NLBC.FR: Employer of record services in France, a risk-free solution?

Companies may seek to save time and money by hiring through an Employer of Record provider (EOR).

An EOR hires employees on behalf of a client company, handling tax, benefits and payroll anywhere in the world, in compliance with local law. The company avoids having to set-up a branch office or subsidiary, and avoids the paperwork that comes with complex administrative procedures.

Sounds tempting?

In France, other than temporary work contracts, known as temping, there is only one lawful solution which allows companies to use the services of a worker who is employed by another company.

This scheme, similar to umbrella companies in the UK, is known as portage salarial.

In this context, it is legitimate to wonder if the use of an EOR in France, outside of the legal framework of portage salarial, is likely to entail any risks from an employment law perspective.

1. Rules governing portage salarial in France

Portage salarial involves a tripartite contractual relationship.

The employee of the umbrella company, the entreprise de portage salarial, performs a mission or provides a service for a client company. A commercial contract is concluded between the umbrella company and the client company. At the same time, an employment contract is concluded between the umbrella company and the employee.

Portage salarial is highly regulated by the French Labor Code and a number of conditions must be met for a scheme to be lawful:

• Umbrella company (entreprise de portage salarial)

The umbrella company must file a prior declaration with the Ministry of Labour and Employment and obtain a financial guarantee to insure the payment of salaries and social contributions. The umbrella company must also carry out the portage salarial activity on an exclusive basis.

• The employee (salarié porté)

The employee hired and paid by the umbrella company shall have the expertise, qualifications and autonomy to seek out his or her own clients and agree the terms and conditions of service and its price. 

• The client company

The client company shall only use a worker provided by an umbrella company for the performance of an occasional task that is not part of its normal and permanent activity or for a one-off service requiring expertise that it does not have. The duration of the service performed within the client company cannot exceed 36 months.

In addition, the content of the commercial contract and the employment contract are strictly regulated.

1. What are the risks if the EOR does not qualify as an entreprise de portage salarial?

If an EOR arrangement does not qualify as “portage salarial” under French employment law, the following risks arise:

(i) The employment contract may be reclassified as existing between the employee and the client company

An employment contract is defined by French case law as an agreement under which an individual provides work or performs duties, in consideration of a remuneration, under the subordination of the employer.

The French Supreme Court has ruled that a subordination relationship is characterized by the performance of duties under the authority of an employer who has the power to give orders and directives, to supervise the performance of the assigned duties and to discipline the employee for any noncompliance with the instructions given (Supreme Court, Employment Section, 13 November 1996, no 94-13187).

If the rules governing portage salarial are not complied with, the employee could claim that the client company, which gives them orders and directives, is its actual employer and that an employment contract exists between them and the client company.

If a court rules that the employee/client company employment contract exists, the client company could be ordered to pay the following sums:

• mandatory severance payments, including indemnities for notice period, dismissal and paid vacation;
• damages for unfair dismissal; and
• 6 months damages for concealment of work (travail dissimulé), under article L 8223- 1 of the French labor code.

The risk that an employee claims the existence of an employment contract with the Client company mainly arises when the relationship with the EOR is terminated.

In addition, URSSAF, the French social security office, could order a reassessment of the client company’s social security contributions.

(ii) Criminal liability for the EOR and client company

Article L. 8241-1 of the French Labor Code prohibits “any profit-driven operation, the only purpose of which is the lending of workforce”, which is known as illegal lending of workforce (prêt de main d’oeuvre illicite).

Profit-driven workforce supply is also prohibited under article L. 8231-1 of the French Labor Code, wherever it causes any prejudice to any of the employees concerned, the latter having received less compensation, benefits or other social rights or profits from the service supplier than those they would

have been entitled to, had they been directly employed by the Client company (Délit de marchandage).

The use of an EOR which does not qualify as portage salarial may be considered by the French administration and/or by a judge as illegal lending of workforce.

These criminal offences are sanctioned by a maximum fine of €30,000 and/or a maximum imprisonment of 2 years. The legal entity can also be sanctioned by a maximum fine of €150,000. The court may also prohibit the workforce supplier from performing any activity for 2 to 10 years, and have the judgment published in the newspapers.

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Using the services of an EOR is possible in France. However, to avoid any risk, check that the EOR qualifies as an entreprise de portage salarial under French law and it complies with the rules governing portage salarial.