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Recent case law | Profit-Sharing rules

Recent case law | Profit-Sharing rules

Published on : 06/04/2018 06 April Apr 04 2018
News

Salary is not the only remuneration that employees can receive.
 
Profit sharing is a significant example.
 
According to Article L. 3322-2 of the French Labor Code, companies employing at least 50 employees must share the results with their employees with by means of a redistribution of part of the profits.
 
The Labor Code provides for special methods of calculation of profit sharing amounts.
 
There are two types of formula for the calculation and distribution of the profit sharing: the first is set out by law and the other, secondary formula, can be provided in a collective agreement that applies to the company.
 
In both formulas, the net profit figure is essential. The determination of net profit is not an easy task as there are a number of subtleties.
 
In order to guarantee the amount of the net profit, it is established by a certificate of the tax inspector or the auditor. For many years, the Court of Cassation has considered that this certificate cannot be challenged before the court. This impossibility is nevertheless limited to disputes between the employee and the employer.
 
In a recent case before the Court of Cassation, there was restructuring operation aimed at consolidating all the subsidiaries into a single legal entity. As a result, all the companies were dissolved and transferred their assets to a single parent company which financed all the shares of the subsidiaries. The financing of this operation forced the parent company to take out a heavy loan over several years, creating a de facto decrease in the net profit, thus eliminating the payment of the profit sharing to the employees.
 
Considering that this operation was fraudulent, the works council and several company unions of the company initiated legal action to make the restructuring operation unenforceable against employees and have the parent company ordered to reintroduce the misappropriated funds.
 
The Court of Appeal of Versailles accepted the requests on the grounds that the certificates established by the auditor cannot prevent the judicial judge from questioning, in case of company fraud, the certification of the accounts on the basis of the elements provided by the company. The court declared the restructuring unenforceable against employees and sentenced the company after the appointment of a chartered accountant to reconstitute the special profit-sharing reserve for the years in question.
 
It is no surprise that the Court of Cassation struck down the appellate court’s decision by recalling its constant position that the amount of net profit certified by an auditor cannot be challenged in a dispute over profit sharing, even in the event of fraud or abuse invoked against the company.
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