Among the most common instruments offered to managers and key employees of the company, we mainly find stock options, free shares (AGA) and BSCPE. The common objectives of these instruments are (i) to retain their beneficiaries and (ii) to bring their interests closer to those of financial investors.
While each of the profit-sharing schemes benefits from its own preferential tax regime, the free shares represent a real advantage for their beneficiaries given that they are free.
However, if the tax regime for the attribution of free shares appears to have been clearly framed by the texts, their potential qualification as elements of remuneration should lead practitioners to question the constraints linked to the use of this instrument.
Among the multitude of specific rules that surround the qualification of salary, it is possible to wonder about those that would be applicable to AGMs.
If the case law does not enlighten us on the application in particular of the wage garnishment rule to free shares, which once acquired definitively could help to settle all or part of the beneficiary’s debts, or on the application of the three-year prescription1 generally reserved for disputes relating to an element of salary instead of the application of the five-year prescription of common law, it is otherwise with other rules specific to elements of salary which have been extended to AGMs, as is the case of the prohibition of financial penalties2.
Indeed, after having considered that, under Article L.1331-2 of the Labor Code, the provisions of a stock option plan providing for depriving employees made redundant for serious misconduct of the right to waive the options3, the High Court also ruled that the elimination of free shares allocated, but not yet acquired, during the vesting period on the grounds that the beneficiary would have committed a fault would be likely to infringe the principle of prohibition of pecuniary sanctions4.
“Among the multitude of specific rules which surround the qualification of salary, it is possible to wonder about those which would be applicable to the AGM”
In the same vein, it was ruled that in the context of a dismissal declared without real and serious cause by a judge and the date of which would have occurred during the vesting period of the free shares, the dismissal entailed a loss of chance for the employee to benefit from the acquisition of all the free shares allocated to him5.
The case law undoubtedly tending to extend the rules applicable to salary elements at AGMs, it is also possible to wonder about the application of a very fashionable rule in the courtrooms: the principle of equal treatment between employees. from the same company.
For the record, the High Court conferred on the principle “for equal work, equal pay” (better known from now on under the principle of equal treatment) the value of a mandatory rule.6, presented as a general standard, of which gender equality is notably an application.
Henceforth, the principle of equal treatment7 tends to apply outside the sphere of remuneration alone and more generally to any element of remuneration or benefit of any form (collective agreement, company car, and even a voluntary departure plan)8.
Thus, it could be considered that the discretionary nature of a remuneration or an advantage does not allow an employer to treat employees placed in a comparable situation with regard to the advantage in question differently and does not allow him to justify, in an objective and relevant manner, a difference in treatment9.
However, the very purpose of using compensation systems such as AGMs is to allow employees identified as high potential to remain in office. Consequently, the allocation of free shares to certain employees rather than to others is therefore more a managerial and discretionary decision which does not always bother with an objective justification of the difference in treatment with other employees placed in the same situation and who would not then be granted shares.
For all that, is it punishable to want to favor an employee in a company in order to encourage him to stay if he is more efficient than his colleague in an equivalent position?
With regard to these instruments of access to capital, case law has ruled in favor of applying the principle of equal treatment to option rights on shares (stock options).10. However, to our knowledge, such a decision has never yet concerned AGMs.
However, the same AGM regime requires the allocation of shares “for the benefit of the members of the salaried staff of the company or of certain categories of them”.11 which requires objectively determining the category concerned by the award if all the staff is not affected by the award.
On the strength of this observation and while waiting for a case law clarification, it will be necessary to provide a justification for this difference in treatment if the manager intends to allocate AGMs only to key executives, and this, with the help of objective, relevant and materially verifiable criteria, which in practice can be quite complex …
1 Article 3245-1 of the Labor Code
2 “Any measure which directly or indirectly affects the remuneration of the person who provided a salary service constitutes a financial penalty”. Tissot
3 Soc. 21-10-2009 n° 08-42.026
4 Com. 7-6-2016 n ° 14-17.978
5 Soc. 7 February 2018 n ° 16-11.635
6 Soc., October 29, 1996, n ° 92-43.680
7 Soc. January 30, 2008, n ° 06-46447
8 Soc. January 18, 2000, n ° 98-44.745
9 Soc. October 10, 2012, n ° 11-15296
10 Soc. September 11, 2012, n ° 11-26045, Soc. June 17, 2003, n ° 01-41522
11 Article L225-197-1 of the French Commercial Code
Through Sandrine Gardel, associate lawyer. Opléo Avocats.
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