Implementation of salary cuts: options available in France
By Loïc Héron and Maxime Kempf
In these uncertain and sometimes difficult times, companies may consider reducing their employees’ compensation in order to weather the storm. The main rock for changing the employee’s compensation strikes from the fact that any compensation change amounts to a substantial change of the employment agreement and requires, in principle, the employee’s consent.
Certain options are however available to French employers.
Outside any specific legal tools, the employer company may organise a call to find volunteer employees to reduce their compensation. After the reduction program has been fully explained, the employee signs a form by which they accept the compensation reduction.
The disadvantage of such an option is that no redundancy procedure can be started on the sole reason that there was no volunteer to the compensation reduction. Even if employees accept to volunteer, they may subsequently challenge the validity of the addendum, claiming that their consent was forced.
2. Individual modification of the employment agreement based on economic reasons
The French Labour Code allows an employer company to offer a compensation reduction to an employee by way of an addendum to the contract based on economic reasons.
The advantage of this specific procedure, set out in article L.1222-6 French Labour Code, is that the employee is deemed to have agreed to the change if they do not expressly refuse it within one month following the employer’s offer.
If the employee refuses the change, the employer company may make the employee redundant on the basis of the economic reasons that led to the initial contract change offer.
3. A collective performance agreement implementing the compensation reduction (“Accord de performance collective”)
A more secure option is to conclude a collective performance agreement with the trade union representatives or, if there are no such representatives, with the work council.
If negotiating a collective agreement may be a demanding process making the eventual conclusion an uncertain scenario, the advantages of the collective performance agreement are significant.
This company-level agreement may indeed provide that the compensation reduction encompasses entire categories of employees, or even the whole staff of the company.
Significantly, such an agreement overrides the provisions of individual employment agreements, meaning that the employer company does not have to obtain the employees’ individual consents. The employees who refuse the application of this collective agreement may be dismissed on the basis of a sui generi cause, without the company having to make these employees redundant. This has the advantage to secure the termination of the contracts, as the employees would not be able to challenge the reason of dismissal.
Furthermore, this agreement does not have to be justified by economic reasons and is not subject to any administrative control by the Labour administration, unlike a job-protection plan. This gives this agreement some flexibility and may be used in situations where economic reasons are not so obvious.
The performance collective agreement may therefore be an important and useful tool when defining a strategy aiming at reducing costs and employees’ compensation.