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French Supreme Court Rules Unfairly Dismissed Employees Entitled to Damages for Lost Opportunity to Benefit From a Defined-Benefit Pension

by Jilali Maazouz and Sébastien Le Coeur

Background

In 2004, the Fédération Nationale du Crédit Agricole (FNCA) hired Mr. Rossi as one of its senior managers. Mr Rossi. was entitled to a defined-benefit pension, provided he was still employed by FNCA upon retirement. In 2006, FNCA dismissed Mr. Rossi for poor performance. 

The Paris Court of Appeals held his dismissal unfair, but refused to award him damages for the lost opportunity to receive a defined-benefit pension. Mr. Rossi appealed to the Cour de Cassation, the French Supreme Court.

Decision

The French Supreme Court upheld the condition that the employee must still be employed by the company upon retirement in order to benefit from a pension. On this basis, Mr. Rossi’s claim to a pension was dismissed. However, the French Supreme Court held that, where the dismissal is found to be unfair, the employee sustains a loss caused by the lost opportunity to remain employed until retirement and benefit from a pension. On this basis, Mr. Rossi’s claim was allowed.

The Paris Court of Appeals will decide within the next couple of months the amount of damages Mr. Rossi is entitled to as compensation for that lost opportunity.

What Does This Mean for Employers?

When assessing the cost of dismissing a manager and preparing a settlement negotiation, the employer must now evaluate damages for the lost opportunity to benefit from a defined-benefit pension. The French Supreme Court offers no guidelines on this, which makes it a rather difficult task. The employer will first need to assess the probability that the employee would have stayed with the company until retirement. This will then have to be balanced with the amount the employee would have been entitled to. In many cases, the employee may also claim damages for the lost opportunity to make a profit on stock options. 

Settlement claims with senior managers look likely to become more challenging. To avoid disputes and future, additional expense, it is worth seeking expert advice at the beginning of the dismissal process.

 




French Supreme Court Rule For Change Of Control Clause In Management Employment Contracts

by Jilali Maazouz and Sébastien Le Coeur

As of 26 January 2011, the French Supreme Court ruled that the change of control clauses in French executive-level employment contracts are valid, a consideration which international companies contemplating the acquisition of a company in the country need to consider.  The control clause is also valid for both public and private companies.

In July 2005, further to the termination of several of Havas’s officers, one of the top managers decided to leave the company by claiming constructive dismissal under her change of control clause.  A McDermott employment lawyer in Paris advised on the drafting of this landmark control clause upheld by the French Supreme Court.

This change of control clause within the Havas executive’s contract was as follows:

  • The identities of the top managers were key reasons as to why the employee entered into her/his employment contract.
  • Should one or several of these top managers be terminated by the company, the employee would be entitled to claim constructive dismissal, within a certain period of time.
  • The claim for constructive dismissal would trigger the payment of a golden parachute.
  • The French Supreme Court upheld the clause and justified this decision by the seniority of the employee’s position.

As a result of this landmark Supreme Court decision, companies in France can now apply the change of control clause as a deterrent to hostile takeovers through the entrenchment of its top management executives.




The French Supreme Court Decides that Employees with Jobs at Risk Take Precedence

by Jilali Maazouz and Sébastien Le Coeur

Under French law, an employee can only be dismissed on economic grounds when all efforts have been well documented to redeploy him or her in an alternative position within a company.

On 7 April 2004, the French Supreme Court concluded that an employee facing economic dismissal has priority over an external candidate to fill a position available in the company. 

On 23 March 2011, the French Supreme Court went even further and ruled that an internal vacancy within a company in France should be offered as a priority to the in-house employee who is at risk of redundancy.

This recent Supreme Court ruling extends the obligations of French entities or international entities operating in France contemplating redundancies.  As a result, should an employer decide to offer a position to an employee who is not at risk of redundancy, he or she will be liable to pay damages to the employees who are eventually made redundant.

In the internal recruitment/redeployment process, the employee within the company facing economic dismissal has priority over an employee within the company whose economic dismissal is not contemplated and over an outside candidate.  If priority is not given to him/her, the company’s redeployment obligation is not fulfilled and the dismissal is held unfair.  That is why we recommend not having external or internal recruitment ads of the shortlisted positions.

Clients contemplating employees redundancies in France should consider the following steps to fulfil its redeployment obligation:

  1. Collect information on the employees whose dismissals are contemplated (current and past positions, skills, current compensation, languages spoken, CV’s, recent training, annual reviews, etc).
  2. List all the positions available in the company worldwide during the period of when the redundancies in France are planned (e.g. 3 to 6 months).
  3. Shortlist all the available positions that match the employee’s current professional qualifications or are compatible with the employee’s skills. Even positions which require employees to have a short period of training or roles viewed as less of a position than the employee’s current status need to be listed.  Avoid shortlisting employees for roles that: a) require knowledge of a foreign language not mastered or b) require relocation in countries where immigration laws would prevent the employee from working. Also be sure not to externally or internally advertise the shortlisted positions.
  4. If one or several available shortlisted positions are located outside of France, the French entity must ask the employee in writing whether or not he/she would accept a position abroad.  The letter must make a list of all the company’s geographic locations and require the employee to indicate any restrictions regarding redeployment, particularly in relation to the offices proposed and compensation given.  Within six days of receiving this letter, the employee must provide a response. If the employee fails to reply within the allocated time than the employer can justify termination on the grounds of refusal to be redeployed abroad. The available positions shortlisted can then be reviewed and the freeze on [...]

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