Global News Brief: France

Legislation May Impact Payouts for Retirement Indemnities

Legislation adopted by lawmakers in France could lead to an increase in the minimum indemnities payable upon voluntary retirement, although the original intent was apparently to target only severance payments.

The legislation was intended to make it more difficult for employers to carry out involuntary retirements. However, the text was vaguely written, leading some companies and industries to take the view that the higher severance indemnities are required for voluntary retirements as well.

The new legislation became effective at the end of July  2008, but the ambiguity did not come to light until late September, when the legal department of one of the biggest sectors in France (the metal industry) analyzed it in detail.

Companies should consult with their legal advisors to decide how to actually pay employees qualifying for voluntary retirement. Some employers may choose to make the higher severance payments; this will be more expensive, of course, but the employer can be certain that there will be no lawsuits. Because the new law has been in effect since the end of July 2008, any payments since then will need to be reviewed.

Other employers may choose not to apply the higher indemnities to individuals qualifying for voluntary retirement. However, an additional valuation to measure the impact of applying the higher severance payments may be needed in order to understand the potential financial impact if it turns out later that the higher payments are required. Accountants in France seem to be recommending that, for now, companies recognize the higher liabilities for voluntary retirement arrangements in their financial statements, regardless of their decisions about what to actually pay.

For further information, contact Gilles Dureuil, Paris, gilles.dureuil@towersperrin.com.