The professional securing contract ('contrat de sécurisation professionnelle' - CSP), is a new single reclassification system, the purpose of which is to organise the setting up of a path back to employment. It replaces the Personal Placement Agreement (Convention de Reclassement Personnalisé (CRP)) and the Professional Transitional Contract ('Contrat de transition professionnelle' - CTP) from which it has been partly inspired :
 -  the companies involved have less than 1000 employees or are undergoing an economic recovery programme or a winding up by decision of the court;
 -  the CSP must be offered by the employer to any employee for which he is considering an economic redundancy layoff (including, under certain conditions, if the employee has less than one year of seniority);
 -  an employee who adheres to a CSP results in breaking off the labour contract;
 -  in the event this is not proposed by the employer, it is the responsibility of the Pôle emploi (Job search Center) to offer the employee the possibility of signing a CSP;
 -  during the duration of the CSP (a maximum of 12 months), the employee involved receives a special allocation from the Pôle emploi; the employer makes a financial contribution to the CSP.

Law 2011-893 of 28 July 2011 Art. 41 to 44; Labour Code Art. L 1233-65 to L 1233-70

Consequences: an employer who did not propose a CSP to an employee who has been laid off for reasons of economic redundancy must pay the Pôle emploi a contribution that is equal to 2 months gross wages, increased up to 3 months of gross wages when the former employee decides to sign a CSP when proposed by the Pôle emploi.

The salaries paid by a holding company are subject to payroll tax if they are taxable in the wages and salaries category and if the holding company is not liable for VAT or was not liable for it on at least 90% of its turnover during the calendar year preceding that of the payment of the salaries (CGI art. 231.1 of the French Tax Code). A mixed activity holding company with a financial sector that is not subject to VAT (acquisition and management of equity shares) and a “services to subsidiaries” sector that is subject to the tax, is, as a general rule, liable for payroll tax on a portion of the salaries it pays. That portion is calculated by applying a general tax liability ratio equal to the existing ratio between the non VAT sales figure and the company’s total sales figure.

As regards the salaries paid to mixed activity holding company executives, the Council of State has for the first time retained the following principles:
- the law confers on the managing director of an SA (public limited liability company) or SAS (simplified joint stock company) the most extensive powers in the management of the company and an overall responsibility on the chairman of the executive board; these powers are therefore presumed to extend to the financial sector that is not subject to VAT which results in subjecting the pay of its executives to payroll tax according to the company’s general tax liability ratio;
- however, the company may provide proof of the contrary by demonstrating that some of its executives have no remit in the financial sector, particularly when, considering the organisation adopted within the company, one of them has no control or responsibility in the sector; in that case, the pay of that executive must be considered as coming entirely under the sector that is subject to VAT and, therefore, placed outside the scope of payroll tax.
CE (Council of State) 8 June 2011 Nos. 331848, 331849, 341018 and 340863

The recommendation: In order to provide proof that an executive of a mixed activity holding company has no legal responsibility in the financial sector, the company may cite the following elements:
> company statutes, decision of the executive board or labour contract strictly limiting their powers to the “services to subsidiaries sector”,
> appointment of a distinct executive for each of the two sectors.

Please note, the Council of State only retains the legal remit of an executive and considers that their sole real activity, given in particular the activities entrusted to third parties, is not enough.

An associate of a simplified joint stock company (SAS), who was also chairman and sales manager, undertook as part of the shareholders’ agreement concluded with other associates to dedicate all his efforts to the exclusive development of the company for a 24-month period.
One year later, he was relieved of his duties, then dismissed, and lost his associate status. He was then hired by a company with competing business. The SAS considered this an act of unfair competition and brought proceedings against its former chairman for reparation of the damage esulting from the violation of the exclusivity clause contained in the shareholders’ agreement.

The Court of cassation rejected the SAS’s claim. It noted that the exclusivity clause could not apply independently of the collaborative relationship that had existed between the company and its former director. Given that said relationship had been broken off on the SAS’s initiative, a circumstance that was not provided for in the shareholders’ agreement, the associate was unable to fulfil his obligation and the exclusivity clause contained in the agreement had become null and void.

Cass. com. 4 October 2011 No. 10-10.548 (No. 940 F-D).

Recommendation : During the negotiations of a shareholders’ agreement, it is advisable to make provisions for the consequences of a termination of appointment of an executive shareholder with regard to the commitments he agreed to in the agreement. In particular, two types of distinct clauses may be considered:

• an exclusivity clause that applies as long as the manager holds office within the company and,
• a non-competition clause that takes effect once the manager ceases his duties.

When the whole of the shares in an SARL (French private limited company) are being transferred, the transferor warrants to hold the purchaser harmless against all new liabilities not shown on the balance sheet for the financial reference period, whose cause or origin is attributable to events prior to the closing date of the said financial period.
One court of appeal has found that the manager’s remuneration which the transferor awarded himself for the period between closure of the reference period and the actual date of the transfer, was excluded from the warranty against liability claims. The Court of Cassation (France’s highest court), however, has found to the contrary that in the case of monies paid by the SARL to the transferor in remuneration for his duties as manager, to which he had acceded several years beforehand, the cause was prior to the closing date of the reference period and thus came within the scope of the warranty.

Cass.com. 12 July 2011 No. 10-26.125 (No. 704 F-D).

The consequence: The solution would certainly have been different had the warranty against liability claims expressly excluded all remuneration paid for duties carried out subsequent to closure of the reference period. More generally, we need to remain particularly vigilant on the use and combination we make of the concepts of “liabilities”, “show on the balance sheet” and “cause prior to”, if we want to avoid any chance of a literal interpretation placing the transferor at risk compared to what he actually intended to warrant.

Within the frame of a share purchase agreement, a seller’s guarantee would provide that in the case where the company which shares are sold receives a notice of tax or Social security audit, the purchaser shall inform the seller, by registered letter, within 15 days at the latest, following receipt of such notice, failing which he will forfeit all his rights.

After receiving a notice of a tax audit from the tax authorities, the purchaser only informed the seller 50 days later, then claimed the implementation of the guarantee on the basis of the tax arrears. The seller disputed the enforcement of the seller’s guarantee by arguing that the purchaser had not informed him thereof within the time limit provided for in the agreement. The Court of Cassation found in his favour.
Cass. com. 15 March 2011 No. 09-13.299 (No. 266 F-D).

The recommendation: If a company receives notice of tax or Social security audit, the purchaser of such company must comply with the seller’s time limits and information procedures to the letter as provided for in the seller’s representations & warranties. This is particularly true when the guarantee expressly provides that if the seller’s information time limit is not complied with, the rights under this guarantee would be lost.