Global leadership and French law
August 24th, 2020
Global leadership: an overview of the qualities French employment law expects from directors and top executives
In global companies, as business grows, boards of directors wish to include the most-qualified members to define strategy, nurture innovation, promote sustainability, define scalability and capability as well as lead people. What better place to look for these talents than among the employees themselves? Workforce is often the greatest pool of performance-driven individuals that will embody the culture of the company along its journey to success.
Regardless of the nature of the corporate structure (stock company, limited liability company, etc.), French law allows companies to adopt such an approach and effectively appoint an employee as a corporate officer (“mandataire social”). Subject to meeting some conditions, the individual may then be subject to two contracts simultaneously (corporate and employment), thus benefiting from the advantages of both. In other situations, when plurality is impossible, only one will remain active, while the other may be put on hold or even terminated.
Conditions for plurality of offices
Pursuant to case law, a director can combine a corporate office and an employment contract if, and only if, said employment is actual. This means that:
- the individual must hold a technical position within the company that is separate than the duties to perform as a director sitting at the board; and
- the individual must receive a remuneration for employment that is separate than the compensation relating to the corporate office; and
- the individual must, when performing the technical duties set forth in the employment contract, be under a subordination relationship towards the company; and
- neither party entered into the employment contract in order to commit fraud (g., to force the application of rules that are more protective under employment than corporate law, albeit the mandatory for corporate officers, such as regarding dismissal).
Assessing whether an employee qualifies for a position as a corporate officer (meets the above criteria) may be challenging, especially when the individual is one of the top executives of the company holding a strategic business position, such as in Sales or R&D departments. Numerous court rulings have tried to draw the line, emphasising the fact that the size and the organisation of the company may have an impact on the answer, which is therefore often as a decided on a case by case basis.
Additional specific requirements may also apply, depending on the nature of the corporate structure. For instance, in stock companies (“sociétés anonymes”), a director (“administrateur”) cannot start any employment within the company while sitting at the board. In accordance with this anteriority principle, the individual would have to choose between either one of the contracts and, if need be, resign from the corporate office he/she holds. In most cases, the employment contract will be put on hold when the corporate office is an executive position (such as CEO in stock companies, general manager in limited liability companies and president in simplified joint-stock companies) and could remain active when it is limited to an administrative office.
Besides, when plurality is possible, the board of directors might have to approve beforehand that one of its members becomes an employee of the company (vote on the content of the employment contract), as well as to approve later amendments. Otherwise, said employment contract (and/or addendum) may be null and void.
When the situation at hand is such that the director cannot combine a corporate office and an employment contract, the latter, which should preexist, will, by default, be put on hold automatically for as long as the director sits at the board (and should resume at the end of the corporate office). The employment contract may even end if pausing would be fraudulent or if it would prevent a proper performance of the corporate office. At all times, parties can also initiate a termination.
Consequences of simultaneous employment and corporate offices
When meeting the above conditions, the director will qualify for plurality of contracts and may benefit from the advantages of both employment and corporate offices.
From the employment standpoint, the individual will remain an employee and retain all associated rights and privileges unchanged, such as remuneration, paid leave, working time, profit-sharing schemes, healthcare, and pension. Regulations applicable to the employment relationship, among which the collective bargaining agreements as well as company agreements and practices, will also remain relevant and in force. The same will apply to internal regulations and policies by which the director will have to abide at all times when performing technical duties pursuant to the employment contract.
Yet simultaneous employment and corporate offices remain two separate contracts with their own rules applicable, notably when it comes to termination. Ending one of the two will have no automatic effect on the other one.
Many factors will impact the regime of corporate mandates (“mandats sociaux”): corporate form, position held, and as the case may be, provisions of the by-laws (i.e. a manager (“gérant”) of a limited liability company (“société à responsabilité limitée”) or a general manager (“directeur général”) of a stock company (“société anonyme”) can only be dismissed, by application of law, for cause (which concept is construed by the case law of the Cour de cassation, and the mandate of a director (“administrateur”) of a stock company (“société anonyme”) can be ended without reason (“ad nutum” rule).
This being said, employment terminations, such as dismissals, are, under French law, subject to specific rules in terms of both process and motivation. In practice, the context leading to an early termination of the corporate office (e.g. discord on the strategy, misconduct) when subject to a cause for termination will likely have the company consider initiating a dismissal process at the same time. Courts allow this as long as the company is able to evidence that such context had an actual and significant interference with the employment relationship. If the company failed to prove impairment on the proper performance of the employment contract, the dismissal might be ruled unfair and the individual may receive damages in compensation.
Osborne Clarke look at clients’ legal issues in the context of their sector. This sector-based approach means they can advise clients, not just comprehensively, but also commercially – helping them to tackle the issues they’re facing today and helping them prepare for the ones that they will face tomorrow.
Over the last 28 years, Briars has worked with our teams on the ground in over 50 countries, of which France is one. We have been delighted to work with the Osborne Clarke team in Paris on a number of occasions over the years and our sincerest thanks to Maud Parssegny for this article.
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