Calculation of profit-sharing challenged by the Unions: the French Supreme Court closes Pandora’s Box

The French Supreme Court (“Cour de cassation”) has just ruled on an important matter concerning statutory profit-sharing in a way which hampers attempts by staff representative bodies to challenge employers’ calculation of their special profit-sharing reserve.

In a ruling rendered on 28 February 2018, the Supreme Court overturned the decision of the Court of Appeal (“Cour d’appel”) of Versailles of 2 February 2016, which had found that the amount of the special profit-sharing reserve could be challenged by the Employment Court to which the case was referred by trade unions in cases where the employer is guilty of fraud.

In its decision of 2 February 2016 Wolters Kluwer France (WKF), the Court of Appeal of Versailles had declared the suit brought by the trade unions to contest the employer’s calculation of the special profit-sharing reserve to be based on legitimate grounds: the employer had undertaken a restructuring operation that had resulted, on account of a loan it had taken out, in the absence of any payments to employees under the profit sharing agreement.

The Court had deemed this restructuring operation a fraudulent manoeuver and had thus declared it unenforceable in respect of the amount of special profit-sharing reserve. As a consequence, the reserve was to be reconstituted and the sums wrongly subtracted from its net profits, in the form of interest payments on the loan contracted, reintroduced into these profits.

Such was the decision recently overturned by the Supreme Court.

The Court finds that the amount of net profits may not be contested by an employment Court to which the case was referred by the trade unions once this amount has been certified by a statutory auditor (or a tax inspector), even in cases where fraud or an abuse of rights is invoked by the trade unions.

This decision was much anticipated given the increase in litigation concerning profit-sharing, with trade unions or staff representative bodies contesting the amount in net profits used to calculate the sums paid out under the profit-sharing agreement on the grounds that this amount was fraudulently obtained.

Malik Douaoui

Malik Douaoui, Partner, has more than 20 years’ experience in social law. He advises his clients in individual and collective relationships management, as well as on the social aspects of […]