Employment Rights and RESPONSIBILITIES DURING AND AFTER EMPLOYMENT in FRANCE

(PRESENTED AT THE INTERNATIONAL EMPLOYMENT LAW conference
IN sAN Francisco, CALIFORNIA ON October, 2006)

As communication technologies and trade become increasingly international, more US companies recognize the need to become "global" and are re-engineering their entire business structures to that end. This global growth and expansion of business has led multinational companies to adopt ethical guidelines and voluntary workplace codes of conduct in order to maintain minimum labor standards in their subsidiaries around the world, such as:

When they are in the international arena, US employers should refrain from seeking to blindly impose the "American way" of drafting and implementing employment contracts and offer letters in an attempt to harmonize working conditions of their employees around the world.

There is simply no such a thing as a standard employment contract that can be implemented wherever in the world the workplace may be. There are still too many legal and cultural obstacles to implementing and enforcing a viable and consistent set of uniform global employment policies and practices. It is undeniable that employment laws in the international arena may vary significantly according to the legal, social, political and economic forces in each country.
 

Sexual harassment presents a unique challenge to companies going global, for the simple reason that differences in cultural norms often make it difficult to reach a globally applicable definition of what an "acceptable" and "unacceptable" conduct is. Under E.U. Council Directive 2000/78/EC harassment is defined as "any form of unwanted conduct related to any of the grounds referred to in Article 1 [which] takes place with the purpose or effect of violating the dignity of a person and of creating an intimidating, hostile, degrading, humiliating or offensive environment". Under the influence of the UK, the E.U. Authorities have accepted to introduce the "hostile environment" concept into E.U legislation.

However, so far, France has strongly opposed the notion of "hostile environment" in the workplace and therefore challenged the implementation of the Directive for fear that this concept could generate a flood of lawsuits clogging French labor courts. The French legislation only provides for "quid pro quo" harassment. As a result, harassment originating from a hostile environment does not constitute prohibited harassment in France. Thus, in France, the use by management of words with a sexual connotation is insufficient to support a sexual harassment claim if those statements did not result in a particular professional damage to the plaintiff. To succeed in French courts, plaintiffs must prove that the alleged sexual harassment adversely affected their working conditions (e.g., ineligibility to promotion, decrease in their remuneration …).
 

As a result, employment agreements must be tailored to comport with local law, with care taken to avoid any conflict between US law and the law of the foreign country where the employee will work.

The purpose of this note is to provide general guidelines on how the following issues are dealt with from a French perspective:

Even where employment contracts do not contain an exclusivity clause in favour of the employer, full time employees are not allowed to perform, for themselves or for a third party, a competing activity during their employment. Indeed, employees are bound by an obligation of loyalty that should be distinguished from the non-compete obligation, which only comes into force at the end of the employment relationship. More particularly, the French Supreme Court considers that during the term of their employment agreement, employees are bound by an obligation of loyalty to the employer. As a result, employees are not allowed to compete against the employer, even though their employment agreement does not expressly provide for any such restriction. In other words, as of their hiring date and until the last working day of their notice period, employees are necessarily bound by an obligation to loyally perform their duties and must refrain, in particular, from:

However, employees working in France are not prohibited from seeking outside employment and even making preparations to compete while employed, such as taking steps to set up a competing company, provided that they are not subject to a non-compete clause and that their competing activities do not actually start prior to the termination of their employment agreement.

The employee’s obligation of loyalty is enforceable by the employer through disciplinary actions e.g., dismissal for serious or gross misconduct.

In the absence of any covenant not to compete: In principle, employees whose employment agreement does not contain any non-compete clause are free, at the end of their notice period, to go to work with a competitor or to set up their own competing business.

The individual’s freedom to work is enshrined in the French Constitution and is substantiated by French courts as follows: "the risks incurred by a company due to the activities of its competitors is inherent in the running of a business … Even though it may be unpleasant, competition from former employees is nothing but a usual aspect of business which cannot be prohibited either by law or courts".

However, individual freedom to work is not absolute and remains under the control of courts. After the termination of the employment relationship, French case-law sets limits as to the manner in which employees may compete against their former employer, even in the absence of a non-compete clause in their employment agreement. If such limits are infringed, the employee may be sued for unfair competition. In its decision rendered on November 10, 1994, the Court of Appeals of Paris ruled that:

Indeed, using confidential information of a former employer to compete or solicit business from a former customer, or poaching employees is a tort pursuant to Articles 1382 and 1383 of the French Civil Code (which were promulgated in the early years of nineteenth century). Article 1382 provides that "any action by any person which causes damage to another obligates the person by whose fault it occurred to indemnify it", whereas under article 1383, "everyone is liable for the damage which he has caused not only by his intentional acts but also by his negligence or imprudence". For instance, French courts are inclined to hold employees liable for soliciting and poaching within a short period of time their former employer’s long-standing clients for the benefit of the business they have recently set up (.

When there is a restrictive covenant:  A non-compete clause is often found in mid- and high-level executive employment contracts. US employers should feel familiar with the statutes in force in the E.U. Member States, as a majority of them (if not all of them) restrict covenants not to compete in the same way as many states in the US. Indeed, covenants not to compete will often be enforceable, provided that they do not prevent employees from continuing their profession and earning a living. More particularly, French courts will make sure that the covenant not to compete:

It is incumbent upon the employer who refuses to pay the non-compete compensation to prove that the employee was in breach of the non-compete clause. There is no breach of a non-compete clause where the employee only got in touch with a prospective employer to carry out activities similar to those he was used to perform with his former employer. In France, an employee who violates a non-compete clause is exposed to different types of legal actions. First of all, he loses any right to compensation, unless it is proved that before breaching the non-compete clause the employee had strictly complied with its provisions. Indeed, the French High Court ruled that employees found to be in breach of a non-compete clause at a certain date are entitled to compensation for the time prior to that date. However, employees cannot get any compensation if they breached such non-compete clause immediately after the termination of their employment contract. French courts can also order the employee to pay his former employer damages and/or enjoin him temporarily or permanently from engaging in the competitive activity. However, the judge has no power to determine the amount of the compensation to be paid to the employee in respect of the non-compete clause.

Typically, a non-compete clause will contain a contractual liquidated damages clause, which is enforceable in principle, even though French courts may modify the amount if it is deemed excessive. Traditionally, contractual penalties in France are up to twelve months’ salary.

Furthermore, under French employment law, the new employer of an employee prohibited from working in a particular area or activity as a result of a non-compete clause may also be ordered to pay damages to the former employer if it is proved that the new employer was aware of the non-compete clause. In addition, a court may order the new employer to terminate the agreement entered into with the employee in breach of the non-compete clause. To obtain the termination of the infringing employment contract, the former employer will have to initiate a legal action on the merits, given that emergency proceedings are not available in this particular case. If the employee lied to the new employer about his obligations, such a court-ordered termination will be for gross fault.

Most foreign countries recognize the right for employers to protect confidential information and trade secrets from disclosure by employees, so long as the restrictions on disclosure and use are reasonable. In practical terms and in order to avoid any unpleasant surprise, US employers should check if local law provides for any definition of what a trade secret is and if that definition is more or less in line with that provided for by the Uniform Trade Secrets Act or the law which governs the protection of trade secrets in each state of the US.
 

Even though French law prohibits employees from disclosing or from attempting to disclose trade secrets belonging to their employers and provides that employees disclosing an employer’s manufacturing process may face a two-year term of imprisonment and a fine up to 300,000 euros, there is no specific regulation in France defining the notion of "trade secret".

However, French employment law recognizes that it is legitimate for an employer to prevent the alienation of its confidential or proprietary business information so long as these restrictions on disclosure and use are reasonable. That is why the notion of trade secrets has been progressively defined by the French Supreme Court as any manufacturing methods (any formula, pattern, device, compilation of information …) with a practical or commercial value that is used in one’s business and that gives its owner an opportunity to obtain a competitive advantage over those who do not know it. As a result, the notion of trade secrets in force in France does not significantly differ from the one in force in the US.
 

A usual method of preventing the misappropriation of trade secrets and confidential information is to bind the employee by having him sign an employment agreement in which he (i) acknowledges the confidential nature of the information of which he may become aware during his employment and (ii) undertakes not to disclose it to subsequent employers or use such information for his own commercial endeavors. When drafting the covenant, it is necessary for the employer to demonstrate the existence of an interest, which is worthy of protection, i.e., an interest which is vital to maintaining the company’s business and competitiveness. However, the employer must also be able to demonstrate that it has consistently acted in all reasonable ways to protect such interest. Indeed, the mere assertion that information is confidential is not sufficient for it be regarded as a protected interest. For instance, customer or contact lists and pricing data may not be considered confidential if the employer seeking enforcement of a restrictive covenant is unable to demonstrate that this information cannot be accessed by the public.

In France, employers who omit to specify a confidentiality obligation in an employment agreement are not deprived of any protection as they could rely on the well-established principle of French case law that employees are necessarily bound by an obligation of "discretion" during the term of their employment. This obligation, which derives from the obligation for employees to perform their duties in good faith, as provided for in article L.120-4 of the French labor Code, is essentially a requirement that employees should not misuse or disclose to third parties confidential information proprietary to their employer even where there is no written employment agreement. Under this obligation of "discretion", disclosing information to third parties that could harm the employer’s business by discrediting its commercial reputation vis-à-vis suppliers or customers or by giving a commercial advantage to competitors could lead to the termination of the employment agreement for gross fault.

Currently, the North American Free Trade Agreement and the European Union are the two most significant multi-jurisdictional bodies producing labor standards. However, it is undoubtedly easier to implement harmonized employment policies and practices incorporating sophisticated labor standards in the European Union than in the NAFTA area, even though some E.U. Member States are still reluctant to allow Brussels to extensively regulate employment matters. The reason for this is that, contrary to NAFTA, the E.U. is more than a mere agreement on free trade among its member states. It creates a single market for workers, capitals, goods and services within the Union’s entire territory.

Under the NAFTA’s labor side agreement, i.e., the North American Agreement on Labor Cooperation ("NAALC"), no NAFTA country has been forced to undergo any significant change to its employment law enforcement mechanisms. Essentially, the NAALC establishes a set of substantive labor principles to guide the development of domestic legislation (e.g., the protection of workers in associations and organizations, the right to strike to protect collective interests, the prohibition of the use of forced labor, labor protections for children and young workers, the adoption of occupational health and safety standards …). It also erects a framework for extensive trilateral oversight of enforcement practices within each signatory country. However, unlike the E.U. Treaty, the NAALC does not create any particular worker rights under domestic legislations, nor does it provide sanctions to remedy violations of workers rights enumerated in the underlying Treaty.

That is not the case with the Treaty in particular thanks to the E.U. Directives, which play an important role in the construction of the E.U. legislation as they super-impose themselves over the national structures of the Member States in various important employment law issues such as working time, fixed term employment, the European works council, the transfer of undertakings … Directives are not intended to take effect directly in Member States. Their aim is to reconcile the dual objectives of both securing the necessary uniformity of E.U. law and respecting the diversity of national traditions and structures. That is why they just set out the result to be achieved by the Member States and it is up to each of them to pass national legislation under its own particular circumstances based on its history and traditions.

The importance of the Treaty can be shown in two different cases:

It is legitimate for US employers to prefer referring to US law to resolve disputes that could arise from the interpretation and the performance of international employment agreements, as they feel more familiar with the law of their "home country" and have (rightfully or not) a greater faith in the U.S. judicial system. However, a US employer in France should be aware that French labor law could apply to an employment relationship regardless of the employee’s nationality or of the express reference to foreign regulations due to the Rome Convention of June 19, 1980 on the Law Applicable to Contractual Obligations, which is in force in the E.U.

Indeed, even though Article 3(1) of the Rome Convention allows parties to agree which law shall apply to the contract, this express choice of law is still subject to limitations as it cannot have the effect of depriving employees of the protection granted to them by the mandatory laws of the country whose laws would have applied if no law has been chosen. Mandatory laws are defined by Article 3(3) as the rules of the country where the action is to be heard, which cannot be derogated from by contract. As most of the national employment laws in the E.U. are more employee-friendly than U.S. law, it means that the US choice of law will be overridden it conflicts with E.U. local mandatory laws.

Thus, in examining an international employment agreement, the US company should always consider what protections granted by the local employment law are lost as a result of the choice of the US law.

If there has been no express choice of law in an international employment contract, French courts will determine the applicable law by having regard to Article 6(2) of the Rome convention. Article 6(2) provides that the contract will be governed by the law of the country where the employee habitually works or, if there is no such place, the law of the country where the business having engaged him is situated, unless the contract is more closely associated with another country, in which case that country’s law will apply.

Thus, the more the employment agreement is linked with the US, the more likely it is to be governed by US law. It will be the case if:

• both parties are Americans;

• the employer has its headquarters in the US;

• the employee reports directly to the US;

• the employment agreement lists certain services or duties that are to be performed by the employee in the US;

• the employee is paid from the US in US $;

• the employment agreement was executed in the US;

• the employment agreement is drafted in English.

Quite naturally, US employers are not only eager to have employment disputes resolved on the basis of US law, but they also prefer to refer these disputes to US courts. However, choice of forum provisions are not always enforceable overseas as most local public policies are clearly in favor of having their national labor Courts settle any dispute regarding an employment agreement executed or performed in their jurisdiction. For instance, the general rule in force in France is that French labor courts cannot be divested of jurisdiction to hear disputes based upon individual employment agreements habitually performed in France. This principle relies on Article 19 of E.U. Regulation 44/2001 of December 22, 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, which provides that in matters relating to employment agreements, the defendant may be sued not only in the courts of the Member State where he is domiciled but also in the courts for the place where the employee habitually works or in the courts for the last place where he did so. Alternatively, if work is done in more than one country, the defendant may be sued in the court for the place where the business having engaged the employee was or is now situated.

This rule will only be superseded to a limited extent by a valid jurisdiction clause, provided it complies with Article 21 of E.U. Regulation 44/2001, which provides that in matters relating to individual contracts of employment a jurisdiction clause will only have legal force either (a) if it is entered after the dispute has arisen or (b) if it invoked by the employee to bring proceedings in courts other than those of the domicile or habitual place of work.

Accordingly, in the event of an employment contract including a jurisdiction clause in favor of, for example, the New York courts, French Courts, applying the above E.U. regulation, would not recognize the effect of the New York Court jurisdiction clause, unless it is invoked by the employee or unless it has been agreed upon after the dispute has arisen.

Most US employers appreciate having employment-related disputes resolved through binding arbitration, mediation or other alternative dispute resolution processes, as they may be cheaper, less time-consuming, less formal and less public than litigation. However, prior to inserting an arbitration clause in an international employment agreement, US employers should make sure that such a clause is valid in the relevant country. Countries like Germany and France prohibit mandatory arbitration clauses even in international employment agreements and consider that their national labor Courts should have exclusive jurisdiction over individual employment disputes. In other words, as soon as a French court finds that it has territorial jurisdiction over a dispute arising from an employment contract containing an arbitration clause, the employer cannot rely on this clause to challenge the jurisdiction of the said court, irrespective of the law designated as governing the employment contract.

There is still a high percentage of US employers who feel surprised to discover, when they are in the international arena, that employment issues in the US do not generally arise in the same context as they do overseas.

For instance, under the US doctrine of "at-will employment", an employment relationship for no specific duration may be terminated at any time, for any reason or no reason, at the will of either the employer or the employee. However, if employment at-will is usual in the US, this is not the case in most foreign jurisdictions where employment laws generally require a "just or good cause" or some related concept requiring an objective and reasonable basis for deeming the employee unsuitable for continued employment. Furthermore, in countries like France, employment law provides for procedural and substantive due process rules to protect employees during their termination (pre-dismissal meeting, advance notice period …).

Therefore, before doing business overseas, US companies should always keep in mind that:

One should therefore not be surprised to hear that while collective dismissals in the US are culturally accepted as a routine part of doing business, European employment laws have traditionally approached the restructuring of a business with a strong emphasis on minimizing the effects on the workforce. It does not mean that implementing a reduction in force in Europe is impossible. Most if not all European countries recognize redundancy or the elimination or restructuring of a job due to economic, business or technical reasons unrelated to the performance or conduct of the employee as a valid reason for terminating an employment relationship, regardless of whether the redundancy affects a single employee or a group of employees. It only means that in a large majority of E.U. Member States, dismissals for economic reasons will be prohibited when there is another job to which the employee can be transferred.

The use of codes of conduct providing both general and specific guidance for conduct in the workplace and covering issues like discrimination, harassment, health and safety, ethical behaviour, software copying, environmental practices, freedom of association, workplace privacy has become common practice over the last few years, especially for multinational companies. There are various reasons why codes of conduct are so commonly used nowadays, and in particular:

While an increasing number of large companies are eager to adopt a global code of conduct, they do not always focus on the necessity to properly communicate on it to employees. It is clear that if a code is to succeed, it must be part of the corporate culture and discussed with the employees and their representatives before being implemented in the company. During that discussion, employers must explain the reasons for setting up a code of conduct, its guidelines and its potential impact on employees’ work conditions.

In some countries like France, such a discussion with employee reps. is a mandatory step in particular if the code of conduct is likely to impact employees’ working conditions. Before they are implemented, codes of conduct must be adapted to the French legal context and then submitted to employee reps. for opinion, in order to take their suggestions and proposed modifications into account.

The opinion rendered by employee reps. is not binding, meaning that companies are allowed to implement the code of conduct despite the contrary opinion of employee reps. Employers’ failure to consult employee reps. constitutes a violation of employee representation rights, which is a criminal offence punishable by a one-year imprisonment and a fine of €3,750.

Upon completion of this consultation stage, employers have to apply the code of conduct to their employees. However, they should keep in mind that codes of conduct are not regulated in France, meaning that their terms and conditions cannot be imposed upon employees.

Codes of conduct should not be regarded as part of employment contracts and not be submitted to employees’ signature as there is a strong likelihood that not all of them would agree to sign them. In such a case, a code of conduct would not be applicable to the whole workforce, which would clearly be inconsistent with the very purpose of that document.

In practical terms, when implementing a code of conduct in France, it is highly advisable to prepare a general memo informing all employees of its implementation and to hand-deliver it to each of them together with a copy of the code of conduct. Furthermore, a copy of the code of conduct should be posted at various locations in the workplace.

When planning to apply a code of conduct in France, one should distinguish between issues that are not strictly regulated by French labor law and those which are governed by public policy provisions. Only the first ones can be addressed in codes of conduct.

French Codes of conduct may include:

Companies can oblige their employees to faithfully comply with the spirit and letter of all applicable laws and regulations and to refrain from any illegal, dishonest, or unethical conduct (e.g., integrity of data presented to regulatory bodies, accounting integrity and compliance, adherence to environmental legislation and standards, clear process for employees to voice any concerns that they may have in these areas). Employees can be encouraged to seek guidance or raise concerns directly with supervisors, company officers, human resources or the legal department, provided that they are not prevented from reporting violations of law or ethical principles to employee reps., namely employee delegates (délégués du personnel).

Indeed, under French employment law, personnel delegates are entitled to bring a matter to the notice of the management when they have reason to believe that there is a violation of a person’s rights or individual freedoms, including psychological harassment. It is strictly prohibited to circumvent the prerogatives of employee delegates.

French Codes of conduct may include provisions on conflicts of Interest preventing employees from:

However, an employee shall not be considered as facing an actual or a potential conflict of interest by reason of his close relationship with someone (a family member or close companion) working with a competitor, customer, supplier, or potential supplier.

In order to avoid conflicts of interest, employers are allowed to require employees to sign and abide by an annual conflict of interest form requesting employees, among other things, to discuss with their immediate supervisor if they are unsure whether a certain transaction, activity or relationship constitutes a conflict of interest. A code of conduct may also validly require employees, as a condition precedent to employment, to sign a nondisclosure agreement.

A code of conduct can validly remind employees that they should not engage in any act or behaviour that is illegal under the laws of the US or the host country. However, in the event of a conflict between US laws and the laws of the host country, employees should not be punished for complying with the laws of the host country. In that case, any provisions of the code of conduct that are in breach of the host country’s laws and regulations should be suspended until they are reviewed in an attempt to bring them in conformity with the legal provisions of the host country.

Codes of conduct usually reaffirm that discriminatory practices by employees will not be tolerated.

This should not come as a surprise since laws that prohibit discrimination in the workplace are common to many industrialized countries and have been recognized in a number of international treaties. This is the case in the European Union where, since the early 90’s, European authorities have increasingly turned their attention to fundamental human rights and adopted three major anti-discrimination Directives:

Based on the above regulations, the French anti-discrimination arsenal has clearly broadened the field of prohibited forms of discrimination as: "no one can be eliminated from a recruitment process […], no employee can be discriminated against, directly or indirectly […] due to his age, sex, lifestyle, sexual orientation, age, family situation, membership or non-membership, whether actual or presumed, of an ethnic group, nation or race, of his political beliefs, trade union activities, religious beliefs, physical appearance, patronymic, state of health or disability".

Therefore, a code of conduct providing general guidelines to protect employees against discrimination in the workplace and in every aspect of their working life, including where individuals are seeking employment or training , redeployment opportunities, promotion, geographical reassignment or the renewal of their contract is perfectly acceptable in France.

However, discrimination laws may vary from one jurisdiction to another because they are typically based on the host country’s culture. Therefore, the section of the code of conduct dealing with discrimination issues will have to be drafted in compliance with French employment law.

Codes of conduct cannot circumvent the mandatory legal provisions of the French labor Code or the collective bargaining agreements.

Neither can they breach the legal provisions of the company’s internal regulations (so called "règlement intérieur"), which is a mandatory document in companies with at least 20 employees. Internal regulations are a highly regulated set of measures taken in application of disciplinary as well as health and safety standards. It is enforceable only after it has been submitted to employee reps and approved by the labor authorities. In addition, health and safety committee must be consulted on all provisions relating to health and safety. The company’s internal regulations must be posted in a place accessible to all employees and two copies of same must be filed with the labor Court.

Any provisions of a code of conduct that are inconsistent with the company’s internal regulations are null and void by operation of law.

As a result, provisions of codes of conduct that deal with issues that should be addressed in the internal regulations, in particular those concerning discipline and health and safety issues, should be removed, unless they are addressed in such general way that they do not breach any French public policy provisions.

Almost all large US companies have some form of rules of conduct and performance standards which set forth the grounds for termination (i.e., theft, dishonesty, workplace violence and acts of moral turpitude). However, policies that attempt to establish uniform standards for discipline and evaluation are not subject to globalization, as disciplinary measures against employees are not enforceable, unless they are provided for in a company’s internal regulations, which place procedural limits on an employer’s disciplinary power.

US employers are often faced with the lack of uniformity of legal provisions on wages and employee benefits in foreign jurisdictions: salaries paid to employees are generally lower than in the US. Therefore, in order to compensate employees assigned overseas for their potential loss of income, many multinational companies have adopted compensation policies that apply on a global basis and address cost of living adjustments to counter inflation in the local economy.

However, a global policy on wages should not go too far into the details for the following reasons:

As a practical matter, US employers should also keep in mind that in some countries like France, most collective bargaining agreements contain salary grids specifying the minimum salary that an employee in a particular job category must be paid based on the point system set forth in the agreement’s salary hierarchy. An employee covered by such a collective bargaining agreement must receive no less than the minimum wages set therein. Furthermore, in some countries, the ability to freely negotiate salary may be legally restricted: in France, there is a statutory minimum wage which is adjusted to changes in the monthly consumer price index in order to guarantee that the employees receiving the lowest salaries do not lose purchasing power.

The US is one of the few industrialized countries not requiring employers to grant vacation and holiday (whether paid or unpaid). When paid holiday is granted, US companies determine vacation time based on length of service, while vacation time in other countries is often mandated by law, regardless of length on the job. Therefore, in many jurisdictions, holiday benefits granted to employees will be considerably higher than those provided in the US (five weeks per year in France). In E.U. countries, the number of regular working hours (on a daily, weekly and/or monthly basis) and overtime hours that an employee can work is regulated by national law. Furthermore, working hours are generally longer in the US than in Europe: in France, the regular workweek is 35 hours.

Many companies have adopted global employment policies that address employee health and safety issues such as: