantageous average wage of the previous three or 12 months (article R1234-4 of the Labour Code).

Apart from journalists for whom the applicable sectoral collective bargaining agreement provides specific rights in the case of a change of control, a change of control would normally not trigger any specific right to a particular severance, nor would it increase the amount of the mandatory severance.

The need to pay an incentive on a pro rata basis for the year of termination depends on the plan’s terms and conditions.

Reasons for dismissal

Are there limits on dismissal for ‘cause’? Are there any statutory limits on ‘constructive dismissal’ or ‘good reason’? How are ‘cause’ or ‘constructive dismissal’ defined? Are there legal or customary rules relating to effecting a termination for ‘cause’ or ‘constructive dismissal’?

Dismissals should be grounded on either personal or economic cause.

A dismissal for personal cause (fault or unfitness, etc) should be based on disciplinary reasons or other reasons (eg, professional inadequacy). Dismissals on personal grounds are considered valid when the cause is ‘real and serious’ (article L1232-1 of the Labour Code); that is, when it is materially and objectively verified that the employer should breach the contract.

A dismissal for economic cause should be based on economic difficulties, the need to protect the company’s competitiveness or the cessation of the company’s business (article L1233-3 of the Labour Code). Since 23 September 2017, economic difficulties or the need to protect the company’s competitiveness shall be assessed at the level of the business sector of activity common to the company and to the companies of the group to which it belongs, established on the national territory except in the event of fraud.

To dismiss an employee, either for personal or economic grounds, the employer must comply with a specific proceeding that is precisely defined by statute law.

Constructive dismissal is a breach of contract claimed by the employee for an alleged fault of the employer before the labour courts. Where the courts decide the breach lies in a serious fault of the employer the breach will be deemed a dismissal without real and serious cause. Where the courts decide there was no fault on the part of the employer, the breach will be construed as a resignation.

Gardening leave

Are ‘gardening leave’ provisions typically used in employment terminations? Do they have any special effect on benefits?

Gardening leave may be used at the employer’s discretion during a notice period the duration of which is determined by the applicable sectoral collective bargaining agreement, if any, or the Labour Code. The employee remains compensated for his or her gardening leave period, with all due benefits and advantages as if he or she had worked.

In general terms, the waiver of notice cannot result in any reduction in the wages and benefits that the employee would have received had he or she worked (article L1234-5 of the Labour Code). Consequently, an employee may not be deprived of his or her bonus on the grounds that he or she is exempt from work during his notice period.

As far as free shares are concerned, it has recently been held that the fact of exempting the employee from the execution of his or her notice period does not allow the employer to exclude him or her from the benefit of the allocation of shares (Cass soc, 17 May 2017, No. 15-20094).

Waiver of claims

Is a general waiver or release of claims on termination of an executive’s employment normally permitted? Are there any restrictions or requirements for the waiver or release to be enforceable?

A general waiver or release of claims is only possible through the signing of a settlement agreement.

No settlement agreement can be negotiated before termination occurs. As a result, even though parties may have already reached an oral settlement, they must go through the dismissal process, which involves the sending of a dismissal letter, otherwise the settlement agreement would be deemed null and void.

A way to secure the termination is to enter into a termination by ‘mutual termination agreement’. This requires both parties’ consent, and a particular process involving the labour administration’s approval (which may be implicit). Except in very particular circumstances in which the employee would claim that his or her consent was not valid, the employee would not be able to challenge such departure; he or she could, however, still bring a claim based on the execution of the contract (eg, to obtain certain arrears of wages).

Post-employment restrictive covenants

Typical covenants

What post-employment restrictive covenants are prevalent? What are the typical restricted periods?

Non-compete is the most common type of clause. The restricted period usually varies from six months to two years.

Non-solicitation of customers is generally included in the non-compete clause, whereas a non-solicitation of employees’ clause is clearly distinct from the non-compete obligation as they are not subject to the same requirements for their validity.


Are there limits on, or requirements for, post-employment restrictive covenants to be enforceable? Will a court typically modify a covenant to make it enforceable?

To be valid, a non-compete clause should be limited in time and space, proportionate to the interests of the company, and remunerated accordingly. In terms of ‘geographic’ restriction, the scope may encompass small areas or different countries as long as the restriction is proportionate to the company’s interests. The larger the scope of the prohibition is, the larger the financial compensation needs to be (the financial compensation is usually from 30 per cent of the compensation up to 50 per cent).

The clause is automatically enforceable after the termination of the employment. If the employer intends to renounce the clause, he or she needs to do so within the deadline mentioned in the applicable sectoral collective bargaining agreement or the work contract.

If such a clause is considered as excessive, the provision is usually voided. In rare circumstances, the courts may decide to reduce the geographical or time scope to make it enforceable.

Remedies for breach

What remedies can the employer seek for breach of post-employment restrictive covenants?

Breaching or violating a contractual non-compete clause usually leads to the loss of the non-compete clause’s value in future, the reimbursement of previous non-compete compensation and, eventually, punitive damages as may be provided for by the non-compete clause.

Pension and other retirement benefits

Required retirement benefits and incentives

Are there any required pension or other retirement benefits? Are there limits on discontinuing or modifying voluntary benefits that have been provided?

All employees, as well as company officers, are required to be affiliated to the General Social Security Pension Scheme as well as to a mandatory complementary pension scheme. Both employers and employees contribute to the schemes. These regimes are pay-as-you-go arrangements: the active labour force finances pensions, based on the principle of intergenerational solidarity.

On top of these mandatory pension schemes, voluntary schemes may be implemented by the company, either through a collective bargaining agreement or a unilateral decision.

The procedures to discontinue voluntary pension plans may differ depending on how they were implemented. In any event, should the scheme be clearly mentioned in the work contract as being a contractual part of the employee’s compensation, a discontinuation requires the employee’s prior agreement.

Typical retirement benefits and incentives

What types of pension or other retirement benefits are prevalent for executives? Are there tax or other financial incentives or disincentives for such employee benefit arrangements?

Supplementary pension schemes that are defined-contribution in nature are quite common in large groups.

These schemes are attractive from a taxation standpoint as the part of the company’s share of contributions to the scheme enjoys a favourable regime in terms of national dues, although it is not 100 per cent exempt. This favourable regime is, however, subject to various conditions. In particular, the scheme must be compulsory for eligible employees and applicable to all or to an objectively defined category of employees (which may be executives).

Supplemental retirement benefits

May executives receive supplemental retirement benefits?

Under French law, when an employee retires, the company must pay the ‘retirement indemnity’, which is not a pension but a type of severance that is determined by the applicable sectoral collective bargaining agreement, if any, or by the Labour Code. This does not, however, apply to company officers.

As mentioned above, the most common supplemental retirement benefit is the adoption of a defined-contribution scheme rather than a defined-benefit plan.

It does, however, happen that senior management (chairpersons in particular) of publicly traded large groups are granted defined-benefit pension plans. The attribution of those ‘top hat’ pension plans is subject to performance conditions; a mechanism to set up a cap in the yearly increase of the acquired rights has also been implemented.

Finally, the annual report of the board to the shareholders must include the existence of such pension benefits and other lifetime advantages.


Directors and officers

May an executive be indemnified or insured for claims related to actions taken as an executive, officer or director?

Insurance can be contracted for claims related to civil grounds only.

This insurance typically protects executives in the case of management fault, as such fault may lead to personal payments or reimbursements. This type of insurance is a personal subscription by the executive and does not involve the company. It does not cover criminal claims.

Change in control

Transfer of benefits

Under what circumstances will an asset sale in your jurisdiction result in an automatic transfer of benefit obligations to the acquirer?

The French Labour Code and case law provide for the same mechanism as the one set by the European Directive of 12 March 2001. In the event that an asset sale involves the transfer of an ‘autonomous economic entity’ to which the employee is mainly devoted, the employee should be transferred by virtue of law and the benefits obligation also transferred to the new employer. A particular mechanism for this applies should the benefits be implemented though a company collective bargaining agreement.

Executive retention

Is it customary to provide for executive retention or related arrangements in connection with a change in control?

Where a shareholder contemplates a sale of the company, quite often in order to avoid losing talent before the sale, retention bonuses would be proposed to senior executives. The company may also decide to provide executives whose contracts are being terminated with a contractual severance in the event that they are dismissed as a result of the change in control.

Expedited vesting of compensation

Are there limits or prohibitions on the acceleration of vesting or exercisability of compensation in a change in control? Are there restrictions on ‘cashing-out’ equity awards?

Except for free-share acquisition, which may not be accelerated, there are no legal restrictions preventing the acceleration of the vesting of stock options or cash awards because of a change of control, subject to applicable corporate rules and processes.

Are there adverse tax consequences for the employer or the executive relating to benefits or payments provided pursuant to a change in control?

Potential adverse tax consequences must be assessed on a case-by-case basis, considering the operation at stake and the plan’s provisions.

Multi-jurisdictional matters

Exchange controls

Do foreign exchange controls rules apply to the remittance of funds, or the transfer of employer equity or equity-based awards to executives?

There are no foreign exchange control rules.

Local language requirement

Must employment agreements, employee compensation or benefit plans, or award agreements be translated into the local language?

French law requires that French be used for work contracts as well as for all documents setting out ‘obligations incumbent upon the staff member, or whose contents [must be properly understood] for him to discharge his tasks’. French law does, however, state that this obligation ‘does not apply to documents forwarded from abroad, or designed [to be read by] foreigners’.

In this area, French courts have interpreted French law very broadly, and have concluded that staff members need not be bound by documents drafted in English that set out targets in respect of which contractual variable remuneration is to be defined, even where the staff member is quite used to working in both languages.

Net salary arrangements

Are there prohibitions on tax gross-up, tax indemnity or tax equalisation payments?

There are no statutory or regulatory prohibitions on tax gross-up, tax indemnity or tax equalisation payments. As the case may be, these provisions may be agreed with executives seconded abroad or being seconded to France by a foreign group company.

Choice of law

Are choice-of-law provisions in executive employment contracts generally respected?

Despite the choice-of-law principle provided for by the Rome Convention, employees may not be exempted from the public policy laws of the country in which contracts are performed.

Update and trends

Key developments of the past year

What were the key cases, decisions, judgments and policy and legislative developments of the past year?

Key developments of the past year47 What were the key cases, decisions, judgments and policy and legislative developments of the past year?

The PACTE Law of 22 May 2019 covers, in particular, the following:

  • the reform of retirement savings;
  • the development of employee savings in small-sized companies;
  • company savings plans and collective retirement savings plans; and
  • the development of employee share ownership.