One of the aims of the French PACTE Law (Action Plan for Business Growth and Transformation) is to increase gender equality within companies.
Since 2011, members of the Board of Directors or the Supervisory Board of limited liability companies (sociétés anonymes) must be appointed “with the aim of achieving a balanced representation of women and men”.
With regard to publicly listed limited liability companies and companies that exceed certain thresholds (500 employees and a net turnover or total assets of €50 million for three consecutive years), the proportion of either male or female members of the Board of Directors or the Supervisory Board cannot be less than 40%. If such Boards have 8 members or less, the difference between the number of male and female members may not be more than 2.
Until now, any appointment made in violation of these rules was considered invalid, however the law specified that such invalidity did not make the process, in which the irregularly appointed member took part, invalid.
The PACTE Law eliminates this exception and now allows a judge to rule on the invalidity of the process and deliberations in which the irregularly appointed member participated.
The PACTE Law also introduces the following new provisions:
– The requirement to seek a balanced representation of men and women on the Board of Directors or the Supervisory Board has been extended to the members of the Management Board.
– In making recommendations to appoint Deputy Chief Executive Officers, the Chief Executive Officer must now endeavor to seek a balanced representation of women and men. The Board of Directors is required to put in place a procedure that ensures throughout the appointment process, that there is at least one male and one female among the candidates for Deputy Chief Executive Officer positions. The Supervisory Board is also required to comply with this requirement when appointing members to the Executive Board.
Although the law currently does not specify any penalty for failure to comply with these requirements, members of such Boards may nonetheless be held liable for non-compliance.
In a decision dated May 9, 2019 (1), for the first time, the French Cour de Cassation upheld a mutual termination agreement (rupture conventionnelle) involving an employee declared unfit for his position by the occupational physician (médecin du travail).
The mutual termination agreement of an employment contract is provided for in Articles L. 1237-11 to L. 1237-16 of the French Labor Code.
The law does not provide for any exceptions to establishing a mutual termination agreement between an employer and an employee; nevertheless, the requirements for approval are as follows:
– For unprotected employees by an employee representative mandate, the termination agreement must be approved by the Administration;
– For employees protected by an employee representative mandate (2), approval from the labor inspection authority is required.
However, there have been some serious doubts about whether employment contracts can be mutually terminated in certain specific situations.
As an example, before mutual termination agreements were first introduced into the Labor Code (3), the French Cour de Cassation ruled that any mutually termination of an employment contract is not allowed during the period of suspension of an employment contract due to a work-related accident (4).
More importantly, the French administration clearly excluded the possibility of signing a mutual termination agreement in cases where the employee benefited from specific protection against dismissal (during maternity leave, an absence following an occupational accident or due to an occupational disease) (5).
In recent years, the French Cour de Cassation has given several judgments approving mutual termination agreements in the following situations:
– Between an employer and an employee with whom there is a dispute (6);
– Between an employer and an employee declared fit pending certain conditions after an occupational accident (7);
– Between an employer and an employee with a diagnosed occupational disease or who has suffered an occupational accident (8 and 9). The judgment stated that the termination occurred “during the period of suspension due to an occupational accident or disease“.
– Between an employer and an employee, during the periods of suspension of the employment contract to which the employee is entitled during maternity leave (10);
Nevertheless, the French Cour de Cassation recalled, in each of these judgments, that the mutual termination agreement must be devoid of any defect of consent (error, violence, misrepresentation) or fraud on the part of the employer.
In this respect, the French Cour de Cassation recently ruled (11) that the existence of acts of psychological harassment does not in itself impact the validity of the termination agreement, unless consent has not been properly obtained. In other words, acts of psychological harassment are not grounds on their own to annul the mutual termination agreement. However, the line between psychological harassment and psychological violence is quite thin, so that in practice, in the event of psychological harassment, the employer takes the risk that the lack of consent may be retained by the judges and the mutual termination agreement may be cancelled.
In the decision of May 9, 2019, the French Cour de Cassation clarified that it is possible to mutually terminate an employment contract with an employee declared unfit for his/her job by the occupational physician and as such, the contract is no longer suspended.
This means that it is now possible to bypass certain protective requirements for employees declared unfit, including:
– the employer’s duty to reassign the employee to a new position, which may be burdensome if the company is part of a group;
– the re-instatement of salary payments in the absence of a reassignment or termination of the employment contract within one month;
– the possibility of initiating a dismissal procedure only if it can be demonstrated that it is impossible to reassign the employee to another position;
– the payment of a specific severance amount in the event of professional incapacity, which is equal to twice the amount of the dismissal indemnity and compensatory payment in lieu of notice period.
However, unless the employee negotiates compensation for termination in excess of the minimum compensation (12) to encourage him to renounce its protective status, it is not in the employee’s interest to consent to a mutual termination agreement of his/her employment contract.
In the judgment of May 9, the judges ruled against the defect of consent since the employee did not allege it and considered that proof of the employer’s fraud was not established, since the employee had 15 days to withdraw before the termination agreement was duly approved and in order.
The French Cour de Cassation also recalled that fraud must be proven by the person who invokes it and cannot be presumed.
Nonetheless, as a precautionary measure and in order to avoid the risk of judges retaining the grounds of fraud or lack of consent, we advise to inform the unfit employee, for whom a mutual termination by agreement is being considered, of the consequences of such a mutually agreed termination.
(1) Cass. Soc., May 9, 2019, o.°17-28767
(2) Mandates specified in articles L. 2411-1 et L. 2411-2 of the French Labor Code
(3) The Mutual termination agreement was first introduced into the French Labor Code through Law no. 2008-596 of June 25, 2008, although prior to that it was used in practice without a specific legal framework.
(4) Cass. Soc., June 29, 1999, no. 97-40426; Cass. Soc., January 4, 2000 no. 97-44566
(5) Circ. DGT no. 2009-04 of March 17, 2009, no.1.2.
(6) Cass. Soc., May 23, 2013, no. 12-13865
(7) Cass. Soc., May 28, 2014, no.12-28082
(8) Cass. Soc., September 30, 2014, no.13-16297
(9) Cass. Soc., December 16, 2015, no.13-27212
(10) Cass. Soc., March 25, 2015, no. 14-10149
(11) Cass. Soc., January 23, 2019, no. 17-21.550
(12) In the event of a mutual termination agreement, the compensation is at least equal to the legal severance pay or, in companies whose industries are represented by the MEDEF, the CGPME or the UPA (French inter-professional employers’ organizations) , to the relevant contractual severance pay if it is higher.
Since January 1, 2016, individuals whose employment income falls within certain brackets are required to pay the “universal healthcare contribution”, also known as the “PUMA tax”.
Prior to January 2019, those required to pay this tax included individuals:
– Whose employment income was less than 10% of the annual French social security cap (or “PASS”) (i.e., €3,973 in 2018, the amount of the PASS in 2018 being €39,372), and
– Who did not receive any replacement income, and
– Whose capital earnings were greater than 25% of the PASS (i.e., €9,843 in 2018).
The PUMA tax was based on capital earnings, and in some cases increased with respect to livelihood and standard of living factors. The tax rate was set at 8%.
The Tax was amended by the 2019 French Social Security Financing Act.
Since January 1, 2019, individuals required to pay the PUMA tax include those whose employment income is less than 20% of the PASS (i.e. €8,104.80 in 2019, the amount of the annual PASS 2019 being €40,524). As such, the threshold for tax liability has doubled.
The PUMA tax base, however, has been reduced by a rebate equal to 50% of the PASS (€20,262 in 2019) and will now be capped at eight times the PASS (€324,192 in 2019).
The new PUMA tax rate has been set at 6.5%.
A linear reduction mechanism for this rate has also been put in place. The rate decreases in proportion to earned income and becomes zero when the liability threshold is reached.
To date, although the number of taxpayers subject to the PUMA tax has increased, both the base and the tax rate of this contribution have been reduced.