Dec
26
French Labour law: Senior executives (cadres dirigeants): overview of French case-law 2016/2017

Senior executives (cadres dirigeants), who are excluded from the provisions of French Labour Code relating to working time, rest and holidays, constitute a very restricted category of employees.

Article L. 3111-2 of French Labour Code defines senior executives (cadres dirigeants) as executives who are assigned responsibilities whose importance implies a great independence in the organization of their schedule (1), who are authorized to take decisions in a largely autonomous way (2) and who receive remuneration at the highest levels of the remuneration systems in their company (3).

The Court of Cassation (Cour de cassation) specifies, by established case-law, that the status of senior executive (cadre dirigeant) supposes the participation of the employee in the management of the company.

Above all, it constantly ensures that this notion receives a restrictive application.

However, the consequences in the event of disqualification can be very costly for thecompany: the employee can then request the payment of all overtime if he/she can justify within the limit of three years.

2016 and the first half of 2017 have resulted in several judgments concerning senior executive status.

The purpose of this article is to provide a non-exhaustive overview of the judgments on this subject and the lessons to be drawn from them.

1) Criteria used by the Court of Cassation to admit / refuse the status of senior executive (cadre dirigeant)

1.1) Cass. Soc. June 22nd 2016, n°14-29.246: the requirement to participate in the management of the company is not an independent criterion that would replace legal criteria

In a resounding judgment of 22nd June 2016 (n°14-29.246), to which the Court of Cassation (Cour de cassation) intended to give the widest publicity, the Court of Cassation affirmed that the judges of the merits (The french labour tribunal and Court of appeal) faced with a question concerning the validity of senior executives status, first had to check that the legal criteria were met and only then draw the conclusion that the employee actually participates in the management of the company.

This solution was then confirmed by a judgment of December 1st 2016 (n °15-24.695).

However, the requirement to participate in the company has not been abandoned by the Court of Cassation (Cour de cassation) which continues to apply (see in particular Cass Soc July 6th 2016, n°15-10.987).

It is now simply stated that this requirement does not constitute an independent criterion capable of replacing the three criteria of Article L. 3111-2 of French Labour Code.

This is a finding that must necessarily be made by the judges of the merits but only after having previously found the meeting of the legal criteria.

In no case can they be content to justify the application of the status of senior executive.

1.2) Cass. Soc. May 11th 2017, n° 15-27.118: the fact of intervening only at a decentralized level of the company does not prevent the recognition of the status of senior executive (cadre dirigeant)

In a decision of May 11th 2017 (n°15-27118), the Court of cassation (Cour de cassation) for the first time to our knowledge, expressly stated that the exercise of its functions at a decentralized level was not incompatible with the status of senior executive (cadre dirigeant).

He was in this case a Sector Manager (Chef de secteur) of a construction company.

He was responsible for two construction supervisors, a project manager and four site managers, who were in charge of the commercial and technical and financial management of the yards in his geographical area.

He had the power to conclude all contracts for public works or private works of an amount less than or equal to one million euros, subcontract all or part of these markets and generally represent the company both with regard to the owners and contractors that with regard to third parties, he had delegated powers to recruit and dismiss workers, to apply disciplinary sanctions, to take all necessary measures to comply with the regulations on social law, the awarding and execution of public or private contracts, regulations on hygiene and safety, the environment and the absence of nuisance.

Lastly, he participated in the management committees under the chairmanship of the regional director and out of a workforce of more than one thousand and one of twelve employees whose gross annual salary was between 50,000 and 100,000 euros, five others employees only receiving higher remuneration.

The Court of Cassation (Cour de cassation) held that "the functions of the person concerned within the company, even at a decentralized level, were those of a senior executive (cadre dirigeant) to whom the rules relating to hours of work were not applicable" (Cass Soc.May 11th 2017, n°15-27118).

In doing so, the Court of Cassation (Cour de cassation) strongly rejected the argument that the exercise of limited functions at a decentralized level of the company would be incompatible with the status of senior executive.

2) 7 concrete situations in which the status of senior executive (cadre dirigeant) has been recognized or refused by the Court of Cassation (Cour de cassation)

The Court of Cassation (Cour de cassation) was also asked to rule on several cases in which the status of senior executive (cadre dirigeant) was challenged by the employee.

2.1) Cases in which the status of senior executive (cadre dirigeant) has been admitted by the Court of Cassation (Cour de cassation)

The Court of Cassation (Cour de cassation), for example, recognized the status of senior executive (cadre dirigeant) with regard to:

• The Deputy Chief Executive Officer (Directeur Général délégué) of a catering company, member of the management committee, independent in the organization of his schedule, benefiting from one of the highest salaries of the company and empowered to make decisions in a widely autonomous.

In this respect, the Court states that it does not matter whether the employee's payslips mention 169 hours per month (Cass Soc July 6th 2016, n°15-10987);

• The Managing Director of a Russian company of the German Group GmbH whose remuneration was among the three highest in the group, whose job description showed that he had independence in the organization of his work and was entitled to as a proxyholder, to make decisions in a largely autonomous manner (Cass Soc Sept 28th 2016, n°15-10736);

• Auchan group store manager chaired the store management committee, which chaired the establishment committee and the CHSCT, and enjoyed a very wide delegation of authority in all sectors, including the management of the conclusion, execution and termination of employment contracts, participated in the definition of company policy and sat on the supervisory board, could incur expenses alone up to a limit of 100 000 euros and incur expenses up to 200 000 euros in agreement with the management controller, had complete independence in the organization of his schedule and received the highest remuneration of the store (Cass Soc March 8th 2017, n°15-24117);

2.2) Cases in which the status of senior executive (cadre dirigeant) has been refused by the Court of Cassation (Cour de cassation)

On the other hand, the Court of Cassation (Cour de cassation) invalidated the status of senior executive with regard to:

• The Director of a car dealership for which it was not established that he had any of the most important remuneration of the company or that he participated in the management of it (Cass. Jan. 27th, 2016, n°13-26251);

• The head of the store department of a furniture brand on the sole ground that it did not participate in the company's strategy or in the management of the company (Cass Soc June 15th 2016, n ° 15- 12894);

• The director of an educational institution whose job description provided that he was responsible for ensuring the implementation of the establishment project approved by the association on the grounds that he did not have sufficient autonomy (Cass Soc Jan 11th 2017, n°14-21548).

2.3) Court of Appeal of Paris (Cour d’appel de Paris), May 23rd, 2017, n ° 14/10516: Refusal of the status of senior executive, reminder of overtime and judicial termination of the employment contract

In a judgment of May 23rd, 2017 (Court of Appeal Paris 6-3, n °14/10516, there is a “pourvoi” against this decision), the Court of Appeal of Paris refused the status of senior executive to a senior Stylist of an international luxury group.

In declaring the nullity of his executive status, the Court of Appeal (Cour d’appel) held in particular that:

• the stylist performed her duties according to the instructions of the artistic director and of the Studio coordinator and her other superiors and did not have the capacity to make autonomous decisions;

• the employer did not respond to the employee's summons to communicate the pay slips required to justify the remuneration actually received by other employees;

• the employee requested leave authorizations, her schedule of meetings was set taking into account the availability of the director general or other collaborators, her travel expenses were subject to prior authorization so that she would not did not enjoy a great deal of independence in organizing his schedule and his work.

As a result, the stylist obtained a substantial overtime reminder as well as damages for non-compliance with compensatory rest and damages for breach of weekly rest.

Finally, in addition to the moral harassment (harcèlement moral) of which the Stylist was a victim, the Court of Appeal (Cour d’appel) held that her status as a senior executive (cadre dirigeant) was null and void, as well as the failure to pay overtime in very significant proportions to consider that the judicial termination of the wrongs exclusivity of the employer was justified.

3) The indemnity to repair the loss of opportunity to raise options is taxable as a salary (Conseil d'Etat, May 22nd, 2017, N°395440)

In a judgment of May 22nd, 2017 (n°395440), the Council of State (Conseil d' Etat) ruled on the tax system of the compensation to repair the damage resulting from the loss of the possibility of raising stock options.

The Council of State (Conseil d'Etat) stated that the compensation for the loss of the right to exercise the stock options was not intended to make good the damage resulting from the dismissal without any real and serious cause.

Accordingly, this allowance is taxable as a salary and "as would have been the income from the exercise of the option if the executive had exercised its stock options" on the basis of Articles 79 and 82 of the French General Tax Code.

Frédéric CHHUM Avocat à la Cour (Paris et Nantes)

. Paris : 4 rue Bayard 75008 Paris - Tel: 01 42 56 03 00 ou 01 42 89 24 48
. Nantes : 41, Quai de la Fosse 44000 Nantes -  Tel: 02 28 44 26 44

e-mail : chhum@chhum-avocats.com

Blog : www.chhum-avocats.fr

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