Is capping compensation by industrial tribunals another way of attracting foreign investors?

12 June 2017


Introducing legislation to cap or restrict the amount of compensation paid to employees who are dismissed without good and sufficient cause is one of the issues that President Macron has committed to take a fresh look at, after an initial attempt in August 2015. What will a cap look like and is it likely to work in France?

This initial proposal from 2015 was refused by the French Constitutional Council because the cap and floor assessment criteria were not directly linked to the harm suffered by the employee. The idea of restricting compensation via a cap and floor is therefore not anti-constitutional in principle. In addition, the floor already exists: the minimum compensation for an employee with two years' seniority, who is dismissed without good and sufficient cause from a company with more than 11 employees, is six months' pay. Any additional compensation must be justified by harm.

To date, the two decrees announced on 23 November 2016 provide informative scales in the event of conciliation and, if both parties agree to it, a compensation scale in the event of dismissal that is deemed by the industrial tribunal as being without good and sufficient cause. The only criterion taken into account in legislation thus far is employee seniority, without any additional considerations relating to the employer (its size) or the existence of any harm to the employee. This is perhaps one of the possible options that should be suggested to the government as it prepares its orders. Indeed, an employee who is dismissed, even without good and sufficient cause, clearly should not be compensated in the same way depending on whether or not he/she has found another job.

Could we design a scale system based on seniority, which is comparable to the scale in the decrees from November, but weighted depending on whether or not the employee has found a new job with compensation paid by Pole Emploi (French Job Centre) serving as evidence of this fact?

The issue of capping is divisive. Capping compensation appears to strip the employee of the right to compensation for the harm he/she has suffered. However, it should be noted that the proposal which is currently being discussed is only intended to cap harm relating to job losses and none of the other forms of harm, the existence of which the employee could demonstrate during the proceedings (psychological harassment, non-compliance with provisions regarding working time or safety, etc.). From this point of view, employees' rights appear to be protected. In addition, capping would also align levels between the various industrial tribunals (sections or geographical locations).

But why address this issue, which appears difficult given the current social climate? Is it wrong to presume that it's a good idea? Maybe not, if for instance, we are willing to look beyond our borders.

France is almost the only country in Europe that does not have a precise rule for determining damages in industrial disputes. In the United Kingdom for instance, compensation is capped in absolute value. Accordingly, without a precise rule and without a cap, the myth of the French "jackpot" industrial tribunals (the sky is the limit) takes on its full meaning. The huge number of colossal claims brought before industrial tribunals proves this to be the case. Even so, the myth remains, despite it not being backed up by the vast majority of rulings.

At a time when France is seeking to regain its status as an attractive economy for foreign investment, a clear and concise template for interpreting the risks of industrial tribunals could become a positive and attractive argument where very often, and not always with good reason, labour law continues to frighten foreign investors.


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