Until now, the French Supreme Court has not been questioned as to the conditions of validity of a settlement agreement following an agreed termination.

This was finally done in a ruling on 26 March 2014 in which the French Supreme Court defines the scope of the conditions of validity of a settlement agreement signed after an agreed termination.

The settlement agreement must:

• Be negotiated and signed only after the agreed termination has been approved by the French Labour Authorities (approval of the Direccte¹ (regional directorate for companies, competition, consumption, work and employment)or authorised by the Labour Inspector, for protected employees);
• Have the sole purpose of settling a dispute relating to the performance and not the termination of the employment contract

The settlement agreement would therefore be null and void if aimed at settling a dispute relating to the employment termination.

It is highly unlikely that employees, who have signed a settlement agreement with their former employer in the context of the contractual termination of their employment contract, will challenge its validity. However, it is not inconceivable that this decision will be the source of new disputed claims.

What is certain is that this decision calls a stop to the agreed termination which had already lost its appeal since 1 January 2013 and involves subjecting a fraction of the agreed termination payment to a 20% contribution borne by the employer.

1. Les Directions régionales des entreprises, de la concurrence, de la consommation, du travail et de l’emploi

Client Alert 2014-115