Understanding legal severance pay is essential for employees terminated under various circumstances. Employers must provide this compensation, as specified in the Labor Code, with severance types including legal, conventional, and contractual. Eligibility varies, with employees dismissed for gross misconduct ineligible. Severance pay calculations depend on tenure, with specific formulas for employees under and over ten years of service, ensuring a minimum payout based on years worked.
Understanding Legal Severance Pay
Financial Compensation After Termination
When an employee with a permanent contract is let go due to personal issues, economic circumstances, or incapacity, the employer is obligated to provide legal severance pay, as outlined in the Labor Code (articles L.1234-9 and subsequent). This compensation is also applicable in scenarios involving business closure or dissolution.
A Guaranteed Minimum Compensation
This severance pay represents the minimum compensation an employee is entitled to, unless collective agreements or the employment contract stipulate more favorable terms. Consequently, while employees cannot receive less than the legal severance pay, employers have the option to offer a higher amount.
Types of Severance Pay
Severance pay can be categorized into three types:
- Legal: Defined by the Labor Code;
- Conventional: Established by a collective agreement;
- Contractual: Specified in the employment contract.
Eligibility for Severance Pay: Dismissal and Mutual Termination
Dismissal for Gross Misconduct
Employees dismissed for gross or serious misconduct face significant financial repercussions. In these circumstances, they are not eligible for:
- Legal severance pay, since gross misconduct disqualifies them from this compensation;
- Compensatory notice pay, as the termination is immediate.
Gross misconduct refers to actions that render the continuation of employment untenable, while serious misconduct indicates a deliberate attempt to harm the employer, marking an extraordinary situation.
Mutual Termination Agreements
An employee who agrees to a mutual termination can receive amicable severance pay, with the amount determined by their tenure with the company (less than or more than ten years). This compensation cannot fall below the legal severance pay level.
Seniority Requirements for Severance Pay
Minimum of Eight Consecutive Months
To qualify for legal severance pay, an employee with a permanent contract must demonstrate at least eight consecutive months of service with the employer when dismissed for personal or economic reasons (as per article L.1234-9 of the Labor Code). Certain practices or contractual terms may allow for a shorter required tenure.
Calculating Seniority
The duration of the notice period is counted towards seniority. However, periods of employment suspension that do not constitute actual work time will not be included in this calculation. These periods may include:
- Suspensions;
- Illness not related to work;
- Strikes;
- Family solidarity leave;
- International solidarity leave;
- Caregiver leave;
- Sabbatical leave;
- Leave for business establishment;
- Unpaid leave.
How to Determine the Net Amount of Severance Pay
The calculation of legal severance pay is based on the employee’s tenure with the employer.
For Employees with Less Than Ten Years of Service
For employees with less than ten years of service, the legal severance pay is determined using the gross salary received on the date the dismissal letter is issued, referred to as the reference salary.
The reference salary will be calculated using the more favorable option between:
- The average monthly salary of the past 12 months leading up to the dismissal letter date. If the employee has been with the company for less than a year, the average of their months of work will be used;
- One-third of the salary from the last three months, inclusive of bonuses and rewards proportionate to the worked time. If an annual bonus was granted, 1/12 of that bonus should be added to the last three months’ calculations.
For Employees with Over Ten Years of Service
For those with more than ten years of service, the legal severance pay calculation is similarly based on the reference salary, which will be determined using the most advantageous formula between:
- The average monthly salary of the last 12 months prior to the dismissal letter being issued;
- One-third of the salary from the last three months, accounting for bonuses and seniority rewards proportionately to the time worked. If an annual bonus was awarded, 1/12 of its total should be added to each of the last three reference months.
Determining the Legal Amount of Severance Pay
Minimum Legal Severance Pay
The legal minimum severance pay cannot be less than a quarter of a month’s salary for each year of service. For incomplete years, the severance pay is calculated pro-rata based on the number of complete months served.