France: You Cannot Terminate a French Employment Contract by Simple Mutual Consent?

France

You Cannot Terminate a French Employment Contract by Simple Mutual Consent?

In its Judgment of 15 October 2014, the French Supreme Court of Appeal in Paris decided that it is no longer possible to terminate an employment contract by the employer and employee reaching an agreement. Although Article 1134 of the Civil Code provides that a contract may be brought to an end by common accord, the Supreme Court considered that this is no longer possible in relation to an employment contract since the introduction of the procedure of termination by homologated agreement (rupture conventionnelle homologuée or “RCH”) by the law of 25 June 2008. In its decision of 15 October 2014, the Supreme Court considered that the consent was invalid if the procedure of the RCH had not been followed. The consequence of invalidity is that the termination is without real and serious justification, giving rise to a potential claim by the employee for unfair dismissal compensation.

Since the introduction of the law in June 2008, there is a specific procedure set out in Article L 1237-11 et al. of the Employment Code providing for the termination of an employment contract by mutual agreement. This provides the employer and employer with a cooling off period of 15 days and also provides the employee with a minimum indemnity. A standard form also has to be submitted to the Employment Inspectorate, providing the latter with the possibility of denouncing or approving the termination within a 15 day period. The procedure therefore takes at least 30 days and is formalistic.

A number of Courts of Appeal had already rendered Judgments similar to the Supreme Court, namely that the RCH was the only way of terminating an employment by mutual consent; the Judgment of 15 October 2014 is the first time that the Supreme Court has pronounced on the question.
Termination by mutual consent is still possible in relation to fixed term contracts and trainee contracts. Negotiated departures are also possible within the framework of a social plan or a collective agreement relating to the GPEC (Gestion prévisionnelle des emplois et des compétences / Provisional management of jobs and qualifications).

In a Judgment on 26 March 2014, the Supreme Court also invalidated a settlement agreement that had been concluded after a termination implemented by a RCH; many employees preferred to secure a RCH by a settlement agreement, sometimes the settlement being offered to the employee as an incentive to accept the RCH. Under current jurisprudence, a settlement that follows a termination by RCH will only be valid if it relates to a dispute concerning the execution of the employment contract and not termination.

Termination by mutual consent has sometimes be used by employers in the management of international mobility. In the case of expatriation of employees, some employers would terminate the existing employment contract and offer the employee a new contract in the country of transfer. This practice is clearly dangerous if the RCH is not used. International mobility is better managed by suspension of the existing contract and issuance of a letter of transfer or by way of addendum to the existing contract of employment.