France: Report finds new contract-termination procedure has been a success

An official report published in France in October 2010 finds that a new statutory procedure for terminating employment contracts by mutual consent, introduced in 2008, has proved popular and resulted in very little litigation.

On this page:
Contract termination by mutual consent
Rationale for the new procedure
High level of take-up
Employees concerned
Problems and issues
Recommendations.

Contract termination by mutual consent

Until 2008, French law provided for open-ended employment contracts to be terminated only through dismissal by the employer or resignation by the employee. Legislation adopted in June 2008 introduced, for the first time, a legal framework for ending contracts "amicably" by agreement between the two parties, through a specific procedure known as termination by mutual consent (rupture conventionnelle).

According to the legislation, mutual-consent termination may not be imposed by either of the parties to an employment contract. The employer and employee sign an agreement to end the contract, following one or more meetings to negotiate the terms. The agreement must lay down the conditions for the termination, including the amount of the compensation payment for the employee. This payment must be at least equal to the statutory severance payment that would apply in the case of the employee's dismissal, or the severance payment based on an applicable collective agreement, if this is higher. The statutory severance payment is calculated as one-fifth of a month's pay for each year of service, plus two-15ths of a month's pay for each year of service after the 10th year.

Once an agreement has been signed to end the contract, both parties have a cooling-off period of 15 days, during which they have a right to change their minds and retract the termination. After this period, a copy of the agreement must be sent for approval to the local office of the ministry of labour, which checks that the procedure has been followed correctly and that both parties have freely given their consent to the termination. If the office does not challenge the agreement within 15 days, approval is considered to have been given.

If the employee concerned receives special statutory protection from dismissal - this applies, for example, to trade union delegates and elected employee representatives - the mutual-consent termination must be authorised by the Labour Inspectorate.

Any legal cases involving mutual-consent termination agreements and their approval must be brought within one year. They are dealt with solely by industrial tribunals (conseils de prud'hommes), with no other courts having jurisdiction.

Following a mutual-consent termination, the employee is entitled to claim unemployment benefits, unlike in the case of resignation.

In late October 2010, the Centre for Strategic Analysis (Centre d'analyse stratégique, CAS), an advisory body that reports to the Prime Minister, published a report providing a first assessment of the mutual-consent termination procedure, two years after its introduction.

Rationale for the new procedure

The statutory mutual-consent termination procedure was based on a provision in a national cross-industry agreement on "labour market modernisation" signed by trade unions and employers' organisations in January 2008. The social partners' aim in agreeing the procedure was to resolve a long-running debate about employment contracts and labour-market flexibility in France. There was a widespread view that the existing procedures for terminating open-ended employment contracts were complex and - especially in the case of dismissal - often involved long delays and high costs, with legal proceedings frequently ensuing.

Some analysts argued that the difficulties inherent in terminating open-ended contracts had been partly responsible for a major growth in fixed-term contracts and temporary agency work, with accompanying instability for the employees concerned. They are also deemed responsible for a lack of mobility in the labour market. The social partners hoped that the introduction of a non-contentious way of ending open-ended employment would address these problems. They were also influenced by the "flexicurity" strategy promoted by the EU. This is an approach to employment law and policy that combines flexibility in labour markets, work organisation and employment relations with employment and social security. The mutual-termination procedure sought to make it easier for employees to move between jobs voluntarily, receive better compensation, and provide employers greater room for manoeuvre in managing employment levels.

The CAS report examines whether the new procedure has so far achieved its aim of providing a legally certain way of ending employment contract consensually, or instead been a new source of contentious litigation and a means of disguising unilateral dismissals and resignations.

High level of take-up

The mutual-consent termination scheme came into effect in August 2008. In the two-year period up until August 2010, 390,000 contract terminations were approved by the employment authorities, which refused around 9% of applications. At the end of 2008, around 15,000 applications were being made per month, rising to 20,000 in summer 2009 and 25,000 in summer 2010. If the current trend continues, 270,000 contracts will have been terminated in this way during 2010. The CAS describes this take-up of the procedure as "spectacular".

Of people registering as unemployed in 2009, 3.4% were without work because they had ended their employment contract by mutual consent. Among those registering who had previous held an open-ended employment contract, 10% had terminated this contract by mutual consent. For comparison, 21% had been dismissed for economic reasons (ie made redundant), 51% had been dismissed for other reasons (usually grounds related to their personal conduct, capacity or competence) and 18% had resigned.

The CAS acknowledges that mutual-consent terminations make up only a relatively modest proportion of all terminations of employment, but points out that the new procedure was introduced at a time of rising unemployment, which might have been expected to discourage people from leaving their jobs voluntarily. However, the number of mutual-consent terminations has continued to rise since summer 2008, as have redundancies, while resignations and dismissals for other reasons have diminished.

Overall, the report finds that "the importance assumed by mutual-consent termination among the other methods of termination is a striking phenomenon, which is already contributing to greater flexibility in the labour market".

Employees concerned

The CAS report examines survey evidence on people leaving their jobs during 2008 and 2009 and concludes that those terminating their contracts by mutual consent have the following main characteristics:

• They tend to be slightly older than the average for all people whose open-ended employment contracts have ended. The traditional picture has been that younger employees are more likely to end their contracts through resignation, while older workers are more likely to be dismissed, especially on economic grounds, and very unlikely to resign. While mutual-consent termination has, since its introduction, been used for all age groups, it has most notably become an option for older workers, and particularly those aged 55 or older.
• They tend to have worked in higher-level positions, with a higher than average proportion of managerial, professional and similar staff, and a lower than average proportion of blue-collar workers. However, those who resign are on average in higher-level positions than those who leave their jobs by mutual consent.
• They tend to be more highly qualified than employees who have been dismissed, though less so than those who have resigned.
• They are more likely than average to have worked in the services sector, especially commerce, communications, financial services, and health and administration, rather than in manufacturing or construction. This is also true, and to a greater extent, of people who have resigned, while dismissal, especially on economic grounds, is more common in manufacturing.

Of employees whose open-ended contracts were terminated by mutual consent over 2008-09, 33% had found new employment by the end of 2009. This was considerably higher than the rates of 12% for those dismissed for personal reasons and 17% for those dismissed for economic reasons, but much lower than the 77% for people who had resigned. With regard to the type of employment found, people who had undergone mutual-consent termination were more likely than average to go into self-employment, less likely to find a new job on an open-ended contract and more likely to find a job on a fixed-term contract.

According to the CAS, these preliminary findings indicate that mutual-consent termination has not just been used as a substitute for dismissal or resignation, but has developed a distinctive complementary role. While it is used for a variety of reasons, both as an "enhanced" form of resignation, especially for higher-skilled staff in service sectors, and as a "softer" or disguised form of dismissal, it is not simply either, but has found its own "intermediate" role in the labour market. The report also notes that, prior to the introduction of the mutual-consent procedure, many contract terminations may in reality have been by mutual consent, but legally treated as dismissal or resignation.

Problems and issues

Drawing on the experience of the local offices of the ministry of labour, which must approve mutual-consent terminations, and the very limited case law that has so far arisen in relation to the new procedure, the CAS report highlights a number of issues and potential problems that have emerged.

There have been cases where the ministry's offices have refused to approve mutual-consent terminations because they believe that they are being used by employers to disguise redundancies and thereby avoid their [Article:98434#9.4 "obligations where collective redundancies occur"] (a collective redundancy is defined as the dismissal of 10 or more employees on economic grounds over a period of 30 days). Suspicion of such misuse has arisen when a series of mutual-consent terminations occur involving the same employer over a short period. Such cases have particularly been reported in sectors such as construction and property services.

The report notes that the requirement for consent to terminate the contract to be freely given on both sides can be difficult for the ministry's offices to verify, given that the employee is in a subordinate position in the employment relationship. Applications have been refused where employees have been forced into signing termination agreements without opportunities for proper reflection, and without the required meeting or meetings to negotiate the terms. There have been cases where agreements have been antedated, thus depriving the employee of the statutory 15-day cooling-off period in which to change his or her mind.

Where the labour ministry's services have refused applications for mutual-consent terminations, this has often been opposed by the employees concerned. The CAS states that employees may collude with improper use of the procedure because the termination agreement provides them with a large compensation payment. It finds that agreed compensation for mutual termination is often much higher than statutory or collectively agreed severance payments, especially for employees in high-level jobs. The report also argues that employee representatives may turn a blind eye to the use of a series of mutual-consent terminations to disguise a collective redundancy, as this can result in better compensation for the employees. For older staff, a high compensation payment, followed by entitlement to unemployment benefits, may provide a "bridge" until they reach retirement age.

The CAS notes that, in practice, virtually no employees or employers have retracted their agreement to the termination during the cooling-off period.

The report states that other potential areas of misuse include circumvention of the obligation to maintain employment contracts in the event of a transfer of undertakings. It also notes possibilities for fraudulent unemployment benefit claims. For example, a family business could pretend to employ a family member and then terminate the fictitious employment contract by mutual consent, thereby entitling the family member to claim unemployment benefits.

The almost total lack of case law on the mutual-consent procedure so far (the CAS report lists only six cases) means that a number of legal issues have yet to be resolved, the CAS states. For example, if an industrial tribunal finds that an employee has not genuinely given consent, it is not yet known if this would result in the termination agreement being annulled, the employee reinstated, or the termination being redefined as a dismissal.

Recommendations

The CAS report concludes that the very low level of litigation that has arisen in relation to mutual-consent termination indicates that the procedure has, so far, achieved its objective of providing legal certainty for employers and employees in ending contracts amicably. However, to prevent the procedure from becoming a source of conflict in future, the CAS recommends that:

• Control and monitoring by the public authorities should be improved, to ensure that mutual-consent termination is used properly and abuse is detected. For example, the 15-day period during which the labour ministry's services examine applications could be extended in cases where they suspect that mutual-consent termination is being used to circumvent other employment law obligations.
• The collection of statistical data on mutual-consent terminations should be enhanced, in order to detect any trends towards inappropriate use. For example, specific statistics should be compiled on the use of the procedure in respect of older workers, to assess if mutual-consent termination is in fact being used as a form of early retirement.
• Employees whose contracts have been terminated by mutual consent should receive greater assistance and support in finding a new job from the public employment services.

This article is based on material provided by Christophe Boulay, correspondent for France.

European employment policy, practice and law, December 2010