The settlement or settlement agreement is a contract by which the employer and the employee conclude a dispute. After an employment agreement is terminated, it is legally required that such an agreement be made, so it should not be confused with a termination of the employment agreement according to a collective bargaining agreement, which is a form of termination of the agreement. The settlement agreement is governed by the rules that apply under contract law, including those concerning its validity conditions. Recent case law confirms that a settlement that is worded in broad terms protects it in principle from any later litigation.

Required Prerequisites

Since it is based in contract law, the settlement must be entered into after the termination of the employment agreement is completed. Its primary value is to conclude a dispute concerning the termination of the contract and its performance. In no circumstances should the settlement have the effect of terminating the employment agreement and settling the consequences thereof. In this connection, a termination of the employment agreement according to a collective bargaining agreement that (a) lays out the details of the termination of the employment agreement; and (b) sets out a prohibition of referring the matter to the relevant courts; would not be effective legally, at least on the second point. The settlement makes it possible to terminate a dispute while enabling the parties to avoid the inherent hazards of a classic court process (processing time, legal insecurity, uncertain compensation payments, etc.).

Validity Conditions

It is required that:
– the settlement is made after termination of the employment agreement is completed, regardless of the nature of the termination: resignation, termination under a collective bargaining agreement, dismissal, etc.;
– the preceding disagreement concerns the existence or the scope of the parties’ rights;
– the parties make reciprocal and good-faith concessions;
– the parties’ consent is not tainted (for instance, by providing the employee with adequate time for consideration).
Concerning this last point, it is useful to note that a settlement agreement is not “unassailable” and that it may be litigated with regard to contract law and flaws concerning consent (error, tort, violence, etc.).

Scope of the Settlement

The settlement prevents a suit being brought or prosecuted between the parties in court with the same subject matter. This allows the employer to dismiss the risk of the matter being referred to the labour tribunal. The employee, in return for not litigating the matter, receives a compensation payment through settlement.

Recent Case Law by the Cour de Cassation

The Cour de Cassation has confirmed its orientation concerning settlements by specifying that a settlement worded in general terms excludes later litigation of a future entitlement (Cass. Soc. (i.e., labour section of the Cour de Cassation) 20/02/2019) when a settlement occurred after a dismissal on economic grounds was completed. In the present matter, the settlement was worded in general terms, specifying that it settles “irrevocably any dispute associated with the performance and termination of the employment agreement […] and that […] the parties represent that they give up their option of bringing suit or pursuing any litigation or action of any kind whatsoever the cause or source of which is to do with the employment agreement.”

The employee had attacked his former employer on the grounds that it did not comply with its obligations regarding re-classification prior to the dismissal and rehiring after the dismissal as well as its obligations arising out of the “job-saving plan” (“PSE”).

The Cour Suprême rejects the employee’s plea stating that the formulation of the settlement prohibits any later plea for compensation, including for the obligations that are meant to apply after termination of the employment agreement (including the obligation to rehire). This decision upholds the principle of contractual freedom which is inherent in contract law, which is less restrictive for the employer than the rules that are specific to labour law.

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