Termination of the employment contract: a step towards new litigation?

May 20th 2016

Since the law no.2008-596 of June 25, 2008, the conventional termination has enabled numerous solutions of termination between employers and employees avoiding court procedures which can be lengthy, costly and….uncertain.

When the continuation of the employment contract is no longer possible, the conventional termination of the contract may be the easiest solution for situations that have become difficult, admittedly at a severance indemnity rate that is often higher than the severance indemnity set by the law or the collective bargaining agreement.

The difficulty arises when the payment of an indemnity exceeds the legal severance indemnity on the date of payment of the first   unemployment benefits by Pôle Emploi (French Unemployment Benefits Office).

Following the termination of the employment contract, the coverage provided for the former employee is preceded by a non-remunerated period comprised of two “indemnification deferral periods” and a waiting period. Two of these delays do not raise any difficulty: a general waiting period of 7 days and a deferral period following the payment of the compensatory paid leave indemnity.

The third delay is a more complex issue.

The agreement of May 14, 2014 relating to the unemployment benefits has provided for an indemnification deferral for which the calculation method is simple, equal to the amount exceeding the legal severance indemnity divided by 90, with a threshold of 180 days (75 in the event of an economic dismissal outside of the Employment Safeguard Agreement). This threshold is reached when the supra-legal indemnity is at least equal to 16,200 €.

The indemnity negotiated in the context of a conventional termination is often used to overcome the deficiency of Pôle Emploi (subject to a more favorable tax treatment). The employee may either refuse the conventional termination which is proposed to him, or bring the level of negotiation of severance indemnity to a more significant amount in order to compensate the qualification period of 180 days.

Since March 1, 2016, litigation may be financially beneficial for the employee and, at a minimum, constitute an argument for negotiation.

Following the cancellation by the Conseil d’État (French Administrative Supreme Court) of the order of June 25, 2014 approving the unemployment insurance agreement of May 14, 2014, the social partners added an article 21 § 2 to the agreement, as follows:

“For the calculation of this deferment, the other indemnities and amounts inherent to this termination when they are granted by the judge shall not be taken into account”.

Consequently, all the amounts which shall be paid to the employee for the termination of the agreement in application of a court decision shall not be taken into account for the calculation of the indemnification deferral.

Does this mark a return of litigation for the termination of employment contracts? Would the employee subject to a conventional termination not prefer to have a judge decide on his indemnities? Would this involve the return of the judge’s authority to ensure a win-win agreement?

The question may arise and deserves very careful attention, all the more so as the flat-rate indemnity set by the employment conciliation committee defined by article D.1235-21 of the French Labor Code (settlement indemnity fixed in the conciliation committee according to a pre-defined scale) is also excluded from the calculation of the indemnification deferral.

Mireille Goutailler