In France, a transaction is a settlement agreement used to end disputes between an employer and employee, following the termination of their employment contract. Often, the dispute will be related to the reason for terminating the contract, such as a contentious dismissal.
The terms of a transaction can only be negotiated after the employment contract has ended, so it is not a means of termination in itself. This makes it different both from the rupture conventionnelle (which is a mutually agreed termination) and the formal settlement agreements used in the UK and other countries.
A transaction is the result of discussions and negotiations between the employer and employee, usually through their respective advisors.
It can be preferable for both parties to negotiate a transaction post-termination of contract, rather than spend the time, energy, and finances involved in pursuing and defending complicated legal proceedings. The transaction also offers a certain degree of confidentiality, which both parties may welcome.
Either party may ask for a transaction once the employment contract is terminated, although there is no official form or procedure for requesting it. The subsequent discussions involve both parties presenting their claims and highlighting their mutual will to find an amicable solution.
Once negotiations are concluded, both parties must sign a protocole d’accord transactionnel: a compulsory written document that sets out the mutual commitments made to resolve their dispute.
The employee will agree not to undertake legal action (or withdraw pending or active court proceedings) against the employer. The employer, meanwhile, will agree to pay a settlement indemnity, which is seen as compensation for avoiding subsequent procedural and legal costs. This payment is on top of any severance pay to which the employee was entitled.
Another key difference between the transaction and the rupture conventionnelle is that the former does not need to be validated or approved by a third party.
The rupture conventionnelle is subject to a very specific procedure, which includes holding at least one interview, a mandatory withdrawal period applicable to both parties, and subsequent approval granted by the French administration.
Conversely, the transaction is not subject to any specific procedure – except the formalisation and signing of the protocole d’accord transactionnel – so it does not need to be approved externally. It can therefore be used to resolve post-termination employment disputes quickly and cleanly.
Negotiations for a transaction may take place even during proceedings at the Conseil des prud’hommes (French labour court).
Please contact us if you would like bespoke guidance on the use of settlement agreements in France.
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