In an effort to halt the spread of the novel coronavirus COVID-19 ("COVID-19"), on March 14, 2020 the French government mandated a shut-down of non-essential businesses and other venues open to the public. The shut-down will last at least until April 15, 2020. Among the businesses concerned are retail stores, shopping centers, and restaurants. Businesses are authorized to continue their online activities and related deliveries. The shut-down does not impact businesses that are considered "essential to the life of the nation", such as food shops, drugstores, banks, and gas stations (the list is much longer).
Further, on March 16th the French government implemented a lock-down, currently due to end on April 15th, but which may be extended for another 15 days. Movement is restricted, but people are still allowed to go to work if it is not possible for them to work from home. In light of these constraints, many businesses have had to adapt their way of functioning by allowing all or most of their employees to work from home or by implementing special safety measures. As in many places in the world, the COVID-19 pandemic is also impacting the ability of certain businesses to satisfy their contractual obligations.
Emergency Law no. 2020-290, dated March 23, 2020, empowered the French government to take emergency measures in order to address the negative consequences of the current restrictive measures, and in particular to prevent companies from going out of business. The government has since issued thirty-seven ordinances and numerous decrees and orders implementing the measures contemplated by the Emergency Law.
In addition, Law no. 2020-289, also dated March 23, 2020, and which modifies the French 2020 Finance Law, provides that for up to €300 billion of loans granted to businesses by banks and financial institutions between March 16, 2020 and December 31, 2020, the French State will guarantee up to 90% of an eligible loan. An eligible loan must provide a 12-month payment deferral and an option for the borrower to elect at the end of the first year to repay its loan over an additional period of up to five years.
The measures taken to date pursuant to the Emergency Law impact tax, financial, employer/employee relationships, company's governance, and private contracts. We provide below some highlights of these measures, together with an explanation of certain pronouncements of the Ministry of Economy that could have an impact on decisions as to whether or not a French company should pay dividends.
- Tax and financial measures
The government announced that all businesses, regardless of size, can defer social security contributions and tax payment (such as corporate income tax) due in March and April, 2020. Companies also may request the reimbursement of social security contributions and taxes paid in March. In the case of companies facing extremely difficult situations, the French tax authorities may decide to grant direct tax rebates. The payment of property taxes and of real estate occupancy taxes are also suspended for March and April, 2020.
To further help "small" companies impacted by COVID-191, certain payments (up to €1,500 per entity, which may be increased by an additional €2,000 for companies facing proven cash difficulties, if certain conditions are met) will be made to such companies out of a €1.7 billion "solidarity fund," to partially offset the negative impact of crisis during the month of March.
In addition, for those companies eligible to participate in the solidarity fund2, gas, electricity and water service providers must spread over time the payment of invoices, if requested and all financial penalties or interest charges for late payments must be waived. Landlords may not enforce termination clauses against an eligible company because of its failure to pay rent or rental charges between March 12, 2020 and the expiry of a two-month period after the end of the health emergency state. Companies not eligible to the solidarity fund will be able to rely on the general provisions of Ordinance no. 2020-306 dated March 25, 2020 described below, which provides for a temporary freeze on enforcement of contractual penalty or termination clauses.
These measures are in addition to the measures generally available to companies facing difficulties in France and aimed at preventing bankruptcy (possibility of requesting payment delays in court, conciliation proceeding to renegotiate debts with the creditors, and safeguard proceeding). Businesses should avail themselves of these measures at the first signs of financial difficulty, since it is anticipated that the Commercial Courts and other players who participate in the implementation of these preventive measures, such as ad-hoc and court-designated administrators, will be extremely busy in the months to come.
- Measures concerning the employer/employee relationship
Article 11 of the Emergency Law lists the measures that may be taken by the government to limit lay-offs and ease the impact of the decrease in activity. The main ones, as already implemented by the government, are detailed below.
If teleworking is possible given the employee's position, an employer may not request its employees to come to their usual work location. The French Labor Code mentions the epidemic risk as a justification for putting in place teleworking without the employee's consent.
Safety measures for employees who have to go to their usual work location
If employees have to continue to come to work, employers must adopt special safety measures to ensure the safety of their employees and to protect their physical and mental health. The government insists that businesses must continue to operate and that shutting down must remain the exception. In this context, the government notably advises companies that:
- When the contacts between the employees or between the employees and the company's clients or suppliers are brief, "barrier" measures (such as washing hands regularly, compliance with required minimum physical distance, protections around the employees in contact with the public, providing the employees with protective equipment (masks, gloves)) may be sufficient to protect the employees' health;
- in case of prolonged contact, it is recommended to supplement the "barrier" measures by, for example, installing a one-meter courtesy zone, or cleaning surfaces regularly with an appropriate product.
The appropriate safety measures are obviously to be decided on a case by case basis. Companies are strongly encouraged to check often the list of recommended measures (notably on the website of the Health Ministry) since it is updated on a regular basis. Implementation of those measures should also be consistent with other labor and employment law requirements and may notably require the staff representative bodies to be involved with the related decisions.
French law provides that employees have the right to withdraw from a work situation if they have a reasonable belief that the situation presents a serious and imminent danger to their life or health. This is currently creating some issues in certain industries or services deemed essential, where employees have exercised their withdrawal rights as they consider the safety measures to be insufficient. It seems, however, that the government does not consider that this withdrawal right ("droit de retrait") would be justified if the employer complies with the government's safety recommendations.
In exceptional circumstances, it is possible for companies to (i) reduce the working hours of their employees below the legal or conventional duration, or (ii) temporarily close their business completely.
Special provisions were introduced by Decree n°2020-325 dated March 25, 2020, in case of partial unemployment due to COVID-19, resulting in a better coverage of the employees concerned and a reduction of the financial burden on the employer.
The French State will contribute up to 70% of the gross salary of each employee within the limit 4.5X of the hourly minimum wage (the allowance is a fixed amount of €8,03/unemployment hour), in case of a full unemployment. Employers must, in any case, provide the employees with 70% of their gross salary during the application of the partial unemployment scheme, so the employer may need, depending on the concerned employee's salary, to supplement the government allowance. Social security on the amounts paid by the employers are reduced.
There is great flexibility for companies impacted by COVID-19 to resort to the partial unemployment scheme (for instance, formalities have been simplified). However, the French government has made it clear that situations will be closely reviewed, as the guiding principle is that companies should continue to operate. Companies desiring to resort to partial unemployment will need to demonstrate a decrease in their activities, supply issues, cancellation of orders, etc.; use of partial unemployment based solely on the existence of COVID-19 epidemic in itself will certainly be deemed invalid.
Ordinance no. 2020-323 dated March 25, 2020 allows companies to utilize a maximum of six days paid leave in order to defray the number of partial unemployment days so long as an industry-wide or company-wide collective agreement specifically addressing this topic is in effect. Other type of rest days, such as "JRTT", may be imposed unilaterally even in the absence of such agreement.
In companies operating in sectors that are particularly necessary for the security of the country and the continuity of its economic and social life (which sectors will be determined by a decree and are anticipated to cover—, for example, energy, telecommunication, and transport, and agriculture and the food industry), the maximum weekly working time may be extended to sixty hours.
- Measures concerning companies' governance
Ordinance no. 2020-321 dated March 25, 2020 simplifies and adapts the conditions under which the shareholders of a company and its management bodies can meet and deliberate.
Irrespective of their legal form, companies will be able to hold shareholder's meetings by means of telephone or audiovisual conference, without the need for specific authorization in the by-laws , and including with respect to a meeting related to the approval of the accounts, which in normal times must be a physical meeting for certain types of companies. Shareholders' decisions may also be taken by way of a written consent, without the need for specific by-law authorization, and including with respect to a meeting related to the approval of the accounts.
Likewise, with respect to the meetings of a company's management bodies, (i) the members that participate by means of telephone or audiovisual conference are deemed to be present at the meetings, and (ii) the decisions may be taken by way of a written consent, in both cases without the need for specific authorization in the by-laws or any internal rules in that respect, and irrespective of the subject matter of the meetings,
For now, this Ordinance applies to meetings held from March 12, 2020 to July 31, 2020.
In addition, Ordinance no. 2020-318 dated March 25, 2020 extends the deadline for the approval of a company's annual accounts, which normally needs to take place within six months of the end of the fiscal year by three months.
- Specific measures concerning contracts
Ordinance no. 2020-306 dated March 25, 2020 provides that penalty or termination clauses sanctioning the non-performance of an obligation within the contractually-required time frame cannot be enforced if the deadline for the performance of the obligation is between March 12, 2020, and the expiration of one month after the end of the state of emergency related to COVID-19. This freeze on the enforcement of penalty or termination clauses is not limited by the Ordinance to contracts governed by French law, and most likely it will be deemed to apply to all contracts to be executed in France as a matter of public policy.
This Ordinance further specifies that in the event a contract provides that it may only be terminated during a specific timeframe, or that it is renewed automatically unless a notice of termination is issued within a specific timeframe, if such timeframe ends between March 12, 2020 and the expiration of one month after the end of the state of emergency related to COVID-19, the deadline to give notice of termination is extended by three months following the end of the state of emergency.
- Dividend distributions to be cautiously considered
The French Ministry of Economy strongly advises companies that put in place partial unemployment not to distribute dividends during the COVID-19 epidemic. The Ministry also announced that companies that distribute dividends and ask for the State's aid (via the deferral of the payment of social security contributions and taxes, for instance) will be required to reimburse this aid and will be subject to penalties. Companies that request a loan after having distributed dividends will not be eligible for the State's guarantee. The Afep (Association Française des Entreprises Privées), an organization of 113 French private companies, asked its members to reduce the dividends to be paid in 2020 by 20% if they resort to partial unemployment, and suggested that their executives reduce their compensation by 25% for the period during which their employees are on partial unemployment so as to support national solidarity actions in connection with COVID-19. Bills for the suspension of dividends were introduced by certain political parties. The European Central Bank advised credit institutions of the Euro zone to conserve capital to support the economy during the COVID-19 epidemic. It recommended credit institutions to refrain from paying dividends and implementing share buy-backs aimed at remunerating shareholders until October 1, 2020. It further recommended that no irrevocable commitment to pay out dividends be undertaken by credit institutions for the fiscal years 2019 and 2020.
1. "Eligible companies" are companies that are not controlled by another company and that employ fewer than 10 employees and have an annual turnover of less than €1,000,000 and an annual net taxable income of less than €60,000. Further, to be eligible, these companies must have had to close down due to Covid-19 or have a March, 2020 turnover at least 50% less than their March, 2019 turnover. There are some additional conditions related to the company not being subject to a bankruptcy proceeding or related to the status of its main shareholder if he/ she also works for the company.
2. However, in such case, the eligible companies must have had to close down due to the Covid-19 and have a March, 2020 turnover at least 50% less than their March, 2019 turnover.
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.