NLBC.FR: Firing an employee in France - what’s the cost to your business?

When working with an employee is no longer possible because it negatively affects your business, termination may be your best option.

Faced with this situation, the first question that comes to mind will probably be: how much is it going to cost?

In France, two main costs should be envisaged:

1. mandatory termination payments; and
2. the costs of a potential claim of unfair dismissal.

1. Mandatory termination payments

• Severance pay

In the event of dismissal, any employee who has worked for an employer for at least 8 months is entitled to severance pay. 

Under the French Labor Code, severance pay is equal to:

• one quarter of a month’s salary per year of employment, up to 10 years of employment; and
• one third of a month’s salary per year over 10 years of employment.

A higher amount may be provided for in the employment contract, particularly golden handshake or parachute clauses for senior executives, or the applicable industry-wide collective bargaining agreement.

So you see, severance pay depends on the employee’s seniority and can really add up for longstanding employees.

• Notice periods

As an employer, you must comply with a notice period or pay an indemnity in lieu of notice to release the employee. The notice period is usually provided for by the applicable industry-wide collective bargaining agreement and ranges between one and three months - usually three months for an executive.

• Payment in lieu of accrued holiday

In France a payment in lieu must be paid to compensate the paid holiday and days off that the dismissed employee has accumulated and not taken.

• Financial consideration for the non-compete clause

If the employee’s contract contains a non-compete clause that you want to apply, you will have to pay the financial consideration provided for under this clause. In France, the validity of a non-compete clause is subject to the existence of financial consideration.

NB: With the exception of the severance pay, which is exempt, all the above-mentioned sums are subject to social security charges, which adds considerably to the bill.

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The cheapest way to terminate an employee is dismissal for serious misconduct or serious breach known as “licenciement pour faute grave”. This allows the employer to dismiss an employee without notice and to deprive them of severance pay (“indemnité de licenciement”). 

However, it must the stressed that “faute grave” is a breach or misconduct so serious that the employment relationship cannot be maintained. If the case goes to litigation, you must be able to prove the existence of the serious breach or misconduct. This type of dismissal should therefore always be carefully considered and may not always be possible. 

1. Costs in an unfair dismissal claim

The employer might also have to bear the costs entailed by a claim for unfair dismissal.

In France, in the event of dismissal without real and serious cause, the judge will grant the employee damages to compensate the loss of employment.

Fortunately, the amount of damages due to the employee is capped under a statutory scale, known as the “Macron scale”.

This scale is based on the employee’s monthly gross salary and provides for a minimum and maximum amount of damages depending on the number of employees in the company (more or less than 11 employees in the company) and the employee’s length of service.

You should also bear in mind that when an employee hires a lawyer to initiate a claim for unfair dismissal, they usually try to beef up their damages claim by adding additional claims such as overtime, undeclared work or harassment.

Finally, remember that to avoid a legal action for unfair dismissal, it is possible to enter into a settlement agreement (“transaction”) i.e. a contract in which both parties agree to reciprocal concessions with the purpose of settling any dispute out of court.

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MGG Voltaire is a member of the Netherlands Business Council France.