The New Hiring Contract

The Contrat Nouvelles Embauches or "New Hiring Contract" (the "CNE") represents a revolution in the world of French employment contracts.

Indeed, the U.S. law rule of "at will-employment"1, which allows employee discharge for no reason, was not a familiar notion in French law until an ordinance of August 2, 2005 (the "Ordinance"2) created the CNE, which is a type of indefinite-term employment contract under which the employee is more or less "employed at will" for the first two years.

The general rule under French employment law remains that anyone is entitled to be hired under an indefinite-term employment contract, which, after a fairly short trial period (no more than six months), cannot be terminated by the employer without "real and serious" cause and due process.

As for fixed-term employment contracts, which terminate automatically upon their term, they are only authorized in specific cases. If they fail to comply with strict requirements, they are then deemed to be entered into for an indefinite term.

As an exception to these general rules, the Ordinance now provides that any company employing up to 20 employees in France can hire anyone under a CNE, which allows the employer to terminate the contract without cause, provided it (i) sends a termination letter to the employee by registered mail with return receipt requested, (ii) complies with a short notice period - except in certain circumstances -, (iii) pays the employee an indemnity equal to 8% of all remuneration due to him or her up to the termination date, and (iv) pays an indemnity equal to 2% of same to the unemployment fund.

Recently, the flexibility and reliability thus offered to small or medium-sized businesses for the first two years seemed to be jeopardized owing to a series of Labour tribunal decisions in favour of the employee in disputes dealing with the CNE's termination within said two-year period. However, these lower courts' decisions can be easily explained by the specific circumstances of these cases (3).

More alarming for the future of the CNE are pending procedures on the issue of the Ordinance's compliance with international rules (1). Given these procedures and within the context of the coming presidential elections, the future of the CNE seems uncertain (2).

Yet, for employers, the CNE remains a useful tool, whose legal requirements need to be highlighted (3).

1. Compliance With International Rules

Although the Conseil d'État3 held that the Ordinance complies with international rules (1.1), procedures on this issue are pending both before the Paris Court of Appeal and before the World Labour Bureau (1.2).

1.1 Current compliance

The international rules at issue are contained in the World Labour Organization treaty #158 of June 22, 1982 concerning termination of the employment contract by the employer, which France ratified by a law of December 30, 1989 (the "Treaty").

Pursuant to the Treaty, an employee cannot be validly dismissed without cause4 and due process. However, Article 2.2 (b) of the Treaty provides that any member state can exclude from the scope of all or part of the provisions of the Treaty employees under a trial period or who do not have sufficient length of service, "provided that such minimum length of service is set in advance and reasonable".

It seems that it was the intention of the signatories of the Treaty to leave it up to each member state to decide what is meant by "reasonable length of service".

On the basis of these provisions as well as other international rules, constitutional rules and general law principles, several trade unions filed an action before the Conseil d'État requesting that the Ordinance5 be declared null and void.

The issue was whether a two-year time period during which the CNE can be terminated without cause is "reasonable" within the meaning of the Treaty, considering the purpose of the Ordinance, which is to encourage employers of 20 employees or less, in a context of a chronically high unemployment rate, to hire individuals having little to no professional references by facilitating termination during the first two years of employment.

In its decision of October 19, 2005, the Conseil d'État held that "given the goal of the exception [set forth in Article 2.2 (b) of the Treaty] and given the fact that the CNE is an indefinite-term employment contract, the two-year time period during which standard substantial and procedural dismissal rules are set aside can be considered reasonable within the meaning of these provisions."

1.2 Pending compliance procedures

Notwithstanding the decision of the Conseil d'État, other procedures were initiated against the Ordinance on the basis of its alleged non-compliance with the Treaty, both before other French courts (1.2.1) and before the World Labour Bureau (1.2.2).

1.2.1 The pending "Longjumeau" case

In the midst of the national debate on the Contrat Première Embauche (please see point 4 below), a Labour tribunal in a small town called Longjumeau became famous after ruling against the validity of a CNE on the grounds that the Ordinance does not comply with the provisions of the Treaty. Consequently, the tribunal held that the CNE at hand had to be construed as an indefinite-term employment contract.

This lower court decision, in contradiction with that of the prestigious Conseil d'État, was warmly praised by some and highly criticized by others.

This case is now pending on appeal. After the employer filed an appeal before the Paris Court of Appeal, the local Prefect moved to challenge the jurisdiction of said Court of Appeal over the issue of compliance of the Ordinance with the Treaty on the grounds that it deals with administrative law. Since, by decision of October 20, 2006, the Paris Court of Appeal nevertheless contended that it had jurisdiction over this issue, the Tribunal des Conflits6 had to arbitrate whether judicial or administrative courts should decide if the Ordinance complies with the Treaty, and ruled in favour of the judicial courts on March 19, 20077.

The case will therefore go back to the Paris Court of Appeal and, ultimately, will be heard by the Cour de Cassation. Although this would give rise to an awkward situation, the Cour de Cassation could take a different stance than that of the Conseil d'État and decide that the Ordinance does not comply with the Treaty. If so, all CNEs, including those entered into before its decision, would risk being construed as standard indefinite-term employment contracts.

Nevertheless, until the outcome of the current procedures is known, the CNE complies with the Treaty, as ruled by the Conseil d'État, employers only facing a potential risk that it might later on be ruled a standard indefinite-term employment contract.

1.2.2 Pending claim before the World Labour Bureau

In August 2005, a French trade union called FO also filed a claim before the World...

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