- 20 Dec 2017
- Fadi Sfeir, Laure Guillot
Firm: CAPSTAN Avocats
Have you set up the plan rules?
Many companies have variable remuneration systems (bonus or commission plans), which are often created at group level and applied in France with minimal changes. Such systems may be problematic to enforce, as French requirements on variable pay may differ from those of other countries.
The good news is that a bonus or a commission plan for France can be set unilaterally by the employer, subject to any variable pay provisions contained in individual employment agreements. To change contractual provisions, an amendment to the employment contract is necessary.
In any event, the provisions of the plan and the employment contract should of course be consistent with one another. Failing that, the employer must apply the provisions of the one that is more advantageous for the employee.
We usually recommend drawing up yearly variable remuneration plans specifying applicable rules for the year (e.g. calculation rules or presence clauses) instead of multi-year or indefinite term plans.
Setting targets means that the bonus is not discretionary
In France, discretionary performance bonuses are not prohibited but a bonus cannot be considered discretionary if it is conditional on the achievement of specific targets. Additionally, the employer’s discretion is not unlimited and must be exercised in compliance with the equal pay for equal work rule, which requires all employees in an equivalent position in relation to a benefit to be treated equally. Any differences in treatment must be justified by objective and pertinent criteria. Therefore, purely discretionary bonuses are recommended for employees in unique positions or high-level executives to avoid this issue.
Time to set targets
If the bonus is based on the achievement of targets, these must be provided to the employee at the beginning of the reference period.
For example, if the reference period is the civil year, now is the time to set targets for 2018. At the latest, this should be completed within the very first weeks of 2018. After that it may be too late, exposing the employer to claims by employees for payment of their entire variable pay (especially in the event of termination) regardless of the achievement of targets, and/or, in the worst case, claims for constructive dismissal.
If the plan states that the targets are set unilaterally by management, the employer should be able to provide evidence that it informed the employee of the targets in a timely manner, but need not ask for his or her consent.
On the contrary, if the plan provides that targets are set by mutual agreement, management should make sure the employee agrees to his or her targets in writing to avoid future litigation on the enforceability of those targets.
In addition, management must remember that targets must be attainable and that it is not possible to modify them during the year unless there is an objective change in circumstances (e.g. transfer of the employee to a different business unit).
At the end of the reference period, the employee must be able to verify that the calculation of his or her variable pay was carried out in accordance with the set terms. Usually this is achieved by providing the calculation methods to the employee at the same time as the targets.
As a general rule, while plan rules may make payment conditional upon the presence of the employee at the end of the reference period, it is not possible to deprive an employee of his or her variable remuneration because the employee was on notice before the end of the reference period or left the company after the end of the reference period but before the payment date.
Molière, not Shakespeare, please!
All documentation, including the bonus plan and targets, must be provided in French. It does not matter whether the employee works in English on a daily basis.
In recent decisions, French courts seem to accept case-by-case exceptions to this rule, when the employee in question was a foreign citizen with English as his or her mother tongue or when the documents were drafted by a foreign entity.
However, at this stage, to stay on the safe side, we would still advise caution and recommend the use of French in all communications regarding variable pay.
Remember to involve employee representatives
Employee representative bodies must be informed and consulted on variable remuneration plans prior to their implementation or modification.
Working time scheme (‘forfait annuel en jours’)
Under this scheme, working time is counted in days, not in hours, with a maximum of 218 days of work per year. The actual number of hours worked is not monitored.
In order to be valid, a ‘forfait annuel en jours’ must comply with the following conditions:
• Firstly, there must be a collective bargaining agreement (either industry-wide or company-wide), that permits the use of such a scheme and sets forth specific provisions required by law, such as guarantees concerning employee workload, work-life balance and the right to disconnect. If certain mandatory provisions are missing, the employer can add them unilaterally.
• Secondly, the employment contract or an amendment thereto must provide for the use of a ‘forfait annuel en jours’, to prove the employee consents.
• Last (but not least!), the employer must make sure it complies in practice with the guarantees contained in the collective bargaining agreement, especially those regarding the monitoring of work days and employee workload as well as mandatory rest requirements.
Failing any of the above, the ‘forfait annuel en jours’ may be deemed invalid by a court and this can lead to payment of substantial overtime hours.
Time for the ‘forfait annuel en jours’ meeting!
Every employee subject to a ‘forfait annuel en jours’ scheme must have at least one meeting on this topic per year. At a minimum, this meeting must address the employee’s workload and work-life balance.
As the end of the year is approaching, HR should make sure that managers have held and properly documented these meetings.
During the ‘forfait annuel en jours’ meeting, the manager can also raise the topic of any outstanding rest days (frequently referred to as ‘RTT days’) and remind the employee that he or she should use them by the end of the calendar year. Ordinarily, any RTT days not used by the end of the calendar year are forfeited without compensation, unless accrued but untaken RTT days are transferred to a ‘compte épargne temps’ (time saving account) pursuant to an applicable company-level collective bargaining agreement.
Alternatively, the employer and employee can sign an amendment agreeing that the employee will work more days that the number indicated in his or her ‘forfait annuel en jours’ agreement, without exceeding a maximum number of work days per year (i.e. 235 days per year, unless an applicable collective bargaining agreement provides for a lower number), in exchange for the payment of additional financial compensation determined by law or an applicable collective bargaining agreement. The maximum term for such an amendment is one year.
Yearly performance reviews
Many organisations arrange performance reviews on a yearly basis. The purpose of these reviews should be to assess the employee’s performance over the year and hear his or her comments and/or queries on his or her position. This review may be used to justify a promotion and/or the award of a performance bonus.
Ordinarily, the review should be carried out during a one-on-one meeting between the employee and his or her manager. While French should be the preferred language, if the employee speaks and regularly works in another language (such as English), the meeting can be held in this language. However, if the employee claims not to be fluent, we recommend having the written report of the meeting translated into French.
It is crucial to ensure that the performance report genuinely reflects the employee’s performance. Indeed, in the event of a future dismissal for poor performance, the fairness of the dismissal will depend on past performance reviews. If these reviews are inaccurately positive, it may be difficult to justify dismissal.
Healthcare insurance schemes must be updated
The transitional period, in place since April 2015, is coming to an end.
As of 1 January 2018, all companies must ensure that their private health insurance schemes (‘régime de frais de santé’ or ‘mutuelle’) comply with the legal requirement regarding responsible contracts (‘contrat responsable'). Failing this, companies will lose social and tax exemptions related to their health insurance schemes.
Companies may need to inform and consult employee representative bodies on changes to the health insurance scheme.