Background

Termination by mutual agreement allows the employer and the employee to terminate the employment contract by mutual consent, without any grounds being necessary, as long as the termination complies with a specific procedure.

Despite grounds not being necessary, the General Division of Labour ("DGT") specified that termination by mutual agreement must not be used in contravention of the guarantees provided by Law (circulars of the "DGT" dated 22 July 2008 and 17 March 2009).

In this respect, French Labour Code only provides that a termination by mutual agreement must not be concluded in the framework of an agreement of "strategic workforce planning" ("Gestion Prévisionnelle des Emplois et des Compétences" – "GPEC") or in the framework of a social plan.

More generally, in consideration of the guarantees applicable to dismissals for economic reasons, to what extent can terminations be concluded for economic grounds?

Recent decisions

An injunction order in chambers of the Labour Court of Toulouse dated 22 January 2010 and a circular dated 23 March 2010 specified the scope of application of termination by mutual agreement when economic difficulties arise.

 By way of an injunction order in chambers ("ordonnance de référé") dated 22 January 2010, the Labour Court of Toulouse confirmed the Labour Authorities’ refusal to acknowledge a termination by mutual agreement in consideration of the significant number of terminations by mutual agreement already concluded in the same Company (6) and the related risk of infringement of the employee’s collective rights.

 
 Further to this decision, the General Division of Labour ("DGT") specified the following points per circular dated 23 March 2010:
   Termination by mutual agreement can be concluded even when the Company has economic difficulties entailing the dismissal of certain employees. In principle there must be no control on the grounds of the termination.
   However, termination by mutual agreement must not entail an infringement of the rules applicable to collective dismissals for economic reasons. The circular only mentions the collective guarantees issued from "GPEC" agreements and social plans and advises the Labour Authorities to control the number of terminations by mutual agreement concluded in the same Company in this respect.

Conclusion

In view of these decisions, the question of whether it is possible to conclude several terminations by mutual agreement for economic reasons, in the absence of a mandatory social plan, remains open, notably when a Works Council’s consultation on the contemplated dismissals would otherwise be required by Law.

In order to reduce the risks in this respect, we would recommend limiting the number of terminations by mutual agreement concluded in the same Company.

Additionally, we draw your attention to the fact that we would not recommend concluding terminations by mutual agreement in all cases when the employee should otherwise benefit from specific guarantees fixed by Law or by the Collective Bargaining Agreement, and notably in case of work related injury, professional sickness, maternity leave and unfitness for work.

 By: Tiphaine Puzin, http://reaction.taylorwessing.com/reaction/Newsletters/IntlEmployment/2010_May_03.html