End-of-Contract Indemnities: Precarity Bonus, Unused Paid Leave
The end of a french fixed-term employment contract (CDD) is often accompanied by additional payments from the employer. These payments are intended to compensate for the precarious nature of the employment relationship or to indemnify the employee for any unused paid leave.
These indemnities can benefit both the traditional employee of the company and the "temporary employee" under a placement contract. The principle of "equal pay for equal work" also applies to wages and in-kind benefits accompanying the salary. This is supported by the application of section 6 of Article L1251-43 of the French Labor Code, as reinforced by rulings from the French Court of Cassation (Cass. soc., November 29, 2006, No. 05-42.853, Bull. civ. V, No. 366; Cass. soc., February 14, 2007, No. 05-42.037).
The Principle of the Precarity Bonus
Article L. 1243-8 of the French Labor Code states that when a fixed-term contract (CDD) does not lead to a permanent contract (CDI), the employee is entitled to an "end-of-contract indemnity intended to compensate for the precariousness of their situation."
The article further specifies how this indemnity is calculated. The bonus is equal to 10% of the total gross remuneration paid to the employee and is added on top of it. This indemnity is paid at the end of the contract and will appear alongside the final salary. Exceptionally, if the applicable collective bargaining agreement provides for it and the employer agrees to finance a training plan for the employee, this rate can be reduced to 6%.
Exceptions to the Principle
The law provides several exceptions where the precarity bonus is not paid:
- CDD concluded with a young person pursuing school or university studies during their school holidays;
- Seasonal jobs ("contrats saisonniers");
- Contracts of a specific nature, known as "contrats d'usage";
- Contracts aimed at promoting the recruitment of certain categories of unemployed individuals, such as the Unified Employment Contract (CUI), the Employment Support Contract (CAE), and the Employment Initiative Contract (CIE);
- When the employer commits to providing additional professional training to the employee on a fixed-term contract (CDD).
Compensation for Unused Paid Leave
This compensatory indemnity is outlined in Article L. 3141-28 of the French Labor Code. The article specifies that an employee whose contract is terminated before they have been able to take all of their paid leave is entitled to "an indemnity compensating for the fraction of leave not taken." Unlike the precarity bonus, this indemnity is owed regardless of which party initiated the termination (whether it was the employee or the employer).
The law provides two methods for calculating this indemnity, and the employer must choose the one that is most favorable to the employee. The indemnity "cannot be less than the amount of the remuneration that would have been received during the leave period if the employee had continued to work." IdeoLegis typically uses the 10% method, which is more commonly employed.
A review of Articles L. 3141-24 and following clarifies which remunerations and benefits should be included in the calculation of the compensatory indemnity for paid leave and which should be excluded. The leave indemnity should include ancillary benefits and in-kind benefits that the employee would not continue to receive during the leave period if they had taken it. Additionally, tips must be included, provided they are assessed according to the rules applicable to social security.