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    Decree n°2017-1387 dated September 22, 2017, on the predictability and security of labour relations, introduced a scale for compensations which allows employers and employees to have prior knowledge of the financial stakes for dismissals lacking any real and serious cause brought before the Labour Court (Conseil de Prud’hommes).

    As such, if the employee or employer refuses reinstatement into the company, the judge grants the employee compensation whose minimum and maximum amounts are already determined by the scale, based on the employee’s seniority and the size of the company (Article L.1235-3 of the French Labour Law).
    However, the scale is not applied in the event of dismissal deemed null and void due to the violation of a fundamental freedom, harassment or discrimination (Article L.1235-3-1 of the French Labour Law) .

    When the scale was set, it was the subject of much controversy and led to extensive press coverage.

    In a decision dated December 7, 2017, the Council of State (Conseil d’Etat) rejected the appeal by the French trade union CGT (Confédération Générale du Travail) which raised objections to the conformity of the scale.

    Likewise, in decision n°2018-761 DC dated March 21, 2018, the French Constitutional Council ruled the scale to be in compliance with the French Constitution.

    The scale should therefore be binding on the judge.

    Nevertheless, late 2018 and early 2019 were marked by several decisions by Labour Courts which refused to apply the scale. To our knowledge, five Labour Courts (1) nullified the compensation scale for dismissals lacking any real and serious cause.

    On the contrary, the CAEN Labour Court, in a decision by its settlement (départage) division dated December 18, 2018 (n°17/00193), applied it.

    The judicial battle is essentially about two legal points:

        – The direct applicability of the provisions of the Convention n°158 of the ILO and the European Social Charter by French judges.
        – The conformity of the scale with the principles of adequate compensation for the prejudice suffered within the context of the unfair breach of the work contract provided for in Article 10 of Convention n°158 of the ILO and Article 24 of the European Social Charter dated May 3, 1996.

    According to the Labour Court councillors who refused to apply the scale implemented by the September 22, 2017 decree, the scale is in violation of the European Social Charter and Convention n°158 of the ILO.

    We will now have to wait several months to see how the Court of Appeals and the Court of Cassation rule on the matter.

    Employers and employees are therefore once again in a state of uncertainty: the former can no longer precisely understand their judicial risk and the latter do not know the real financial stakes of legal proceedings they might initiate.

    (1) TROYES Labour Court via a decision on December 13, 2018, “Miscellaneous activities” division
    AMIENS Labour Court via a decision on December 18, 2018, “Trade” division
    LYON Labour Court via a decision on December 21, 2018, “Miscellaneous activities” section
    GRENOBLE Labour Court via a decision on January 18, 2019, “Manufacturing” division
    AGEN Labour Court via a decision on February 5, 2019, “Manufacturing” division

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    In principle, partnerships such as general partnerships (société en nom collectif), limited partnerships (société en commandite simple), civil partnerships or limited liability companies whose single member is an individual (EURL) are not subject to Corporate Income Tax (CIT).

    Nevertheless, the abovementioned companies may opt for payment of the CIT.

    To be valid, the option must be filed with the tax authorities no later than the end of the 3rd month of the financial year for which the company wishes to be subject to the CIT for the 1st time.

    Such option, once exercised, was, until now, irrevocable.

    For the company financial years ending as of December 31, 2018, the 2019 Finance Law creates an exception to this principle of irrevocability.

    From now on, companies having opted for CIT liability will have the right to revoke that liability at the latest in the 5th financial year following the year during which the option was exercised.

    To be deemed valid, the revocation must be filed with the tax authorities before the end of the month preceding the payment deadline for the first instalment of the corporate tax for the fifth financial year.

    If no revocation is filed within that time period, the option for the CIT shall then become irrevocable.

    The aim sought by lawmakers is to allow companies, which realize in retrospect that the regime is not the one best suited to their needs, not to be penalized by giving them the right to reconsider their decision.

    In terms of taxes, revoking the option for CIT is considered as a cessation of business, which, in principle, leads to the immediate taxation of operating profits and tax-deferred profits made and not taxed, as well as any provisions or capital gains for which taxation had been deferred.

    However, in the absence of a new legal entity being created, the consequences of the cessation of business are expected to be attenuated, if no change has been made to the book values of the assets and if taxation remains possible within the framework of the new tax regime to which the company is subject.

    Make sure to ask us for advice before making such a decision.

© Schmidt Brunet Litzler