In five judgments dated 25 June 2003, the Supreme Court clarified and revised the rules governing termination of the employment contract by the employer or the employee for breach.

The Supreme Court confirms that where the employer terminates the employment contract for breach or treats the employment contract as repudiated by the employee, it must institute dismissal proceedings. Failing which, the termination would be treated as a dismissal without cause. This principle is now well established.

On the other hand, the Supreme Court has revised its case law delivered on 26 September 2002 regarding constructive dismissal. The Supreme Court has ruled that where the employee terminates the employment contract on the basis that he considers that the employer has failed to comply with its contractual obligations, this form of termination produces the effects of a dismissal without cause where the employer is found to have breached its contractual obligations or alternatively of a resignation.

This judgment is a step in the right direction.

The employee may no longer ambiguously terminate the contract (that is, without using the word resignation or by resigning and airing his grievances against the employer in order to receive severance pay and damages for dismissal without cause). According to the term used by Professor Jean Emmanuel Ray, the employee may no longer implement his "self-dismissal".

Where the employer considers that the employee's grievances are unfounded, it will consequently no longer be required to instigate dismissal proceedings.

However, given current case law, we consider that if the employer wishes to avoid the risk of legal action, it would be in its interest to instigate dismissal proceedings, where applicable for serious misconduct, depending on the circumstances.

Case law still requires a dismissal letter to be sent to the employee in accordance with the requirements of form set forth by the Labor Code in order to enter into a compromise agreement. In addition, case law does not allow the parties to settle the issue of which party initiated the termination of the employment contract in a compromise agreement.

Nevertheless, we consider that this new case decision may push the Supreme Court to revise this established case law. Why is a dismissal letter required if the employee's letter already formalizes the termination?

Why can the compromise agreement not settle which party terminated the contract, when this is the principal bone of contention between the parties?

It will be interesting to see whether the Supreme Court reviews its position on these two issues.


Group collective agreements: the validity of the principle (Employment Section of the Supreme Court, 30 April 2003)

Following AXA's absorption of UAP, several companies in this group entered into an agreement with the represented trade unions. This agreement introduced trade union representation at group level, which was authorized to negotiate on collective issues in these companies.

The FO trade union, which was not a signatory to this agreement and which attempted to participate in ensuing negotiations with a delegation that failed to comply with the provisions of this agreement, lodged a claim before the courts for the nullification of this agreement.

In a judgment of 30 April 2003, the Supreme Court rejected the appeal against the Paris Court of Appeal's judgment of 31 January 2001.

The Supreme Court considers that employers and the represented trade unions in the group may introduce trade union representation at group level pursuant to a collective agreement. Trade union representation at group level is comprised of delegates selected by the trade unions in accordance with predetermined terms. The role of the delegates is to negotiate agreements covering issues of mutual interest to the staff in the relevant companies of the group.

The Supreme Court's judgment is clear and specifies that such an agreement, which does not require the unanimous agreement of the represented trade unions, is enforceable against non-signatory trade unions. Therefore, if these trade unions intend to participate in the negotiations at group level, they must designate their delegates in accordance with the provisions of the agreement.

However, the Supreme Court specifies that future agreements reached pursuant to this group collective agreement must not replace negotiation at company level.

Legal commentators are undecided regarding the scope of this restriction. In our opinion, group collective agreements pertaining to matters requiring annual negotiations at company level or covered by company agreements are not prohibited.

Such a wide-ranging restriction would negate the purpose of a group collective agreement, which is precisely to harmonize collective issues.

In our view, this case decision is rather intended to affirm that the group constitutes an additional level in this negotiation process. However, negotiation at group level does not replace mandatory negotiations at company level, in the same way as a previous judgment ruled that negotiations regarding salary scales at sector-level do not allow the employer to refuse to hold mandatory annual salary negotiations at company level.

Hiring-out of employees: employment contract amendment, illegal hiring-out of employees (Employment Section of the Supreme Court, 1 April 2003)

A private hospital run by the French Red Cross and a public hospital created an interhospital group and decided to combine their surgical and obstetric units. It was agreed that the Red Cross would hire out its employees assigned to these units to the interhospital group.

The site works committee at the Red Cross hospital subsequently brought the matter before the Tribunal de Grande Instance. Firstly, it claimed that this hiring-out constituted an amendment to the employees' employment contracts and that the Red Cross should therefore have implemented collective redundancy proceedings for the employees, who refused the amendment, in accordance with the Framatome Majorette case decision. Secondly, the site works committee considered that this hiring-out of employees was illegal.

However, the Supreme Court rejected these two claims.

The Supreme Court ruled that "hiring-out of employees does not automatically entail an amendment to the employment contract insofar as the employees continue to be answerable to their employers with regards to their rights, career development and employment and the management continues to exercise disciplinary power over them and as no amendment was made to the employment contracts, the employees were not in a position to refuse the hiring-out".

The Supreme Court also rejected the appeal regarding illegal hiring-out of employees on the basis that the Red Cross' legal form as a non-profit association is not compatible with a profit-making objective. The Red Cross’ objective is to reduce public health spending, aimed at rationalizing hospital running costs to avoid closure.

Following the case decision of 12 May 1998, a degree of uncertainty has surrounded whether a hiring-out contract has a profit-making objective.

Some case decisions simply state that contracts entered into by two companies providing for payment have, by definition, a profit-making objective.

This overreaching interpretation limits the hiring-out of employees between two companies, whereas business practices and legal commentators allow such contracts insofar as the company hiring out the employees does not make a profit from this arrangement.

In this particular case, it appears that the Red Cross invoiced the hiring-out of its employees, but probably at cost price. Nevertheless, the Red Cross' legal form as a nonprofit association and the agreement's purpose (to reduce public health spending) seem to have pushed the judges to rule that the agreement did not have a profit-making objective. The judgment regarding the second aspect is too circumstantial to be able to a draw lesson from it. However, this judgment may convey the Supreme Court’s willingness to restrict the scope of illegal hiringout of employees.

Breach of a non-compete clause and summary proceedings (Employment Section of the Supreme Court, 13 May 2003)

A company called VP entered into an employment contract with an employee in spite of the fact that the employee was bound by a non-compete clause towards his previous employer, a company called EF.

The Court of Appeal, in the appeal against the Commercial Court's judgment, ordered VP to cancel the employee's employment contract. The Supreme Court found that judges having jurisdiction for summary proceedings (juges des référés) "do not have authority to order the cancellation of the employee's employment contract".

This case decision is surprising at first as the judges having jurisdiction for summary proceedings have authority to order the cessation of illegal conduct, such as entering into contractual employment relations in breach of a non-compete clause.

Should the employer have taken action against the employee before the Employment Tribunal?

Should the employer have requested the employment contract to be temporarily suspended and not cancelled, given that the judges having jurisdiction for summary proceedings do not have authority to order the termination of the employment contract? Hopefully, this is the case since strict requirements already govern the validity of non-compete clauses. Whereas, the only recourse available to enforce a non-compete clause and terminate contractual employment relations in breach of a noncompete clause is to take summary proceedings.

An action for damages rarely enables the total loss to be recovered, all the more so as the loss is particularly difficult to prove.

Redundancy nullification, reinstatement and damages (Employment Section of the Supreme Court, 3 July 2003)

Following the nullification of a collective redundancy plan, several employees made a claim for reinstatement and damages for the loss sustained, in accordance with the Samaritaine case decision.

The Court of Appeal allowed their claims and ordered the employer to pay damages amounting to the salaries due during the period between the employees' redundancy and their effective reinstatement, less any income the employees may have earned during the same period, and a lump-sum for redundancy under conditions failing to comply with legal requirements.

Both the employer and the employees contested this judgment. The employees argued that the Court of Appeal should not have deducted the income they earned between their redundancy and their reinstatement. The Supreme Court did not share this opinion and logically ruled that the employees were only entitled to damages covering their lost salaries. The employer considered that the employees were not entitled to claim damages exceeding their lost salaries as compensation for the loss arising from the circumstances surrounding their redundancy. The Supreme Court ruled in favor of the employer on the basis that the Court of Appeal had not found that the employees had sustained a loss other than the loss of salaries. This loss was compensated by awarding the employees an amount corresponding to the lost salaries.

The grounds for nullifying redundancies are multiplying. In this case decision, the Supreme Court clarifies the impact of redundancy nullification in the event of reinstatement and thus complements its earlier case decision of 28 March 2000, whereby severance pay paid out by the employer must be reimbursed in the event where the redundancy is nullified.

Work-related illness, multiple factors (Employment Section of the Supreme Court, 13 December 2002)

Article L.461-1, paragraph 3 of the Social Security Code provides that, if one or more conditions pertaining to the duration of coverage and exposure or the list of restricted duties are not met, the illness (featuring on a list of workrelated illnesses) may be considered to be caused by work, when it can be demonstrated that it was directly caused by the victim's normal professional duties.

This is the first time, to our knowledge, that the Employment Section of the Supreme Court has defined the concept of an illness directly caused by the victim's normal professional duties.

An employee, who is exposed to a cancerogenic substance (potassium bichromate) in the performance of his duties, develops lung cancer. The national health insurance fund noted that the employee was a heavy smoker. It considered that as lung cancer is caused by multiple factors, it was not possible to establish that the employee's medical condition was caused by his normal professional duties.

The Supreme Court rejected this argument on the basis that the employee's exposure to a cancerogenic substance in the performance of his duties was not contested. Therefore, the employee is entitled to benefit from workrelated illness compensation insurance, in the event where it can be shown that his illness may have been particularly caused by his risk-exposure during the performance of his professional duties.


  • Draft bill on pension reform:

The draft bill, adopted by the French Senate on its first reading, provides, in particular, for the creation of individual retirement savings plans. These plans are a group insurance product designed for all individuals and may be taken out on a private basis or by the employer.

The bill also introduces retirement savings plans with combined employer/employee contributions inspired by existing employee savings schemes.

  • Draft bill on financial security:

The bills limits the scope of the provisions governing transparency of top executives' compensation and benefits in listed companies or their subsidiaries.

  • Law no. 2003/591 of 2 July 2003 authorizing the government to simplify legislation:

Articles 24 and 25 relate to social security law and employment law. Most of the areas for reform were discussed during the breakfast seminar organized by the Employment Law Practice Group on 13 November 2002 in the presence of Xavier de Roux, Member of the French Parliament for Charente Maritime.

The areas for reform include, in particular, redundancy of employees hired out to a foreign subsidiary, assisting the head of the company in work council meetings, the time frame for redundancy proceedings, the employer's undertakings with regards to risk assessment, calculating overtime performed over the 35-hour working week on a monthly basis...

Philippe Desprès has been elected Partner of the Firm with effect from 1 January 2004.

Several lawyers in the Practice Group contributed to drafting the Lamy Social Groupe, which was published in July 2003.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.