CMS Expert Guide to employment termination law and legislation

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1. Dismissal of employees

1.1 Reasons for dismissal

The employer must establish a real and serious reason to dismiss an employee.

It may be:

  • a personal reason, notably a fault (disciplinary ground), poor performance, disablement of the employee when the employer is unable to relocate / redeploy him to another position or make reasonable adjustments to his post; or
  • an economic reason, such as economic difficulties, technological changes or the absolute necessity of restructuring to safeguard competitiveness. The economic reason is analysed at the level of the group’s companies established in France operating in the same business sector. The redeployment obligation for economic dismissal is limited to jobs available “in French territory in the company or in other companies of the group, the organisation, activities, and operating location of which allows mobility of some or all of the personnel“;
  • the refusal to amend the employment contract following a collective performance agreement

An employment agreement can be terminated by the employer and the employee can be dismissed in two different ways: with cause, when the employee has committed one of the breaches specified in the labour laws, or without cause, when the employee is dismissed at the employer’s discretion, due to redundancy or other reasons that do not necessarily need to be specified.

The difference between dismissal with cause and without cause lies in the severance payments that the employer must make to the employee upon dismissal (see below).

The labour legislation determines that an employee can be dismissed with cause for the following reasons:

  1. dishonesty;
  2. sexual harassment or inappropriate behaviour;
  3. the employee competes with the employer’s line of business or carries out other business prejudicial to the employee’s work, on his / her own or through third parties, without the permission of the employer;
  4. the criminal conviction of the employee, resulting in the employee being incarcerated and not able to attend work;
  5. poor performance;
  6. frequent drunkenness or drunkenness at work;
  7. disclosure of company secrets;
  8. insubordination or indiscipline;
  9. the employee abandons his work;
  10. insult, defamation or slander, or physical offence, carried out at work against any person, except in legitimate self-defence or in defence of a third party;
  11. insult, defamation or slander, or physical offence, carried out at work against the employer or superior, except in legitimate self-defence or in defence of a third party;
  12. frequent gambling;
  13. losing the professional qualification necessary to perform work due to the employee’s fault; and
  14. being involved in actions contrary to the national security, as duly evidenced through an administrative proceeding

The following employees have the right to stability, and cannot be dismissed without cause from their employment:

  1. pregnant employees cannot be dismissed without cause from the date the pregnancy is confirmed until five months after giving birth to the child;
  2. an employee who suffers an accident at work and is prevented from attending work for at least 15 days cannot be dismissed without cause for a period of one year, counted from the date the employee returns to work; and
  3. an employee elected president of the internal commission for accident prevention cannot be dismissed without cause from the date he registers to run for the position until one year after the end of his / her tenure.

In addition to dismissal of the employee with cause or without cause, the employer and the employee can amicably agree to terminate the employment agreement. In such a case, lower severance payments are due (see below).

1.2 Form

The stages in the individual dismissal procedure are as follows:

  • The employee is formally invited to a preliminary meeting.
  • At least five business days after the formal invitation, a preliminary meeting is held during which the employer explains the reasons for the contemplated dismissal and listens to the employee’s explanation.
  • The employee may be assisted by a third party (an employee of the company or an adviser of the employee mentioned on an official list prepared by the Prefect, depending on the existence of employee representative bodies in the company).
  • The dismissal letter must be sent to the employee at least two (or seven for a dismissal due to economic reasons) business days after the meeting (and within a month for a disciplinary dismissal).

The dismissal letter must be a registered letter whose receipt must be acknowledged by the employee, signed by either a legal representative of the firm or a person duly empowered by a legal representative, and who must belong to the company.

Applicable collective bargaining agreements can provide for a more favourable timeframe and / or procedure.

The letter must explicitly mention the grounds for dismissal. There are other mandatory provisions such as the possibility of choosing to benefit temporarily the supplementary health care scheme in force in the company, etc.

The grounds set out in the dismissal letter may be specified by the employer or at the employee’s request after the letter has been sent. If the employee does not make such a request, the letter’s lack of an adequate explanation will not in itself support a finding that the dismissal lacks real and serious cause, but will merely entitle the employee to compensation of no more than one month’s salary.

A special procedure (possible involvement of the works council, see below,
meeting and notification of the dismissal) applies in the case of a dismissal for economic reasons or when the dismissal concerns a ‘protected employee’ (e.g. members of the social and economic council, and trade union delegates notably).

A specific procedure prior to the dismissal exists for employees who have been recognised as physically incapable of performing their work by a labour doctor (redeployment obligation, possible involvement of the social and economic council, etc.).

For a dismissal based on a disciplinary reason, the employer should move rapidly as the procedure must begin within a few weeks of the employer becoming aware of the reason for dismissal and no more than two months after the discovery of the facts.

The employer must notify the employee of the dismissal in writing. In addition, the parties must execute a term of termination, and the employer must register the dismissal in the employee’s employment booklet and inform the competent authorities.

1.3 Notice period

The notice period is set by the applicable collective bargaining agreement and the Labour Code, and generally lasts between one and three months. The contract may be terminated without notice in the event of gross misconduct or intentional misconduct.

Except in cases of termination with cause, where no prior notice is required, or if a longer notice period is stipulated in the employment agreement, employees must be notified of the dismissal at least 30 days in advance.

In addition to the 30-day notice period, the employee must receive payment in lieu of an additional “notice period” equivalent to the salary for three days per year of employment up to a maximum of 90 days. If no dismissal notice or less than a 30-day notice is given, the employer is obliged to pay the employee the salary that would otherwise be due for the full 30-day
notice period.

1.4 Involvement of works council

The social and economic council must be informed and consulted (with an advisory but formal vote of its members) when a mass redundancy is planned, or for the planned dismissal of a protected employee or physically disabled employee.

Not necessary.

1.5 Involvement of a union

When a company employs more than 50 workers, trade unions may be involved in a mass redundancy procedure to negotiate an ‘employment saving plan’.

No involvement normally, other than in the case of a program of collective voluntary dismissal (see below).

1.6 Approval of state authorities necessary

This is required when dismissing ‘protected employees’ and now the validation or homologation of the employment saving plan is also required for mass redundancy procedures.

Not necessary.

1.7 Collective redundancies

Different procedures apply according to the company’s workforce and the number of employees concerned (the procedures are ‘lighter’ in small companies that dismiss fewer than ten employees).

The main principles are the same:

  • The employer has a duty to inform and consult the staff representative bodies;
  • All documentation related to the collective redundancy must be sent to the state authorities

In case of mass redundancies (more than ten employees in a company employing at least 50 employees):

  • The employer has a duty to inform and consult the social and economic council, involving at least two meetings (the social and economic council may be assisted by an accountant in some cases). Please note that, with the new law, the duration of the consultation has been regulated.
  • An ‘employment saving plan’ (a social plan providing real alternatives and social measures accompanying the redundancy, such as redeployment, redeployment leave, training, etc.) should be drafted. There are two options for drafting it: either through a collective agreement negotiated with trade unions or unilaterally by the employer (only in the absence of trade unions in the company or if no agreement is found and then only after consultation with the social and economic council).
  • This employment saving plan should then be sent to the state authorities that will either validate it (if agreed with trade unions) or homologate it (if unilaterally drafted by the employer). If the state authorities do not agree with the plan, the employer may present another draft after consulting the social and economic council.

There is no requirement in Brazil for any specific measure to be taken in case of collective redundancies. However, the employer may elect to agree with the employees’ union to a programme of collective voluntary dismissal. Under such a programme, the employer can be authorised to make reduced severance payments for employees who voluntarily choose to adhere to it. From the employer’s perspective, the programme allows the employer to pay less than it would otherwise pay to employees who are dismissed without cause. For employees, the programme can be beneficial as they may be able to receive some indemnification that they would otherwise not have be entitled to had they decided to terminate their employment agreement themselves.

1.8 Summary dismissals

The term ‘summary dismissals’ has no real meaning in France. Dismissal without a notice period is only possible where there has been a serious breach, but even in that case, the form described above for dismissal procedure, including the preliminary meeting and registered letter, must still be applied. In case of dismissal without notice, the employee has no dismissal indemnity or notice period indemnity, because there is no notice period. Such dismissed employees are still entitled to unemployment insurance benefits, however. The dismissal procedure must begin within a few weeks of the employer becoming aware of the reason for dismissal and no more than two months after the discovering of the facts.

Summary dismissals (dismissals without notice) are only permitted for dismissals with cause. For dismissal without cause, a 30-day prior notice is generally required (see above). However, the employer may elect to provide financial compensation for the prior notice period. In this case, the employer has to pay to the employee the salary the employee would have earned during the 30-day prior notice, and the employee is not required to work during this period.

1.9 Consequences if requirements are not met

The amount of damages depends on the actual loss suffered by the employee. For dismissals notified on or after 24 September 2017, the ordonnance n° 2017-1387 provides that the damages have a preset minimum and a maximum amount depending on the employee’s length of service. The ordonnance also stipulates specific lower minimum amounts for companies that usually employ fewer than 11 employees, but the maximum remains identical.

In some circumstances, the dismissal will be void, allowing the employee to request reinstatement. (These circumstances may include collective redundancies without a social plan, dismissal after an occupational injury or in discriminatory dismissals, or dismissal of a protected employee without state authority authorisation). In such a case, the compensation cannot be less than six months’ salary.

The employee may have various claims against the employer related to his dismissal. For example, in case of dismissal for cause, the employee may have a claim for unfair dismissal and require payment of the severance dues that would have been payable for a dismissal without cause. In case of a dismissal without cause, the employee may have a claim with respect to the severance payments received, or other employment-related rights accrued during the employment term which were not paid.

Employment claims are made before specialised labour courts in Brazil.

1.10 Severance pay

Dismissal indemnity is payable unless the dismissal is due to gross misconduct or intentional misconduct. The amount payable is mainly set by the collective bargaining agreement but must not be less than 1 / 4 of the monthly salary per year of service for the first ten years of service, plus 1 / 3 of the monthly salary for each year of service after ten years. Indemnity is also payable for unused accrued holiday entitlement and for the notice period if the employer chooses to release the employee from performing it.

In case of dismissal for cause, no severance pay is due to the employee.

In such cases the employer must only make payments related to rights the employee accrued during the employment period, which can include pro-rata payment for accrued holiday entitlements (1 / 12 of the employee’s holiday pay for each month of the incomplete holiday accrual period at the time of dismissal (such holiday pay being, in full, equivalent to one monthly salary plus an additional 1 / 3 of monthly salary), proportional 13th salary (1 / 12 of one monthly salary for each month worked in the then current calendar year), as well as double payment for any overdue holiday periods (i. e., holiday periods not enjoyed by the employee within 12 months of the employee acquiring the right to enjoy such holiday period).

If the employee is dismissed without cause, the employer must pay to the employee, in addition to the payment of accrued rights and as a penalty for unfair dismissal, an amount equal to 40 % of that which the employer has deposited into the employee’s severance compensation fund (“FGTS”) during his / her employment. In addition, the employer must pay a further 10 % of the amount deposited into the FGTS to the government. Every month, employers are required to deposit 8 % of the employee’s monthly salary into his / her FGTS account, which is managed by the Federal Savings Bank on behalf of the employee. Thus, this penalty will depend on the length of employment and on the amount of the employee’s monthly salary.

If the dismissal is amicably agreed to between the employee and the employer, the employer will have to pay half of (a) the financial compensation for prior notice, if the parties agree that the prior notice will be financially compensated for instead of the employee actually working during such period, and (b) the penalty equivalent to 40 % of the amount the employer has deposited into the employee’s FGTS (i. e., 20 % of the amount deposited into the FGTS).

All other termination payments, such as amounts due in respect of accrued rights, should be fully paid.

In cases of fixed term employment contracts where there is no provision allowing the parties to terminate the agreement early without cause and the employer opts for early termination without cause, the employer must pay the employee half of the amount the employee would otherwise have been entitled to receive during the remainder of the agreement term.

1.11 Non-competition clauses

A non-competition clause is only valid if provided in the work contract, and if:

  • The employer demonstrates that this clause is necessary to safeguard his interests and proportionate (e.g. the lower is the position the less the clause is justified);
  • Its scope is limited to a reasonable area, a reasonable period of time, and precise activities; and
  • The employee receives a monthly indemnity during the term of the clause (the indemnity amount is set by the work contract or collective bargaining agreement, but is generally between 20% and 50% of the employee’s monthly salary).

This clause can be waived by the employer in the letter of dismissal or according to the provision of the applicable collective bargaining agreement and / or employment contract.

The examination of the terms of the applicable collective bargaining agreement is key on this matter.

The law does not deal with the validity of non-compete clauses. Currently, the validity of such clauses is still being debated at the labour courts. On the one hand, some courts understand that non-compete clauses breach the constitutional rights of all persons to carry out any work, profession or activity of their own choosing, provided the professional qualifications are met. On the other hand, other decisions have confirmed the validity of non-compete clauses, provided some restrictions are included, such as:

  1. the non-compete clause shall be reasonably limited in time and to a certain geographic area;
  2. the restriction shall be related to the activities the performed during his / her employment, and it shall be necessary and reasonable to protect a relevant interest of the employer;
  3. the employee shall be entitled to receive financial compensation if he / she is restricted from work due to the non-compete provision; and
  4. the non-compete clause shall be agreed on at the outset of the employment.

1.12 Miscellaneous

Specific and restrictive rules and procedures apply in the case of pregnant women, women on and returning from maternity leave, young fathers, and employees recovering after a work-related accident or suffering from a work-related illness. Women on maternity leave cannot be dismissed during this period.

Since 2008, a new means of termination has been introduced, namely “by mutual agreement”. This new possibility is called ‘rupture conventionnelle’ (mutual termination of the employment contract). The termination is agreed by both employer and employee and there is no cause or reason to demonstrate.

The employee is entitled to unemployment insurance benefits and dismissal indemnity provided by law or the applicable collective bargaining agreement (or more if agreed).

A strict procedure including preliminary meetings and consideration periods should be followed (both parties have the benefit of 15 calendar days to retract, from the date on which the form is signed); a specific form must be filled in and signed by both parties.

The specific form must be sent to the state authorities for agreement. The state authorities have a 15-open day period to review the form. Within these 15 days, the state authorities can agree to the termination, disagree or stay silent (silence amounts to agreement). However, the state authorities must expressly agree for protected employees. Otherwise the termination is void.

Since September 2017 it has been possible for the employer to negotiate a collective agreement through a ‘rupture conventionnelle collective’ (mass mutual termination of the employment contract) with trade unions. Such an agreement can only implement voluntary departures and thus excludes any dismissals designed to eliminate jobs. This new method of terminating contracts is entirely excluded from the rules governing economic dismissals. The labour administration is informed as soon as negotiations to conclude such an agreement start and reviews the agreement’s contents before validating it.

The above rules and guidelines apply to private employment agreements. Public officials and public employees are generally subject to a specific employment regime which, among other things, provides for employee stability, meaning that they cannot be dismissed without cause after a probation period.

2. Dismissal of managing directors

In Brazil, the rights and obligations of a ‘director’ are the same whether they are for a ‘managing director’ or any other type of director. Although this is not the normal practice, a director may also be an employee of the company. If that is the case, the relationship between the company and the director will be subject to labour laws, as well as to the legal / statutory rules applicable to the appointment / dismissal and duties / responsibilities of directors. This table only covers the removal of managing directors from their positions as director, and does not cover termination of any contract of employment or other employment issues.

2.1 Reasons for dismissal

The company may generally revoke the appointment of the managing director without cause, unless stated otherwise in the by-laws of the company or the resolution of appointment. However, a fair reason is legally required in certain forms of companies (e. g. the civil form or commercial forms such as certain limited companies (‘SA’) or limited liability companies (‘SARL’)).

A managing director may be dismissed at any time for any reason, unless the articles of association or bylaws of the company provide otherwise.

2.2 Form

A resolution taken by the shareholders or board of directors, depending on the form of the company and the internal organisation of the management. The managing director must be notified in writing of the revocation, and the change of managing director must be published in a public Corporate Register.

The dismissal of the managing director will require the resolution of the shareholders or board of directors of the company, as applicable, which shall be recorded in a written document, such as the minutes of a shareholders’ / board of directors’ meeting, or an amendment to the articles of incorporation. In order for the dismissal to be effective before third parties, such minutes or amendment must be registered at the Companies’ Registry and, in the case of a corporation, published in local newspaper.

If the company is incorporated as a limited liability company (“limitada”), the removal of the directors is subject to the following voting thresholds, depending on (i) whether the elected director is also a shareholder or not, and (ii) whether the director was appointed in the articles of association or in a separate document, such as the minutes of a shareholders’ meeting:

  1. if the director was appointed in a separate document, whether also a shareholder or not, the removal will require the decision of a majority of the capital holders;
  2. if the director is also a shareholder appointed in the articles of association, the removal will require the approval of 2 / 3 of the capital holders, unless the articles of association provides differently; and
  3. if the director is not a shareholder, but was appointed in the articles of association, the removal will require the approval of 3 / 4 of the capital holders.

If the company is incorporated as a corporation, the managing director can be appointed either by the shareholders or by the board of directors (if any), as determined in the bylaws of the company. If managing directors and other executive officers are appointed by the board, their removal normally requires the approval of a majority of the board, unless the bylaws provide for a different threshold. If appointment is made by the shareholders, removal usually requires the approval of the holders of a majority of the company’s share capital, unless the bylaws stipulate a higher threshold.

2.3 Notice period

There is no notice period, except where one is provided by the by-laws of the company or in the resolution of appointment of the managing director.

Removal as a director is immediate unless otherwise specified in the articles of association, bylaws of the company, or the shareholders’ / board of directors’ resolution

2.4 Involvement of works council

No.

No involvement.

2.5 Involvement of a union

Not applicable.

No involvement.

2.6 Approval of state authorities necessary

No.

Not necessary.

2.7 Collective redundancies

Not applicable.

Not applicable.

2.8 Summary dismissals

Not applicable.

No special rules apply.

2.9 Consequences if requirements are not met

Damages may mainly be claimed:

  • for lack of fair reason in companies where such a reason is legally required to revoke a representative; or
  • if the revocation is notified under hurtful circumstances (e.g. is very sudden and unexpected, or is publicly announced before the director is informed), or if the managing director has not been granted a reasonable opportunity to make his point before the decision to revoke him is made (absence of due process).

The removal of the director is void.

2.10 Severance pay

There is no mandatory severance pay for the capacity as director, unless stated otherwise in the by-laws of the company or in the resolution of appointment of the managing director.

Not applicable.

2.11 Non-competition clauses

The terms of any non-competition clause must be agreed between the parties. If the scope of the clause is too wide (according to its geographic area, its length, or the activities it concerns), its validity may be challenged.

If the managing director is also an employee, a non-competition clause could be agreed upon in the employment agreement. The law does not deal with the validity of non-compete clauses, and the validity of such clauses is currently being debated at the labour courts. On the one hand, some courts understand that non-compete clauses breach the constitutional right of all persons to carry out any work, profession or activity of their own choosing, provided the professional qualifications are met. On the other hand, other decisions have confirmed the validity of non-compete clauses, provided some restrictions are included, such as:

  1. the non-compete shall be reasonably limited in time and to a certain geographic area;
  2. the restriction shall be related to the activities the employee performed during his employment, and it shall be necessary and reasonable to protect a relevant interest of the employer;
  3. the employee shall be entitled to receive financial compensation if he is restricted from work due to the non-compete provision; and
  4. the non-compete clause shall be agreed on at the outset of the employment.

If the managing director is not an employee, and the non-compete  clause has been established in a corporate document (bylaws, minutes   of shareholders’ or board of directors’ meeting), courts are normally more inclined to uphold its application. However, the court would here evaluate specific aspects of the relation and assess whether, despite the director not being an employee, the non-competition clause could diminish the managing director’s employment capacity.

2.12 Miscellaneous

The director may also be an employee. In this case, a proper dismissal process will have to be implemented in addition to the revocation process and corresponding dismissal indemnities paid.

Not applicable.