The practice of the “golden hello”, sign-on bonus, consists of paying an employee newly recruited by a company a certain financial incentive on signing their employment contract. It is sometimes provided in the employment contract that the employee will refund part of this amount if he resigns within a certain period after his recruitment. In this way, the employer provides guarantees of long-term collaboration with the employee. For the Court of Cassation (1), such a clause does not constitute an unjustified and disproportionate infringement of the freedom to work.
Inspired by the “golden hello” bonuses paid to corporate officers taking up their duties, practice has seen the development of the same type of bonuses to attract and retain certain employee profiles, namely senior executives or managers or even traders, as in the case that led to the Court of Cassation judgement of 11 May 2023 (2).
• Reimbursement of a sign-on bonus by an employee who resigns does not infringe the freedom to work
In the case referred to above (3), a trader’s employment contract contained the following clause:
“The employee will receive the gross amount of €150,000 as an initial bonus, which will be paid within 30 days of the employee taking up employment in accordance with the terms of the employment contract. In the event that the employee resigns or is dismissed for serious or gross misconduct at the end of the third year from the start date, the employee will be eligible to retain 1/36th of the initial bonus for each full month worked after the start date. The balance of the initial bonus will be reimbursable to the company on the date of termination or on the date on which notice of dismissal is given, whichever is the earlier”.
However, as the employee resigned 1 year and 2 months after being taken on, the employer claimed €79,166.67 as reimbursement of the sign-on bonus in proportion to his time with the company.
The employee refused, arguing that the clause was void and infringed his freedom to work.
The employer asked the courts to order the employee to refund his expenses. The Labour Court upheld the employer’s claim, but the Court of Appeal ruled differently and dismissed the employer’s case.
The appeal judges invalidated the clause (4). In their opinion, making the definitive award of the bonus conditional on the employee not resigning within a certain period after its payment had the effect of setting a cost to resignation. For the Court of Appeal, this constituted an infringement of the freedom to work.
The employer then appealed to the Court of cassation.
The Court of Cassation upheld the clause providing for the reimbursement of part of the signing-on bonus in the event of early resignation.
The Court of Cassation points out that any infringement of employees’ rights and freedoms must be justified by the nature of the task to be performed and proportionate to the aim pursued (5).
It also points out that an employment contract must be performed in good faith (6).
It thus ruled that a clause in an employee’s contract of employment designed to build loyalty could make the acquisition of the full amount of sign-on bonus conditional on the employee working for the company for a certain length of time after the award was made.
The Court of Cassation considers that clauses requiring an employee to have been with the company for a certain length of time after payment of a bonus before acquiring the bonus in full and providing for partial reimbursement in the event of resignation, do not constitute an unjustified and disproportionate infringement of the freedom to work.
The Court of Cassation emphasised that the sign-on bonus must be independent of the employee’s remuneration. On this basis, it accepts that an employee who resigns may be required to reimburse the bonus in proportion to the time he has not spent with the company before the due date.
If, on the other hand, the bonus constituted remuneration for a period worked by the employee, the employer could not legitimately make its definitive acquisition conditional on the employee’s presence in the company after its payment (7).
• Partial reimbursement of the welcome bonus is permitted
The Court of Cassation’s Social Division also approved the partial reimbursement of the bonus in this case.
In most cases, the welcome bonus is paid as soon as the employee joins the company, but it is not definitively acquired until the employee has been with the company for a certain length of time.
This is a bonus that is earned only in proportion to the time.
The signing-on bonus is usually paid as soon as the employee joins the company but is not definitively acquired until the employee has been with the company for a certain length of time.
This is a bonus that is earned only in proportion to the time the employee has spent with the company and is paid in advance.
As a result, if the employee resigns before the end of the period defined in the employment contract for definitive acquisition of the bonus, the employee is required to return part of the bonus to the employer, not all of it.
It is possible that full reimbursement of the bonus in the event of the employee’s resignation, since it would amount to imposing a disproportionate cost on the resignation, would be considered an unjustified and disproportionate infringement of the freedom to work from the point of view of the Court of cassation.
The Court of Cassation therefore ruled that the appeal judges had wrongly dismissed the employer’s claim.
While the Court of Cassation has had the opportunity to rule on the acquisition of sign-on bonuses in the event of resignation, it has not yet had to rule on the acquisition of the arrival bonus in the event of dismissal for serious or gross misconduct on the part of the employee.
• Sign-on bonus and dismissal for gross or serious misconduct
The question of the legality of this contractual clause in the event of dismissal for serious or gross misconduct on the part of the employee can be raises. Refund of the bonus could be regarded as a prohibited financial penalty.
However, whatever the reason for termination of the employment contract, in order to avoid a possible dispute relating to a request for refund of the overpayment by the employee, one solution for the employer may be to negotiate with the future employee a phased payment of the bonus, which may be provided for during the contractually agreed “retention” period.
(1) Cass. soc. 11 may 2023, n° 21-25136 FSB.
(2) Cass. soc. 11 may 2023, n° 21-25136 FSB.
(3) Cass. soc. 11 may 2023, n° 21-25136 FSB.
(4) CA Paris, 9 september 2021, n° 19-02239.
(5) Article L.1121-1 of the French Labour Code.
(6) Article L.1221-1 of the French Labour Code ; article 1104 of the French Civil Code.
(7) Cass. Soc., 8 July 2020, n°18-21.945, Cass. Soc., 29 September 2021, n°13-25.549.