Comparison Between USA and France Employment

Employees are a fundamental asset to any company, thus the working conditions and relations have been regulated throughout the last several decades and all around the world to define the different rights and duties of the employers and the employees.

Depending on each country’s culture and politics, employment laws have been more or less “liberal” or strictly regulated in each region of the world.

In this report, the major aspects in relation with the regulation of employment contracts, forms, executions and terminations in France and the USA will be presented. The major differences between the two countries’ laws will be highlighted with an emphasis on covenants not to compete and their implication for any working contract termination. Some real legal cases in both countries will be presented for illustration.

1. Employment law in France

Regulations for the working relations emerged in the last century and a half in France. Those are called employment laws or more generally social laws (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.387). Depending on the political and economic situations, those regulations have been more or less favorable to the employees.

Those work regulations were first meant to protect the employees: Their physical integrity which was threatened by the hard working conditions of the nineteenth century and their dignity later by the recognition and condemnation of moral and physical harassments.

Employment laws in France also regulate the labor collective relations and protect the employees from unemployment and precariousness by strictly regulating the social contributions of the employers and the layoffs’ conditions.

The different sources of employment regulations are first the law, the regulations and orders or decrees. Some other aspects are also regulated by international sources like treaties and conventions issued by the International Labor Organization and the European Union (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.388).

Administrative bodies like the labor inspection administration and the “Direction Départementale du travail, de l’emploi et de la formation professionnelle” are in charge of inspecting and ensuring that the different regulations are respected. Judicial bodies are to be referred to as well for labor conflicts. Those can be the repressive justice courts like the Police court, the court of first instance of general jurisdiction (“Tribunal de Grande instance”) for collective actions, the court of first instance of limited jurisdiction (“Tribunal d’instance”) for representatives’ elections for example, and the labor relations board (“Conseil de prud’hommes”) which is the most specific court for labor relations in France (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.389).

1.1. The employment contract

An employment contract is defined in the French legal system by a subordination link between two parties (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.394). An employee is legally and financially subordinated to an employer as soon as he is integrated into an active organization and accepts to be bound to certain control: an employee receives some instructions and reports to his employer about his activity.

Some legal characteristics define however the employment contract as per the French law (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.395):

The contract has to be consensual. The existence of a written form is not necessary, only if the employer wants to define some clauses like for mobility and non-competition covenants.

The employment contract is for private jurisprudence and does not concern state employees. It is synallagmatic / bilateral and requires reciprocal duties and rights.

The contract is agreed intuitu personae, which means that it concerns the person of the employee who engages in it.

The contract is also a membership agreement. The employee adheres to what is reported in the contract and does not have any choice other than accepting or refusing what is proposed by the employer.

The employment contract in the French law is also a contract for “successive execution”, which means that its actual execution takes place on a more or less long period in time. The contract can thus be modified in the time period of its execution or be adjourned.

Finally, an employment contract is an onerous contract. The counterpart of the work to be performed by the employee is generally a remuneration to be provided by the employer.

1.1.a. Validity conditions

Some restrictions, like the obligation to have a written contract and to follow some administrative formality, might exist for some kind of contracts, especially to prevent some employers from hiring non-legal immigrants or non-capable persons like children. The validity of a contract does however generally depend on only four conditions (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.399).

The first and most important condition is capacity. Young persons between 14 and 16 can be hired during school holidays for a duration that does not exceed half of the vacations, and for small labors and under strict conditions. From 16 to 18, a person can conclude an employment contract if his or her parents do not contest such a contract. An adult who is under tutelage can not conclude any working contract.

The second condition for the validity of an employment contract is the willingness of both parties. This willingness has of course to be free of any vice or pressure.

The remaining two conditions for validity concern the contract itself. Its subject or the nature of the activity concerned by the employment contract must be in accordance with the public policy and with the public decency. Second, the brief of the contract or the counterpart to any service or remuneration has to be effective.

1.1.b. The hiring freedom principle

There exist some restrictions in the French legal system for the freedom to work (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.401). Some of them are purely law-related, like age limitations and the banning for women to work in mining, in quarries or in jobs that imply handling heavy loads.

Some restrictions are economical. Holding several jobs or hiding one’s job to the administration is prohibited. Some employer-related immigration laws also exist to protect the workers from the illegal labor.

Some other restrictions are finally contractual. This concerns mainly the covenants not to compete which will be covered later in this report.

All the same way, some restrictions exist in the French legal system for the freedom to hire.

An employer has the obligation to hire in priority former employees of the company who have been laid-off, or those who are still employed by the company and who desire to move internally. The employer has for this the obligation to inform internally about any new vacancy in the corporation.

Every employer has also the obligation to allow six per cent of the staff for handicapped persons, following the tenth of July 1987 law.

Following some other equal opportunity employment laws, any race, origin, Pregnancy, sex, religion, Handicap, union or other discrimination is also prohibited.

1.2. The employment contract forms

The typical and most common employment contract that exists in France is the permanent or open-ended contract (“Contrat à durée indéterminée / CDI”). This form of contracts represents almost 90% of the employment contracts in France (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.404). This kind of contract binds the employer to provide a continuous job to the employee and greatly restricts any layoff.

Other common forms of contracts are the fixed-term contract (“Contrat à durée déterminée / CDD”) that has fixed time duration and the temporary contract where an employee of a specialized third-party company works temporarily for other companies.

Some other forms have been introduced recently by the legislation, and are much less common than the cited ones above. The first of them is the new hiring contract (“Contrat nouvelle embauche / CNE”) introduced in 2005 and which allows any unilateral breach of the contract during the first two years of work. This was meant to provide a higher flexibility to the employers who were prohibited from unilaterally laying-off any employee under a permanent contract. The same law promulgated in 2005 also introduced the time-share employment contract. By means of this type of contract, a third party company can put at other companies’ disposal qualified personnel that they can not hire themselves.

1.3. The employment contract execution

The French law regulates the execution of any employment contract, including its modification, adjournment, the working hours and the remuneration (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.417).

Therefore, a contract can not be unilaterally modified except under certain circumstances. An employer can only modify a working contract if the modification is justified by the company’s interests. Any modification in the working hours, place of execution or the remuneration can not be imposed to an employee. If the latter refuses a proposed modification, the employer has either to withdraw the proposition or fire the employee only if the proposition is necessary for the company’s interests.

In the case of a modification of the working place, even if a mobility clause or obligation is formally present in the contract, the employer has to justify that this modification is in the company’s interest.

The same reasoning concerns any modification in the employee’s remuneration. This represents a contract modification and can be refused by the employee.

The procedure to be followed by the employer (or the employee) to request any modification in the employment contract or the working conditions is also quite strict and has to be followed precisely: A registered letter with acknowledgement of receipt is mandatory for any communication between the two parties.

1.4. The work duration

Work duration represents the amount of time dedicated by an employee to his professional activity (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.427). This duration has been successively reduced from 84 weekly hours in year 1900 to finally 35 hours following the “Aubry II” law (19 January 2000).

In addition to those regular working hours, an employee has the possibility to work overtime, but within certain limits and with a dedicated compensation.

The law also regulates the rest time: Every employee can benefit from five weeks of vacation per year, in addition to some vacation days to compensate for the “Aubry II law” if he or she works more than 35 hours per week.

A weekly rest is also mandatory in the French legislation. Its duration can not be less than 35 successive hours.

1.5. The remuneration

The wages are also heavily regulated in the French legal system. The salary of an employee has to paid by the employer on a monthly basis at the maximum (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.450). The amount of any remuneration, except for certain specific situations that might be defined in a convention or an agreement, can not be less than a guaranteed minimum wage (“Salaire minimum interprofessionnel de croissance / SMIC”) defined by the government.

Some specific regulations are also present in the French law to protect the employees’ salaries from the employers, the employers’ creditors and from the employees’ creditors as well, and to regulate the other different forms of remuneration, like the employees’ profit-sharing schemes, the participations and holdings, the corporate savings plans and the employees’ share ownership.

1.6. The contract termination and its effects

Each employment contract generally includes a trial period during which the contract can be terminated unilaterally (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.461). The duration of this trial period is not defined by the law, rather by the collective agreements that partly regulate each activity sector.

This trial period can however be extended in the case where the employee was not able to prove himself.

After the trial period, an employment contract can be cancelled in some situation by a judge. This procedure is however very rare.

Some specific procedures for an amicable bilateral breach of contract do also exist in the legislation.

The employer has also some specific possibilities to layoff one or several employees: serious fault of the employee, insufficiency and economic downsizing. In this latter case the employer has to provide allowance to the laid-off employees.

Here also, very strict regulations and procedures have to be followed by the employer.

An employment contract can also be terminated unilaterally by the employee through resignation. In this case, the employee does not benefit from any allowance like in the case of a layoff. And although the employee does not have the obligation to justify the resignation, he or she has the obligation to respect a notice which duration is defined in the collective agreements.

In any case (unilateral or bilateral breach of the contract), the termination of an employment contract induces some effects for the employer and the employee (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.510).

The employer has to pay any credence to the employee, in addition to an eventual allowance. He also has the obligation to provide to the employee some documentation as a proof of employment and a certificate in order for the employee to perceive some unemployment benefit.

The employee has to provide the employer with a receipt attesting that he has his account settled.

The other main restriction for the employee in the case of the termination of an employment contract might take place in the case where the contract did contain a covenant not to compete. This aspect will be covered in more detail in the following chapters.

2. Employment law in the USA

The American regulation defines a working relationship as a written or formal agreement between two parties, one of them agreeing to perform some activity for the benefit and under the control of the other party (the employer), for a counterpart or a compensation, that has not the obligation to be a remuneration or salary (Twomey, Jennings and Fox, 2005, p.795).

2.1. The employment contract and its forms

An employment contract, as stated earlier, is an agreement, either written or not, that links an employer to an employee. This contract is therefore subject to the same principles and regulations set by the American law for contracts (Twomey, Jennings and Fox, 2005, p.795). “Subject to statutory restrictions, the parties are free to make a contract on any terms they wish”.

Therefore, the employer and the employee have freedom to make or not a contract, this contract is a legally enforceable agreement, and finally the law ensures that lawful expectations are met or remedies are provided (Emerson, 2010, p.12).

Also, an employment contract is therefore constituted of an offer, an acceptance, a consideration, mutuality, a capacity and has no form restriction or obligation.

The American law however distinguishes individual employment contracts from collective bargaining contracts (Twomey, Jennings and Fox, 2005, p.795).

An individual employment contract is a one binding two parties who are free to set the contract’s terms.

A collective bargaining contract is a one where representatives of the employees, generally union officials, bargain with one or several employers for the benefit of the employees they represent. The bargaining may concern the identification of the work to be performed by the employees, the wages and benefit clauses, the promotion and layoff clauses, a management right clause and/or a grievance procedure allowing impartial labor arbitrators to decide on labor conflicts.

As stated by Emerson (2009, p.407), there are competing themes and Philosophies about more or less regulating the employment in the USA. The freedom of contract, the rights of contract and the market freedom principles tend to justify less strict regulation of employment. The imbalance of power between the employer and the employee, the inalienable rights and level playing field principles tend on their side to call for more regulation of employment to protect the weaker party even from something he or she agreed on.

The Civil Rights Act of 1964, the Age Discrimination in Employment Act and the Americans with Disabilities Act prohibit any race, origin, Pregnancy, sex, religion, Handicap, union or other discrimination (Emerson, 2009, p.410).

2.2. The contract execution and the work duration

All of the aspects related to the contract execution and work duration are those specified in the employment contract.

There are no work duration restrictions specified in the American legal system, apart from some occupations like airline pilots and truck drivers. Such aspects of employment conditions are generally bargained by the union representatives.

The US Department of Labor enforces however some federal laws pertaining to work hours through its Wage and Hour Division. This division “enforces federal minimum wage, overtime pay, recordkeeping, and child labor requirements of the Fair Labor Standards Act (FLSA) and the labor requirements of the Davis-Bacon and Related Acts, the McNamara O’Hara Service Contract Act (SCA), the Contract Work Hours and Safety Standards Act, and the Copeland Anti-Kickback Act” (U.S. Department of Labor Internet site, 2010).

2.3. The remuneration

The employee has some duties that are determined in the employment contract (Twomey, Jennings and Fox, 2005, p.798). The law however specifies some obligations, like the service that is specified in the contract and that the employee has the obligation to perform, the trade secret that must not be disclosed by the employee and the inventions and discoveries made by the employee that are to be owned by the employee unless otherwise specified in the employment contract. If such a clause is not specified in the contract, the employer has however the “shop right” which means that he can use the invention or discovery in its operations without cost.

On the other hand, each employee has some rights, including compensation.

Also, employees who are engaged in interstate commerce are covered by the Fair Labor Standards Act (FLSA) which is enforced by the U.S. Department of Labor described in the preceding chapter. Those employees cannot be paid less than a specified minimum wage.

2.4. The contract termination and its effects

The employment-at-will doctrine is common in the American labor. By this principle, any party (employer or employee) can breach an employment contract unilaterally without a need for a reason or a justification (Emerson, 2009, p.408).

The employer has however some restrictions to fire an employee: First there might be an implied contractual restraint in a personnel manual or an employment application for example that might be set by the employer to gain the employees’ loyalty. Second, an abusive discharge, where an employee is laid-off when he refuses to engage in an action against public policy, is prohibited by the American law.

The main legal obligation for an employer who fires an employee is to pay wages to the expiration of the last pay period, unless otherwise specified in the employment contract (Twomey, Jennings and Fox, 2005, p.798).

Obligations for the employee in case he or she breaches the contract are those specified in the contract. One of those can be the obligation not to work for a competitor for a given amount of period. This kind of restraint is present in covenants not to compete.

3. Covenants not to compete

Non-competition agreements or covenants not to compete have been becoming more and more common in the last years (Randall, 2010). These kinds of agreements concerned only top executives in the past; in today’s competitive world, scientists, technicians and sales people are more and more asked to sign such agreements when being hired for a new job.

This can be explained by the increased employee mobility, the inherent limits of employee loyalty, and the increasing reliance on technology (Gutierrez, Neguse and Collis, 2010).

A covenant not to compete is “the business version of a prenuptial agreement” (Randall, 2010). Written part of an employment contract, it binds the employee “not to enter into certain forms of competition with the employer for some period of time after employment has ceased” (Estlund, 2006).

3.1. The French legal system

In the French law, a covenant not to compete is an agreement which has to be included in the employment contract or in a collective bargaining agreement, by means of which an employee commits not to work for one or some competitors of the employer(s) during a defined time period, in a defined area and in a defined field of activity after the termination of the employment contract, be it unilateral or bilateral (Fishelson, 2004). The French Supreme Court, on July 10, 2002, (Cass.soc. July 10, 2002 n°2723, 2724, 2725, RJS 10/02 n° 1119) defined five cumulative conditions for the validity of a covenant not to compete: The agreement must be essential to protect the employer’s interests, must be limited to a defined period of time, must be limited to a defined geographic area, must define an activity corresponding to the employee’s job characteristics and must define a financial compensation or counterpart for the employee.

The Supreme Court also defined some sanctions to any breach of such a non-competition clause. If the employer does not provide the financial compensation, the employee is no more bind to the agreement.

If the employee, on his side, violates the non-competition clause, the employer has no more any obligation to provide the financial counterpart. He can in addition refer the matter to the labor relations board (“Conseil de prud’hommes”) and obtain damages from the employee and the new employer (Lefèbvre, Mollaret-Laforêt, Guiter and Robbez Masson, 2006, p.523).

The French legislation also distinguishes the non-competition agreements from other similar clauses (http://juristprudence.online.fr/claus2.htm, 2002). The former must not be confused with the loyalty obligation of each employee that ends with the termination of the employment contract, the exclusivity that prohibits any employee from working for another employer during the time period of his employment contract, the non-solicitation that prohibits a former employee from prospecting his former employer’s customers, the secrecy that any employee must follow even without any written clause, the lifetime commitment that is illegal, and the training reimbursement where an employee, who has received some special training by his employer, engages to stay with the employer for a defined period of time or to reimburse the employer the (justified and limited) training expenses.

3.1.a. Moline, Petrovic and Rabito vs. MSAS cargo international case

Mr. Moline, Mr. Petrovic and Mm. Rabito were employed by the “Heppner transitaire” group, which has been acquired by the MSAS cargo international company on March the first, 1991. After the acquisition, the three employees signed new contracts with the acquiring company that including covenants not to compete.

Mr. Moline, Mr. Petrovic and Mm. Rabito resigned from the MSAS cargo international company on February 21, 1994, March 16, 1994 and January 24, 1994 respectively. They then have been hired by a competitor of the MSAS Company, the “Office maritime monégasque” company.

MSAS filed suit against the three employees for non respect of their non-competition agreements.

The appeal court stated that as the signed covenants not to compete did not include any financial counterpart, they were void, and dismissed the plaintiff’s claim for damages: “Cass. soc. 10/07/02 arrêt n° 2725 pourvois n° 99-43.334 à 99-43.336 MM. Moline, Petrovic et Mme Rabito” (http://juristprudence.online.fr/claus.htm, 2010).

3.1.b. Other cases

Two other cases can be cited to illustrate the French legislature for the covenants not to compete:

The first case concerns a company that filed suit against its former General Manager who signed a sales agreement to purchase a competing company before the end of the duration mentioned in his covenant not to compete (Habriche, 2007).

The Court of Cassation (Cass. soc., 17 Jan 2006, n° 04-41.038) dismissed the plaintiff’s claim for damages as the defendant did only engage in a preparatory action without any definitive engagement. The court also commanded the plaintiff to continue providing compensation for the non-competition clause.

The second case concerns an employee who has signed a covenant not to compete with a financial counterpart equal to one tenth of a monthly salary for each worked month. At the time of his resignation, the total amount of the compensation equaled 2,4 month-salary.

The employee contested the validity of this financial counterpart at the labor relations board (“Conseil de prud’hommes”).

The board reported that the financial counterpart in a covenant not to compete must not be derisory, and decided the concerned covenant to be void. The judge appreciates whether a financial counterpart is derisory or not: Cour de Cassation decree, November the 15th 2006 (Habriche, 2007)

3.2. The American legal system

In the American legal system, as in the French one, a non-compete covenant binds an employee not to enter into any form of competition with the employer after the termination of the employment contract.

However, the American legal system also considers covenants not to compete that might be set up with a contract to sell a business. A covenant not to compete “that is ancillary to the sale of a business is evaluated differently than one that is derived from an employment relationship because of the difference in the nature of the interests protected” (Kessler, Bass and Yeargain, 2007)

Moreover, the enforceability of a non-compete covenant vary from state to state. Estlund (2006) reports that the enforceability ranges from states that completely prohibit any “postemployment restraint to competition”, like California, “to the strict scrutiny states, to the more deferential rule of reason states”. And generally, even in the states that tend to enforce the non-covenant agreements, the courts tend to verify that the agreement does preserve the best interest of the employer.

The American legislation also distinguishes the non-competition agreements from other similar clauses (Gutierrez, Neguse and Collis, 2010, p.66). The former must not be confused with the non-solicitation provision that “prohibits the departing employee from hiring or assisting in hiring another employee of the former employer”, the nondisclosure of confidential information provision that “forbids employees from revealing proprietary information outside the company, either during or following their employment” and the garden leave provision which is a “special type of restrictive covenant whereby the employee remains under contract, on the payroll, for a fixed period following the employee’s resignation notice”.

3.2.a. Craig Hufford vs. Individual Taxes Etc. case

Craig Hufford used to prepare returns for his family and himself. He therefore applied and worked temporarily as a seasonal employee of Individual Taxes Etc., “a franchisee that operates more than 30 Jackson Hewitt Tax Service locations in the St. Louis region” (Giegerich, 2010).

His contract included a non-compete clause prohibiting him from working locally as a professional tax preparer for two years after the termination of his contract.

“In a decision issued on Sept. 3, Circuit Court Judge John Ross ruled the company’s former employees possess no specialized knowledge […] to prepare returns” and declared the covenant not to compete to be void.

3.2.b. Mikhail Malyshev vs. Citadel LLC

Citadel LLC, a hedge fund firm based in Chicago, filed suit against Mikhail Malyshev, a former executive within the company, arguing that he violated non-compete agreements with Citadel as he and another former Citadel executive set up a new high-frequency trading firm called Teza Technologies LLC (Anonymous, 2010).

Mikhail Malyshev finally paid a $1.1 million fine for breaching a court order to preserve documents tied to the legal battle.

3.2.c. Motorola vs. Apple

In July 2008, Motorola Inc. filed suit against Mike Fenger, the former VP for international devices sales within the company, for violation of a covenant not to compete related to stock options, as he moved to Apple Inc. to help it with its global market expansion by leading the global sales effort of the company (Carson, 2008).

Mike Fenger has signed a covenant not to compete by means of which he agreed not to work for any Motorola competitor for two years after his departure from the company, and received stock option worth a million dollars as a financial counterpart.

In addition to claiming that Mike Fenger will disclose trade secrets to Apple, Motorola charged that he helped Apple in recruiting two former employees of Motorola.

The court did not provide any judgment by the date this report was written, but it is likely to enforce the covenant not to compete in favor of Motorola Inc.

Conclusion

In this report, the major aspects with relation to employment law in France and in the USA have been presented.

It is clear that the French law regulates much more heavily all the aspects of employment conditions than the United States: Only a few forms of employment contracts exist in the French legal system, whereas the American law allows the two parties – the employer and the employee- to agree on almost every aspect of the contract freely, as soon as the contract is respecting the same principles and regulations set by the American law for contracts.

The French legal system also regulates more strictly the aspects related to the execution of an employment contract, the work duration, the remuneration and the contract termination.

The social tendency of the French legal system to protect the employees is in clear contrast here with the American employment, contracting and competing freedom principles.

However, the two countries regulations seem to be much more in accordance with regards to covenants not to compete. Indeed, the two legal systems seem to balance the freedom to work principle with the need to protect the companies’ vital interests.