Unilateral modification of employment contracts: what risks do employers face? Introduction
Employee’s nullity action for unilateral modification Legal action for wrongful termination of employment contract
Within the scope of its management powers, an employer can freely impose new arrangements related to working time and working conditions, provided that these do not modify a substantial clause of the employment contract(1) to the employee’s disadvantage. Where the employer wishes to modify a substantial clause of the contract to the detriment of the employee, the latter’s consent is required in principle.
However, even without the employee’s express consent to the proposed detrimental modification, the employer can nonetheless impose new working conditions by following a specific procedure(2) similar to that applicable to dismissal with notice. During this procedure, the employee still has the right to decline the employer’s proposed modification. Two Court of Appeal decisions(3) illustrate the legal actions to which the employer may be exposed for imposing such modifications, depending on whether:
- the employer failed to comply with the legal procedure for detrimental modification of the contract; or
- the modification was illegitimate.
In the first case, the contractual modification will be deemed null and void, while in the second case the employer will bear the consequences of an abusive dismissal.
Employee’s nullity action for unilateral modification
If the employer does not respect certain legal requirements(4) during the unilateral modification procedure, the employee may bring an action before the Labour Court to nullify the modification, even after it has entered into force. If the unilateral modification is nullified, both parties will revert to their respective situations before the modification entered into force. Therefore, the implications of a nullity action may be significant for employers.
The risk of nullity thus looms over employers that have failed to comply with the procedure and deadlines prescribed by Articles L124-2 and L.124-3 of the Labour Code, particularly where the unilateral modification affects the employee’s pay. For example, the Labour Court(5) recently required an employer to pay salary arrears covering the period from May 2009 to February 2011. In this case, the employer had modified an essential clause of the employment contract – reducing the employee’s working hours, with a subsequent decrease in remuneration – without the employee’s express consent and without following the legal procedure for a unilateral change to the contract. The employee requested remuneration arrears for the period from January 2009 to February 2011. The Labour Court noticed that the request has been introduced on May 29 2012 and held that the claims regarding the salary due before May 2009 were inadmissible on account of the three-year time limit to claim salary arrears.(6) However, the employee’s nullity action, introduced more than three years after the salary reduction, was admitted, even though the new conditions had been applied during those three years without protest from the employee.
Nevertheless, the practically unlimited possibility to make a nullity claim has been challenged by the Court of Appeal. In a more recent case,(7) the employee’s remuneration was reduced by approximately 7% from May 2010. He filed a nullity action with the court for this modification in April 2012 (ie, two years after the modification had entered into force) and claimed remuneration arrears from May 2010. The Court of Appeal, after noting that a legal action for the nullity of a unilateral detrimental contract modification remains open after the entry into force of the modification, emphasised that the employee nevertheless must act within a “reasonable period”.
Therefore, the court affirmed that in principle, even if the employee does not immediately act, his or her silence does not constitute tacit agreement (except in exceptional circumstances). However, the employee must not remain passive and must initiate a legal action for nullity within a reasonable period. In this particular case, the employee had expressed no reservations about the modification; nor did he demand that his salary be maintained. Consequently, the employment contract was deemed to rely on the new conditions and the employee could not validly request the nullification of his wage modification more than two years after it entered into force. The Court of Appeal therefore confirmed the judgment of the Labour Court by declaring the employee’s nullity action unfounded, despite the employer’s violation of the procedure required by the Article L121-7 of the Labour Code.(8)
In contrast, an action for nullity introduced within two months of the unilateral modification is in principle admissible and founded.(9) Thus, although the concept of an ‘unreasonable period’ has not yet been defined, the employer must take into account the risk of a nullity action for approximately one year after the entry into force of a unilateral and detrimental modification which does not accord with the legal prescriptions.
Legal action for wrongful termination of employment contract
Where the employer has respected the legal procedure for unilateral modification,(10)the modification is considered effective and compulsory for the employee on expiry of the notice period, which must be stipulated in the notification letter.(11) If the employee does not reject the modification and continues to work, any subsequent legal actions will in principle be unsuccessful.(12)
However, before the unilateral modification becomes effective, the employee may contest and refuse to accept the modification. According to Article L121-7 of the Labour Code and case law, an employee’s refusal to accept the modification communicated to him or her constitutes wrongful dismissal.(13) This requalification as dismissal entitles an employee who refuses to accept a modification to a severance payment(14) at the end of the employment contract. The employee is also entitled to bring a legal action before the court to contest the validity of the modification.
The legal action is introduced in the same way as the legal action for compensation for wrongful termination of the employment contract.(15) The action must be introduced within three months of the dismissal notification or the motivating factor behind it, or within one year of the employee’s written claim to the employer.
Termination of the employment contract due to the employee’s refusal to accept the modification takes effect on the day on which the employee is notified of the modification. Thus, the employment contract ends when the modification enters into force (ie, the expiration date of the notice period).(16)
In practice, the employee’s resignation is not required if the employee informs the employer of his or her disagreement with the modification and leaves the company on the day of the modification’s entry into force.(17) If the employee does not resign, but continues to refuse to accept the new conditions of employment, the employer may consider a potential dismissal according to the circumstances.
(1) That is, an element of the employment contract that is considered essential – in effect, a determining element subject to the parties’ consent – at the moment of its conclusion (CSJ 22374, April 29 1999, Walck v Hôtel LE ROYAL). In principle, clauses relating to the legal subordination relation, remuneration and the employee’s functions and tasks are considered essential.
(2) Article L121-7 of the Labour Code. The employer must conduct a preliminary interview if it employs more than 150 employees before notifying the employee of the modification by registered letter, which must also stipulate the date on which the modification will enter into force. Within one month of receipt of the notification letter, the employee may request, by registered letter, explanation of the reasons for the modification. The employer must precisely answer this request by registered letter within one month of its receipt. The employer must explain and justify the reasons for the modification, which must be grounded on real and serious issues.
(3) Court of Appeal Case 38026, October 3 2013; Court of Appeal Case 39336, October 17 2013.
(4) The employer is exposed to a potential claim for nullity from its employee where Articles L124-2 (on the preliminary interview) and L124-3 (regarding the registered letter and notice period) of the Labour Code have been breached. However, the Labour Code does not expressly provide that the modification will be nullified if the employer does not answer the employee’s request for the reasons behind the modification. In this case, the result is equivalent to that of dismissal – the modification will be deemed unfair, but will not be nullified (see Court of Appeal Case 21501, June 18 1998).
(5) Labour Tribunal Case 1216/13, March 19 2013.
(6) Article 2277 of the Civil Code and Article L221-2 of the Labour Code.
(7) Court of Appeal Case 39336, October 13 2013.
(8) The notification of the modification was not sent to the employee by registered letter in accordance with Article L124-3 of the Labour Code.
(9) Court of Appeal Case 34387, December 3 2009, in which the modification was a change of function from cashier to order filler.
(10) Supra note 5 for the details of this procedure.
(11) According to Article L124-3(2) of the Labour Code, the notice period will vary depending on the length of the employee’s service.
(12) Court of Appeal Case 33326, July 20 2009.
(13) Court of Appeal Cases 30057 and 30400, March 29 2007.
(14) Court of Cassation Case 2645, June 18 2009.
(15) Article L.124-11(2) of the Labour Code.
(16) Court of Appeal Case 38026, October 3 2013.
(17) Especially Court of Appeal Case 38026, October 3 2013.