The compensation paid during a business closure is not limited to the mechanical calculation provided by the Labor Code. Several parameters, often overlooked in general articles, modify the employee’s final claim: reclassification of the closure, intervention of the AGS, coordination with the collective agreement. We detail here the technical points that truly change the amount received.
Reclassification as a partial closure: an underestimated compensation lever
Appeals courts are tightening their analysis when a company announces a closure while transferring part of its activity to a franchise, subcontractor, or subsidiary. The Paris Court of Appeal (22nd chamber, September 13, 2023, no. 21/07187) and the Lyon Court of Appeal (7th chamber, January 18, 2024, no. 21/06049) have reclassified these operations as partial closures with transfer of activity.
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The direct consequence: the dismissal may be deemed without real and serious cause. The employee then gains access to damages that far exceed the legal severance pay. We recommend systematically checking whether the employer maintains a similar activity under another legal structure before accepting the final settlement.
To properly understand the compensation in case of business closure, one must first distinguish between the theoretical framework of the Labor Code and the contentious reality, where the qualification of the facts takes precedence over the calculation formulas.
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Calculation of legal severance pay in case of closure
The dismissal following a closure falls under economic reasons. The legal compensation applies as soon as the permanent employee has at least eight months of uninterrupted seniority with the same employer.
Applicable formula and reference salary
The calculation is based on two seniority brackets. For the first ten years, the employee receives a quarter of a month’s salary per year. Beyond ten years, the amount increases to a third of a month for each additional year.
The reference salary taken is the most favorable between two options: the average of the last twelve months of gross remuneration, or a third of the last three months (including pro-rata annual bonuses and rewards). We observe that the second method benefits employees whose variable remuneration is concentrated at the end of the year.
Collective agreement and employment contract
The legal compensation sets a minimum. The applicable collective agreement or employment contract may provide for a higher amount. It is always the provision most favorable to the employee that applies. In certain sectors (metallurgy, construction, wholesale trade), the collective scales significantly exceed the legal minimum, especially for employees with more than fifteen years of seniority.
Role of the AGS in judicial liquidation: actual deadlines and ceilings
When the closure results from judicial liquidation, the employer is often insolvent. The Association for the Management of the Employee Claims Guarantee Scheme (AGS) then takes over to advance the amounts due.
The AGS covers several claims:
- Severance pay (legal or contractual, within the limits of the applicable ceiling)
- Compensatory notice pay, even if the employee is exempt from executing it
- Compensatory paid leave not taken by the date of contract termination
- Unpaid wages for the last weeks of activity
Field reports show that several weeks elapse between the opening judgment and the actual payment by the AGS. The judicial representative must first establish the statements of employee claims and then transmit them to the Fund. During this period, the employee receives neither salary nor compensation, making coordination with registration at France Travail crucial to avoid a loss of income.
AGS ceilings to know
The AGS does not guarantee unlimited amounts. The ceilings are indexed to the monthly social security ceiling and vary according to the seniority of the employment contract. An employee whose contract is less than six months falls under the lowest ceiling. Beyond two years of contract, the maximum ceiling applies, but it remains insufficient to cover the full claims of senior executives with high variable remuneration.
Coordination between severance payments and unemployment insurance rights
Since the unemployment insurance reform of 2023, the duration of compensation for employees dismissed for economic reasons is adjusted according to the labor market situation. During periods of rising unemployment, the duration of rights is shortened. This adjustment also affects those under 25, for whom access conditions are tightened.
The severance pay itself is not subject to social contributions (within the limits of legal ceilings) and does not count towards the calculation of the deferred compensation applied by France Travail. However, the compensatory notice pay, because it has the nature of a salary, delays the start date of unemployment benefits.
We recommend clearly distinguishing these two components during the negotiation of the final settlement. Maximizing severance pay at the expense of notice pay may shorten the time before the first payment of the employment return assistance allowance.
Points of caution before signing the final settlement
The employee has a period of six months to contest the receipt for the final settlement. After this period, the document becomes liberating for the employer. Here are the checks to perform before signing:
- Compare the proposed amount with the applicable collective scale, not just the legal minimum
- Check that the seniority taken into account includes periods of suspension of the contract (occupational illness, maternity leave) that count as effective working time
- Ensure that annual bonuses and the variable part have been properly included pro-rata in the reference salary
- Verify that the compensatory paid leave covers all accrued days, including those carried over from previous years
The closure of a business, whether voluntary or imposed by a collective procedure, does not reduce the rights of the permanent employee. The legal framework sets a baseline, but the collective agreement, recent case law on activity transfers, and mastery of AGS deadlines can significantly vary the final amount. Checking each line of the final settlement remains the best protection before moving on.