France - French labour law - Golden parachute of an External Relations Director, senior manager (Cadre dirigeant): allowance of 981,100 euros reduced to 1,000 euros (c. Cass. 4 March 2020, n° 18-20531)

The purpose of paying a lump sum indemnity (parachute doré / golden parachute) of three years of annual net salary in the event of the employee's departure on the initiative of the employer was to provide the employee with a guarantee of job security and to sanction the employer in the event of breach of the contract and constituted a penal clause.

1) Facts and procedure

According to the judgment of May 31, 2018 of the Paris Court of Appeal, Ms. H. was hired by the company GDP Vendôme (the company), from September 2, 2002, as Director of external relations.

On February 17, 2014, the employee seized the industrial tribunal with a request for judicial termination of her employment contract and various requests relating to the execution and termination of her employment contract.

By judgment of May 4, 2015, the industrial tribunal in Paris dismissed the employee's requests.

On September 14, 2015, the employee was declared unfit for her position and dismissed for incapacity and impossibility of reclassification on December 4, 2015.

2) Statement of pleas

The employee grieved the decision to dismiss her request that the company be ordered to pay her the sum of 981,100.31 euros as severance pay and to order the latter to pay her this amount. title the only sum of 1000 euros.

The employee argued:

"1 ° / that it is prohibited for the judge to distort the documents of the case; that according to article 8 of the endorsement to the employment contract of January 12, 2006, as modified by the endorsement dated April 30, 2010, the parties had agreed that: "Whatever the reason for the termination of the contract of work on the initiative of the employer, except unequivocal resignation of the employee, the company GDP Vendôme undertakes to pay at the end of the employment contract to Ms. H ... J ..., a lump sum indemnity to three years of average annual net salary. The average annual net salary corresponds to the average of all net salaries and accessories received during the three years preceding the separation. It is expressly agreed that this allowance, which takes account in particular of investments, particularly in terms of competence and credibility, granted by Mrs J ... H ... for the benefit of GDP Vendôme, is for strictly compensatory purposes and does not constitute a Penalty clause. Consequently, the parties recognize that the aforementioned indemnity is not subject to revision under article 1152 of the civil code or any article which would replace it after the signing of the contract ”; that by asserting, to dismiss Mrs. H ... of her request, that the said clause was intended to give the employee a guarantee of security in her job and to sanction the employer in the event of separation, so that she constituted a penal clause, however it resulted from this clear and precise clause that the indemnity fixed by the parties constituted a premium with deferred payment at the end of the employment contract fixed in consideration for the investment, the skills and the credibility of Mrs. H ... and did not sanction any contractual obligation to which the employer would have engaged, the court of appeal, which distorted the disputed clause, violated the abovementioned principle, together article 1134 of the civil code , in its wording then in force.

3) Decision of the Court of Cassation of March 4th, 2020

The Paris Court of Appeal, interpreting, as its ambiguity made necessary, the contract clause providing for the payment of a lump sum compensation of three years of annual net salary in the event of the employee's departure from the initiative of the employer, retained, without ignoring the terms of the dispute, nor violating the principle of contradiction, and proceeding to the allegedly omitted research, that this clause had the purpose of conferring on the employee a guarantee of security in her job and to sanction the employer in the event of breach of the contract, and could decide that it constituted a penal clause.

The Court of Cassation concluded that it was in the exercise of its sovereign discretion that the Court of Appeal found its amount manifestly excessive in the light of the damage suffered and reduced the amount.

4) Analysis by CHHUM AVOCATS (Paris, Nantes, Lille)

This decision is very hard for the employee, Director of External Relations.

The Court of Cassation considered that this compensation of 3 years of net wages constituted a penal clause and was of an excessive amount.

In this case, the employee before 13 years of seniority.

By amendment of April 30, 2010, the parties had agreed that: "Whatever the reason for the termination of the employment contract on the initiative of the employer, unless the employee's unequivocal resignation, the company GDP Vendôme undertakes to pay at the end of the employment contract to Mrs. H ... J ..., a lump sum indemnity to three years of average annual net salary. The average annual net salary corresponds to the average of all net salaries and accessories received during the three years preceding the separation. It is expressly agreed that this allowance, which takes account in particular of investments, particularly in terms of competence and credibility, granted by Mrs J ... H ... for the benefit of GDP Vendôme, is for strictly compensatory purposes and does not constitute a Penalty clause. Consequently, the parties recognize that the above-mentioned indemnity is not subject to revision under article 1152 of the civil code or any article which would replace it after the signing of the contract ”.

She had seized the labor tribunal (conseil de prud’hommes) for judicial termination (résiliation judiciaire) in February 2014.

She will be dismissed for incapacity in September 2015.

The Court of Cassation considers that "the purpose of this clause was to give the employee a guarantee of job security and to sanction the employer in the event of breach of the contract, and [the Court of Appeal was able to decide that" it constituted a penal clause ”.

It is recommended that executives negotiate a severance package that is reasonable without being excessive, otherwise they risk losing everything.

This decision is not published in the bulletin of the Court of Cassation.

Source: legifrance
C. cass. March 4, 2020, n ° 18-20531
https://www.legifrance.gouv.fr/affichJuriJudi.do?oldAction=rechJuriJudi&idTexte=JURITEXT000041745286&fastReqId=256001278&fastPos=1

Frédéric CHHUM avocat and member du Conseil de l’ordre des avocats de Paris (mandat 2019-2021)
CHHUM AVOCATS (Paris, Nantes, Lille)
e-mail: chhum@chhum-avocats.com
www.chhum-avocats.fr
https://www.instagram.com/fredericchhum/?hl=fr
.Paris: 4 rue Bayard 75008 Paris tel: 0142560300
Nantes: 41, Quai de la Fosse 44000 Nantes tel: 0228442644
.Lille: 25, rue Gounod 59000 Lille tel: 0320135083