France: New rules on the obligation to pay a bonus to employees on the distribution of increased dividends to shareholders

Further to a law adopted on 13 July 2011¹ but not yet formally published, certain companies in France are now required to pay to employees a bonus linked to profits where dividends are distributed.

The key points to note are as follows:

• Application – The measures apply to companies with 50 employees or more (i.e. which are already required to set up a compulsory profit-sharing scheme – Participation). They apply to all dividends distributed since 1 January 2011.
• Principles – In the event that a company pays dividends, where the sum has increased compared with the average of the past two financial years, the company is now required to pay a bonus to all employees of the company.
• Where a group works council is required to be put place – a bonus must be paid to all employees if the dominant French company in the group pays dividends where the sum has increased compared with the average of the dividends of the last two financial years – i.e. the dividends paid by the dominant French company in the group are taken into account and give rise to an obligation to pay a bonus to all employees in the group in France.
• International groups? – the trigger for bonus payments to the employees in France is the payment of dividends by a French company – either the French employer, or the dominant French company in a group.
• Once the trigger to pay the bonus exists – The details for the bonus payment are set out in an agreement or collective agreement. This can be negotiated with (i) the trade union representatives, (ii) the works council, or (iii) may be put in place by a unilateral decision of the employer ratified by a vote of 2/3 of the employees. The deadline for such agreement is 3 months following the award of dividends authorised by the Shareholders Meeting (this deadline is extended to 31 October 2011 for distributions made in the first 7 months of the year). If no agreement is reached on the level of bonus, then a formal note of such fact is made (procès verbal de désaccord) noting the employer's original proposals and this is what is paid to the employees. The employees are notified of the means of calculating the bonus, the sums and the payment date.
• Bonus payments to the employees – breakdown – the bonus can be paid equally to the employees, or paid in the same way as compulsory profit share e.g. dependant on salary, length of service etc. Where there is an agreement on the bonus (i.e. not a unilateral decision of the employer), this can impose a minimum length of service e.g. 3 months.
• Level of bonus payment – no legal minimum calculation is specified, but the company is legally required to negotiate seriously and in good faith and may be sanctioned if the level of the bonus is derisory. As the law is so recent, there is currently no case law guidance as to the meaning of derisory in this context.
• Non-replacement – the bonus cannot replace other elements of remuneration due or anticipated.
• Exemptions – companies are not required to pay this bonus if they have paid to all employees in the year in question a cash sum which is not mandatory under law or the collective bargaining agreement and which is paid in total or in part in connection with an increase in dividends.
• Social security treatment – the bonus is not subject to social security contributions up to the limit of EUR 1,200 per employee per annum. (Companies with less than 50 employees who wish to voluntarily apply this measure also benefit from the exemption from social security contributions). The bonus is however subject to CSG/CRDS charges and the social rate (forfait social) – 14% in total and employees must pay tax on the bonus.
• Sanctions – failure by an employer to comply with these obligations is a criminal offence, punishable by 1 year's imprisonment and/or a fine of EUR 3,750.

¹   Article 1 of The Amendment law on financing social security for 2011