A new law passed in France on July 28, 2011, gives employees of French companies new rights to a bonus payment in certain circumstances. This new legislation comes amid an increasing consensus, post-crisis, both in France and elsewhere in Europe, in favor of sharing the fruits of a company's success with employees.

This novel piece of legislation presents plenty of pitfalls for the unwary. French companies are facing the challenge of interpreting and achieving compliance with this untested and, in some respects, complex piece of law. The new rules could impact many companies that have activities in France.

In a nutshell, the new law provides that a French company must pay a bonus to its employees if it declares a dividend based on the results of the previous financial year (y-1), and that dividend is greater than the average of the dividends declared on the basis of the results of the two preceding financial years (y-2 and y-3). A subsidiary company may be required to pay a bonus if a dividend is declared by its (French) parent company, even if the subsidiary company itself has not declared a dividend. On the other hand, if the subsidiary declares a dividend but its French parent does not, the bonus payment is not triggered.

The new rules apply to "commercial" companies incorporated in France, which include the most popular forms of companies, such as the société anonyme, the société par actions simplifiée and the société à responsabilité limitée. The company must have at least 50 employees on its payroll. Eligible employees must have a French law employment contract with the company and must have been on the company's payroll during the relevant financial year (i.e., the financial year that gave rise to the results being distributed by the dividend in question, y-1). An employee is entitled to a bonus even if he or she no longer works for the company at the time the dividend is declared or paid.

The new law leaves it to the company to determine the method of calculation and other terms and conditions of the bonus payment (e.g., payment terms, eligibility conditions, etc.) through collective negotiations with the company's employee representative bodies. Failure by the company to negotiate is a criminal offense that is sanctioned by a fine and/or imprisonment. If collective negotiations fail to settle the terms and conditions of the bonus, the company's management must reach a unilateral decision. There is no legal minimum for the amount of the bonus, but it must be more than a purely symbolic amount.

Bonus payments are exempt from most social charges, subject to a limit of 1,200 euros per employee per annum, provided, however, that the bonus is paid before the end of the financial year during which the dividend is declared.