The combination of a corporate mandate and an employment contract

Combining an employment contract with their corporate mandate can be tempting for a manager who would like, through this, to benefit from the protection provided for employees by the Labor Code.

However, if the accumulation by a manager of his corporate office with employee functions in the same company has been accepted for many years, it nevertheless remains possible only in certain cases.

However, there are many managers who confuse these two statuses and grant themselves an employment contract in addition to their corporate mandate, without first checking whether the conditions of accumulation are respected.

However, before drafting an employment contract which could benefit the social manager, it is advisable to systematically ask yourself the following questions :

Will the employee functions correspond to actual employment?

First of all, the functions of employees must correspond to actual employment.
In other words, it will be necessary to ensure of the reality of employment.
It should be noted in this regard that the issuance of pay slips, the provision of a work certificate or social security coverage cannot, in themselves, be sufficient to justify the reality of salaried employment.

Could I prove that I exercise distinct technical functions that are clearly dissociable from those of the corporate mandate?

Secondly, it is necessary to be able to justify that the employment contract corresponds to technical functions.

Employee functions must therefore have a particularly technical character. They will imply attributions requiring particular knowledge.

The employee must therefore specify what technical functions he or she performed. For example, these may include the functions of technical director, the functions of sales manager by visiting customers and taking orders, or even accounting missions.

Technical employee functions must also be separable from the missions resulting from the corporate mandate.

In this regard, the functions linked to employment must not have as their purpose the representation of the company or the general administration of the company. Indeed,In the hypothesis where salaried functions would be absorbed by the corporate mandate, the accumulation would be irregular.

Would I be subject to a relationship of subordination?

Thirdly, as part of his duties as an employee, the manager must be placed in a state of legal subordination with regard to the company.

The relationship of subordination is characterized by the execution of work under the authority of an employer who has the power to give orders and directives, to control their execution and to sanction the failings of his subordinate.

The existence of a relationship of subordination will be determined by the circumstances of the facts, regardless of the will expressed by the parties.

This subordination link must only be justified for the part relating to technical functions.

He must therefore not have, in his capacity as agent, the most extensive powers nor enjoy complete independence in his activities.

The fact that the manager is subject to precise instructions, possibly formalized in writing, and is required to account for his technical activity, are the elements most often retained as indicators of the reality of the relationship of subordination.

Other indicators, such as the control of the working hours of the person concerned, the deductions from salary in the event of absence, or the implementation of disciplinary law against him, may possibly corroborate the existence of this link.

In order to secure the operation, it would be appropriate to draw up a mission sheet for the employee position and provide regular emails to support specific missions as well as regular reports from the employee manager.

It goes without saying that the manager who has technical functions in complete independence, without being subject to the instructions of another member of the company’s management, cannot claim to maintain his employment contract. 

Is this a fraud on the law?

The employment contract must not be concluded with the sole aim of evading the law.

Such a situation could arise for contracts aimed at circumventing the rule of the free revocability of directors by guaranteeing the manager the permanence of employment.

This will also concern the hypothesis where a corporate officer will benefit from an unjustified employee status while the accumulation conditions are not met with the aim, for example, of benefiting from guaranteed salary insurance in the event of the company’s failure.

Will I be paid for performing separate technical functions?

Fourth, remuneration must be paid for employee functions.
Remuneration must correspond to salary functions.
This remuneration must not be disproportionate.

The Court of Cassation was able to judge, concerning a manager, that such accumulation was not justified given that the remuneration for the functions of salaried technical director was disproportionate (Cass. com., July 12, 1983: Bull. civ. IV, no. 218).

Conversely, it should be noted that the corporate office is not necessarily remunerated.

Thus, if a manager can exempt himself from remuneration for the exercise of his corporate mandate, he must necessarily receive a salary for salaried technical functions.

Like the condition relating to the relationship of subordination, the existence of the reality of remuneration for employee functions will be analyzed at the factual level.

Can I benefit from an employment contract if I am a minority, equal or majority?

It is appropriate to check, before concluding an employment contract, whether you are a minority, equal or majority shareholder in the company’s share capital.

Concerning limited liability companies, the Court of Cassation accepts that the minority or non-associated manager can benefit from a combination of an employment contract and a corporate mandate.

A non-majority and equal partner manager may also combine both statuses.

On the other hand, a majority associated manager will never be able, in addition to his corporate mandate, to conclude an employment contract, given the lack of submission to a relationship of subordination.

Like the rules developed for SARLs, and unless otherwise provided in the statutes of the simplified joint stock company, a non-partner or minority and equal partner President may combine his corporate mandate with an employment contract if the conditions for accumulation mentioned above are met..

However, a majority Associate President will not be able to hold an employment contract if the statutes grant him significant autonomy in the exercise of his functions, since he will not be in a state of legal subordination.

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Is the combination of a corporate mandate and an employment contract possible in all companies regardless of their size?

The reality of a relationship of subordination will depend on the size of the company and the nature of the functions performed.

In practice, the smaller the company, the more difficult it will be to prove the reality of the employment contract that the manager holds.

Indeed, in a small or medium-sized structure, the technical functions relating to the employment contract are often “absorbed” by the responsibilities relating to the exercise of the corporate mandate.

Likewise, proving the existence of a relationship of subordination is more difficult, or even impossible in certain situations.

Such accumulation will never be authorized in the context of a single-member company (EURL, SASU), given the fact that the manager – sole partner would not be subject to any relationship of subordination, being alone in the company.

Concerning groups of companies, although no legal text regulates, and even less prohibits, the accumulation of corporate offices and employment contracts within a group of companies, the status of director of a company can, in certain cases, prevent the person concerned from being recognized as an employee in a subsidiary company.

This is an assessment of the facts which depends, in each specific case, on the extent of the powers held by the manager of the parent company over the subsidiary company.

What about the burden of proof?

The burden of proof of the existence or not of a contract of work is the responsibility of the person who avails himself of it.

The corporate officer must therefore demonstrate the exercise of effective employment characterized by the existence of technical functions distinct from his mandate, a relationship of subordination and specific remuneration.

The judges will assess in a sovereign manner, and in light of the facts involved, whether the existence of an employment contract is established or not.

It is therefore appropriate as soon as the employment contract is concluded, and with the help of a law firm, to put in place tools allowing you to protect yourself from any risk of subsequent reclassification.

Indeed, the consequences of irregular accumulation are not negligible, the corporate officer could in fact have to reimburse the salaries received under the employment contract, as well as the employer’s share of social security contributions.

Ultimately, the establishment by a manager of an employment contract can only be considered after an analysis of the latter’s situation.

Such an examination may prove difficult, given the complexity of the legal rules in this area.

In addition, the conclusion of an employment contract must be followed by compliance with the procedure for regulated agreements.

The manager of the company must therefore, when approving the annual accounts, draw up a special report presenting the agreements entered into during the financial year and approve them, at the risk of the manager benefiting from such an agreement having to take responsibility for the harmful consequences which may have occurred.

It is therefore advisable to seek support and advice from a Law Firm in this process.

by Anouk Thomar