Prior to amendments introduced by law no. 2015-990 dated 6 August 2015 (the so-called Macron law), employer contributions were due within one month following the resolution of the board of directors (or management board) of the company to award the shares. Following these amendments, employer contributions are now due at the end of the shares’ vesting period. Prior to the Macron law, in practice, employer contributions were sometimes paid by the employer even if the shares never vested (in particular, because actual vesting of free shares was generally subject to the employee’s continued employment by the company and to certain conditions of performance, as well as specific legal requirements).

In these circumstances, can employer contributions be reimbursed if the applicable conditions are not met and the free shares do not vest or vest in part only?

Until now, according to the decisions of the French social security authorities (URSSAF) and rulings in cases decided by the French Court of Cassation, employer contributions could not be reimbursed in such circumstances as there were no specific legal provisions that made reimbursement possible.

This position was challenged by the French company Orange, which was the initiator of several preliminary rulings on constitutionality (question prioritaire de constitutionnalité or QPC) on which the French Constitutional Council was required to rule.

The company’s rationale was as follows: since free shares are considered to be an additional compensation, refusing to reimburse employer contributions if the free shares are ultimately not granted constitutes unjustified, excessive and arbitrary taxation.

In its decision dated 28 April 2017 (no. 2017-627/628 QPC), the French Constitutional Council agreed with this rationale: “although the legislator has entire latitude to provide that the employer’s contribution is due before vesting of the free shares, it cannot tax the employer on the basis of a compensation not effectively granted, without breaching the principle of equal taxation for all citizens. Therefore, the above provisions cannot prevent the employer from claiming back the free shares’ contribution in such case.”

The French Constitutional Council has thus opened the way for employers to claim back employer contributions in cases where free shares do not vest. This is only possible for free shares allocated prior to 8 August 2015 (the date the Macron law entered into force), unless such claims are time-barred.

Does this rule apply to other incentive schemes? Although this decision only concerns the grant of free shares, stock option plans may also be affected, since their vesting is generally subject to conditions relating to employee presence and performance. Employers could, therefore, claim back corresponding employer contributions as the scope of Article L.137-13 discussed before the French Court of Cassation also includes stock options.