IS IT STILL INTERESTING IN CONCLUDING A CONVENTIONAL TERMINATION?

In order to limit the use of conventional termination to terminate the employment contracts of employees of retirement age, a new social regime for compensation paid in the context of an amicable termination will come into force from 1^st September 2023. Will this change lead to a reduction in the use of conventional terminations?

Conventional termination is a method of terminating an employment contract which has been very successful since its creation.

Introduced by the law modernizing the labor market of June 25, 2008, the conventional termination, which allows the employer and the employee to jointly agree on the conditions of the termination of the employment contract which binds them, has met with a certain success since that date.

This termination method, possible for employment contracts of indefinite duration, presents advantages for both the employer and the employee.

On the employer’s side, this is a secure method of termination since its validity can hardly be called into question after signature. From a procedural point of view, this termination method is undoubtedly less demanding than a dismissal procedure.

On the employee’s side, the contractual termination allows them to quickly leave a job while benefiting from unemployment insurance and end-of-contract benefits comparable to those received in the event of dismissal. Please note, however, that the employee will only receive Pôle Emploi compensation at the end of a waiting period, determined based on the compensation they have received, within a limit of 5 months.

CONCRETELY, HOW TO CONCLUDE A CONVENTIONAL TERMINATION?

In practice, the employer and the employee agree on the principle of a conventional termination during one or more interviews during which the employee can, if he wishes, be assisted[1], in the same way as in the context of a dismissal procedure. The employer may also be assisted.

A termination agreement is then drawn up in order to specify its terms as well as the amount of the “specific conventional termination compensation” which will be paid to the employee. Under the terms of article L1237-13 of the Labor Code, the amount of the specific compensation for conventional termination cannot be less than that of the compensation provided for in article L.1234-9 of the Labor Code, that is to say the amount of legal severance pay.

The parties also provide, within the framework of the conventional termination agreement, the date of termination of the contract which marks the departure of the employee from the company. This termination cannot, however, occur before the day after the day on which the agreement is approved by the administrative authority.

In fact, it therefore takes approximately 1.5 months for a conventional termination to be implemented, this period taking into account:

• Interview(s) with the employer followed by the signing of the contractual termination,
• The withdrawal period of 15 calendar days available to the employee and the employer from the date of signing the conventional termination,
• The period of 15 working days available to the administrative authority to examine the request for approval of the conventional termination from the day after receipt of the request for approval by the most diligent party via the site TéléRc.

At the end of this procedure, in the absence of specific notification from the administration, approval is deemed to have been acquired. Please note that, for protected employees, a specific procedure must be implemented and termination will remain subject to authorization from the labor inspector.

As described above, the use of conventional termination is a solution that must be considered when a termination of contract is desired by the employer or the employee, in the absence of dispute or economic difficulties.

However, the statistics have highlighted a significant increase in the number of conventional terminations among employees aged over 50 (+3% in 2019, +3.2% in 2020, +4.1% in 2021 according to DARES). This observation is explained by the favorable social regime of conventional termination compensation compared to the social regime of retirement compensation.

For this reason, Law No. 2023-270 of April 14, 2023 on pension reform provides for a unification of the social system for retirement compensation and conventional termination compensation from 1^st September 2023 with the aim of promoting the continued employment of seniors.

To understand this reform, it is therefore necessary to compare the social regime applicable to conventional termination compensation and retirement compensation before and after 1^st September 2023.

Some explanations on the new social regime applicable to conventional terminations after the 1^st September 2023

Currently, the social regime of the conventional termination compensation of the CDI depends on the age of the employee with whom the termination is concluded.

When the employee is not of retirement age, the approved conventional termination compensation is subject to the same social security regime as the severance compensation. The compensation is thus excluded from the social security contribution base for its non-taxable portion, up to a maximum limit of twice the annual Social Security ceiling (PASS) (art. L. 242-1 of the Social Security Code). The employer must, however, pay the 20% social security flat rate to the URSSAF for the portion of the compensation exempt from social security contributions, regardless of whether it is subject to the CSG/CRDS. (art. L. 137-15 of the Social Security Code).

Simplified example:

• Conventional termination compensation: €100,000 gross
• Amount of conventional compensation exempt from social security contributions corresponding to 2 PASS: €87,984
• Social contributions applicable on €12,016 (€100,000 – €87,984)
• Social package at 20% applicable on €87,984

On the other hand, if the employee can liquidate his retirement at the time of termination, the conventional termination compensation of the CDI is fully subject, from the first euro, to Social Security contributions as well as to the CSG and the CRDS, without reduction (art. 80 duodecies of the General Tax Code). In this case, on the other hand, no social security package must be paid by the employer to URSSAF.

If we take our example again, only social security contributions will be applicable here on €100,000.

In terms of retirement, the compensation due to the employee is subject to the same social regime as the severance pay. Until now, the employer was, however, obliged to pay the URSSAF a social package of 50% based on the total amount of compensation paid to the employee (CSS, art. L. 137-12).

• Conventional termination compensation: €100,000 gross
• Amount of conventional compensation exempt from social security contributions corresponding to 2 PASS: €87,984
• Social contributions applicable on €12,016 (€100,000 – €87,984)
• Social package at 50% applicable on €100,000

This significant social tax could justify the employer instead resorting to a conventional termination, the regime of which was more favorable, for employees of retirement age.

As of September 1, 2023, a new employer contribution of 30% will be introduced. This contribution will apply in a unified manner to conventional termination compensation, regardless of the age of the employee concerned, and to retirement compensation.

Will therefore be subject to an employer contribution of 30% from 1^st September 2023:

• compensation paid as part of a conventional termination of a permanent contract for their part excluded from the social security contribution base,
• compensation paid as part of the retirement of the employee at the initiative of the employer, for their part excluded from the basis of social contributions.

If we take our example again:

• Compensation for conventional termination or retirement: €100,000 gross
• Amount of conventional or retirement compensation exempt from social security contributions corresponding to 2 PASS: €87,984
• Social contributions applicable on €12,016 (€100,000 – €87,984)
• Social package at 30% applicable on €87,984

The stated objective of this reform is to limit the use of conventional terminations for senior employees in order to keep them in employment. Correlatively, it also leads to an increase in the social security package which is due by the employer for all conventional terminations regardless of the age of the employee concerned.

It is still early to analyze the impact of this reform on the use of conventional terminations. If the retention of seniors could be favored, we may fear that employers will be less inclined to conclude contractual terminations due to the increase in the applicable social package.

[1]
• either by a person of their choice belonging to the company’s staff, whether an employee holding a union mandate or an employee member of the staff delegation to the social and economic committee (CSE), or any other employee;

• or, in the absence of an institution representing staff in the company, by an employee advisor chosen from a list drawn up by the administrative authority. This list can be consulted at the Regional Directorate for the Economy, Employment, Labor and Solidarity (DREETS – DDETS), precisely in each labor inspection section, and in each town hall.

By Amela ARDANUY