New rules on French unemployment benefits may affect negotiated terminations
New rules for the payment of French unemployment benefits, which were introduced from 1 July 2014, may have an impact on the ability of French employers to negotiate termination packages.
Waiting period for benefit payment changed
Before the new rules came into force, payment of unemployment benefits could be delayed for two main reasons: where payments were made in lieu of paid holidays or in the case of extra-statutory termination payments. A waiting period applied each time an employee received, upon termination of his employment contract, an amount higher than the legal minimum amount due. The waiting period was calculated according to the ratio between the amount paid and the daily reference salary of the employee, capped at 75 days.
Under the new rules, the waiting period is calculated according to the value of the extra-legal indemnities divided by 90 (the reference salary is therefore no longer taken into account), and the cap has been increased up to 180 days.
Most executives who negotiate a termination package will now have to wait at least six months before being able to benefit from unemployment benefits. Despite the advantageous tax and social security regime for termination indemnities in France, which remains a strong incentive for employees to negotiate upon termination, executives may in the future want to change the balance of the indemnities and salary they receive, in order to reduce the waiting period for unemployment benefit.
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