How to settle a case out of court with an employee in France ?

Introduction

The advantages to settle a case out of court are twofold: the employer saves legal costs and the risk of reputational damage, since court proceedings are open to the public.

The main way to settle a dispute out of court is to enter into a settlement agreement with the employee.

What is a settlement agreement ?

In consideration of a financial payment (settlement indemnity), it is possible to have the employee waive any claim in relation to the conclusion, performance, or termination of the employment contract.

To make sure the settlement agreement is valid and binding, the amount of the financial payment must not be piddling.

Can a settlement agreement be used to terminate the contract?

Under French law, a settlement agreement is not a method to bring an employment relationship to an end. It is only a way to obtain from the employee a waiver of claims or disputes.

The termination of the employment contract must be dealt with separately through dismissal or termination by mutual consent.

When can a settlement agreement be used?

The use of the settlement agreement is twofold:

• A settlement agreement is usually concluded after employment has ended (after a dismissal or a termination by mutual consent).
  In this respect, in order to be valid and cover claims related the termination of the employment contract, the settlement agreement must be concluded after the termination date. Thus, Iin case of dismissal, you must make sure that the settlement agreement is not concluded before the dismissal letter has been sent by registered mail with acknowledgment of receipt and received by the employee.
• Settlement agreements can also be used to reach an agreed and final conclusion to a workplace dispute or issue which does not lead to terminate the employment relationship.
  For instance, a settlement agreement may be used to resolve a dispute over holiday pay, variable remuneration, discrimination or harassment.
  In such a case, a settlement agreement cannot cover the termination of the contract but can only cover the conclusions and performance of the contract.

What is covered by a settlement agreement?

The Supreme Court considers that when the wording of the waiver of claims is sufficiently broad, the employee is prevented from raising any claim related to the employment contract.

As a result, an employee who declares in the settlement agreement that he or she no longer has anything to claim from the employer “on any grounds whatsoever and for any reason whatsoever, either in respect of the performance or termination of the employment contract” can no longer claim payment of back pay and compensation in lieu of notice (Cass. soc. November 5, 2014, no. 13-18. 984), payment of compensation for paid holidays (Cass. soc. November 12, 2020, n°19-12.488), to supplementary pension rights (Cass. soc. May 30, 2018, n°16-25.426), or request payment of the financial consideration for the non-competition clause not waived by the employer at the time of dismissal (Cass. soc. February 17, 2021, n°19-20.635).

In a case where the settlement agreement only covered the performance of the employment contract, the Supreme Court recently ruled that the employee could bring a claim arising during the employment subsequent to the conclusion of the settlement agreement. The claim was related to the payment of meal allowances (Cass. Soc. October 16, 2024, no 23-17.377). The Supreme Court had already ruled in a similar way regarding a claim related to a union discrimination (Cass. soc. October 16, 2019, n°18-18.287).

What clauses can be inserted in a settlement agreement?

The settlement agreement can also provide for specific clauses such as confidentiality clauses or non-disparagement clauses.