The legal background

An employment contract is above all a contract which is governed and subject to general rules applicable to any agreement entered into by two or more parties. In particular, contract law generally allows the parties to agree on the termination of the contract by which they are bound. Drawing the consequences from this general principle, French case law has admitted for many years the possibility for an employer and an employee to terminate the contractual link between them by common agreement.

However, since the introduction in 2008 of the “rupture conventionnelle homologuée” (“RCH”), which has implemented a formal procedure to terminate an employment contract by mutual agreement enabling in particular the employee to benefit from unemployment coverage post termination, there has been some uncertainty about the ability to continue to use the prior “ordinary” termination by common agreement technique, particularly in the context of “intra-group” transfers, where a new employment contract is entered into immediately following the termination by mutual agreement.

Since its implementation, the RCH has been frequently used by employers and has tended to replace the “ordinary” mutually agreed termination. However, the question remains: is the “rupture conventionnelle homologuée” the exclusive means by which an employment contract can be terminated by common agreement?

The Supreme Court’s ruling

In a very recent decision of the Supreme Court dated 15th October 2014, an employee and her employer agreed on the termination of the employment contract via a simple document signed by both parties and formalizing the end of the employment relationship. Shortly thereafter, the employee decided to challenge the termination of her contract and lodged a claim before the employment tribunal seeking damages for unfair dismissal.

The judges of the Court of Appeal, ruling that the termination should have complied with the procedural requirements relating to the conclusion of a RCH, held that the termination constituted a dismissal which, as non-justified, was necessarily unfair. The employer subsequently filed an appeal before the Supreme Court arguing that the parties were free to enter into a termination agreement on the basis of the general principles of contract law but this argumentation was flatly rejected by the Supreme Court which consequently upheld the ruling of the Court of Appeal. In support of this decision, the Supreme Court judges referred to the provisions of the Labor code which, since the passing of the law introducing the RCH, specify that the employment contract may be terminated by common agreement under the conditions laid down for the RCH. As a result, the Supreme Court inferred that a termination by mutual agreement could only be validly effected through the implementation of a RCH and that, in the absence thereof, such a termination must be deemed to constitute an unfair dismissal.

Perspective

This new development in case law does not really come as a surprise as previous recent decisions of the Courts had already led most observers to believe that the Supreme Court would make such a decision. The “ordinary” termination by common agreement has not, however, been totally abandoned since the ruling of the Supreme Court expressly reserves situations where it is otherwise provided for by law (for instance, negotiated departure in the context of a Job Saving Scheme, or the termination by common agreement of a fixed-term contract). In these specific situations, the requirements of the RCH will not apply and the parties will be permitted to terminate their relationship outside the framework of the RCH. Unfortunately, this case law puts an end to the past practices of companies to use the “ordinary” termination by mutual agreement in all instances related to the mobility of employees, and in particular in the context of “intra-group” transfers.

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