French Government Welcomes Draft Collective Agreement on Value Sharing

At a time when purchasing power is a central and hot topic of debate, French unions and employers have agreed on a draft collective agreement aimed at allowing greater sharing of profit with employees. The draft agreement has already been signed by most unions and has won the support of the French government, which, as stated by Prime Minister Élisabeth Borne, has proposed "a faithful and complete transcription into law” of the agreement. It contains two key measures: (1) the generalization of profit sharing in companies with less than 50 employees and (2) the obligation to negotiate on value profit in case of exceptional results.

GENERALIZATION OF PROFIT SHARING IN COMPANIES WITH LESS THAN 50 EMPLOYEES

According to the current project, companies under 50 employees will be required, as of January 1, 2025, to set up at least one profit-sharing scheme—mandatory (participation) or optional (intéressement) profit-sharing, value-sharing bonus (VSB) (prime de partage de la valeur), etc.— if they:

• are incorporated as a commercial company;
• have a positive net tax profit of at least 1% of sales for three consecutive years;
• are not already covered by a profit-sharing scheme, except for the VSB, at the time they make the abovementioned net taxable profit.

The current draft also aims to facilitate the introduction of mandatory profit-sharing in companies with fewer than 50 employees:

• by requiring each professional branch to open negotiations, before June 30, 2024, to make available to companies an optional mandatory profit-sharing scheme whose formula could derogate from the legal formula in a way that is favorable or unfavorable to employees; and
• by allowing mandatory profit-sharing to be set up at company level (1) by in-house collective agreement or by unilateral decision of the employer (DUE) when the formula chosen is that negotiated at branch level; and (2) by in-house collective agreement only in other cases.

All these provisions would be applicable on an experimental basis for a period of five years.

OBLIGATION TO NEGOTIATE ON PROFIT SHARING IN CASE OF EXCEPTIONAL RESULTS

According to the current draft, companies with 50 employees or more and having at least one trade union delegate and subject to the obligation to set up mandatory profit-sharing, will have to negotiate with the trade unions when they achieve an exceptional result in France. The obligation to negotiate concerns:

• the automatic payment of a mandatory or optional profit-sharing supplement, the terms of which would be defined by in-house collective agreement; or
• the referral to a new discussion on the payment of a profit-sharing scheme.

This negotiation would take place within the framework of the one undertaken with the trade unions on the mandatory and/or optional profit-sharing, with the objective of integrating a specific clause.

As an exception, this obligation to negotiate would not apply to companies that have implemented a derogatory mandatory profit-sharing formula that is more favorable than the legal formula, and/or a mandatory and/or optional profit-sharing agreement that includes a specific clause considering exceptional results.

OTHER MEASURES ON VALUE DEVICES

In addition to the two main measures mentioned above, there are several secondary measures designed to encourage the implementation of all types of profit sharing:

• Adjustment of the rules for crossing the 50-employee threshold for the mandatory implementation of profit-sharing (to be detailed)
• Removal of the rule postponing by six years the obligation to set up mandatory profit-sharing in the presence of an optional profit-sharing agreement
• No change to the rule that the number of employees in the company must have exceeded 50 each year for five consecutive years, which has been criticized by several unions.
• Concerning the VSB, it is considered:
  • to open the possibility of placing it in a company savings plan or retirement savings plan, with a possible employer contribution
  • to allow a maximum of two VSBs to be granted each year within the limit of the cap and the number of payments currently provided for [1]
  • to maintain, as of January 1, 2024, the favorable tax and social security scheme in force as of January 1, 2023 [2] for companies with less than 50 employees (despite that the income tax exemption should disappear in 2024)

HIGHLIGHTING THE SHARING OF VALUE

To facilitate a common approach between employers and employees, the draft recalls some principles on which the social partners can agree upstream:

• The principle of non-substitution between wages and existing schemes (mandatory and optional profit-sharing, VSB) would constitute a "structuring" rule.
• The sharing of profit within the company could also take the form of the allocation of salary accessories (meal vouchers, vacation vouchers, prefinanced universal service employment cheque (Cesu), various gift vouchers, etc.).

DEVELOPMENT AND SECURITY OF EMPLOYEE SHARE OWNERSHIP

In order to develop and secure existing employee share ownership, the draft proposes in particular to:

• facilitate the access of employee shareholders to information on their exposure to financial risk, without creating a new advisory obligation;
• increase the overall ceiling for the allocation of free shares to 40% of the company's total capital (instead of 30% today);
• make the contribution of shares to a company tax neutral for employee shareholders, with the payment of taxes occurring only at the time of the sale of the shares;
• in general, avoid excessive taxation of employee shareholders;
• guarantee the right to economic, financial, and legal training for employee directors of employee shareholding funds and supervisory boards of mutual funds.

For companies that do not set up employee share ownership, the text proposes the creation of a new optional scheme, open to companies and groups of all sizes: a "company value sharing plan," which would be set up by collective agreement and would benefit all employees with at least one year's seniority [3] .

IMPROVEMENT OF EMPLOYEE SAVINGS SCHEMES

The text proposes the following:

• Three new cases of early release of profit-sharing and incentive payments: (1) expenses related to energy renovation of principal residences, (2) those incurred as a close caregiver subject to providing supporting documents, and (3) those incurred for the acquisition of a so-called "clean" vehicle, new or used
• Allowing the employer to make a unilateral contribution to the company savings plan or the retirement savings plan, with a de-capped amount equal to the VSB
• Requiring fund managers to systematically offer at least two funds that take into account non-financial criteria in company savings plan and retirement savings plan securities accounts
• Requesting that the state organize a national communication campaign to disseminate simple and readable information on employee savings schemes

TRADE UNIONS SATISFIED WITH THE EXCEPTION OF THE CGT

To date, the national French trade unions CFDT, CFTC, and FO have signed on the employee side, while the MEDEF, the SME confederation, and the union of local businesses have signed on the employer side.

The CGT and the CFE-CGC have not yet communicated their position but should do so soon.