-
France
France – Dismissal of the officer of a simplified joint stock company: priority to the articles of association!
19 December 2022
- Corporate
- Employment
- Labor
Under what conditions can company officers be dismissed in France?
This depends on the form of the company.
Let us take the most common forms of commercial companies in France.
The manager of a limited liability company (« société à responsabilité limitée », SARL) can only be dismissed for due reason, i.e. if he or she has committed a fault, or if his or her dismissal is necessary to protect the company’s interests.
In a public limited company (« société anonyme », SA), the members of the board of directors and the chairman of the board of directors can be dismissed “ad nutum”, i.e. at any time and without having to give any reason. This rule may not be departed from. The chief executive officer, on the other hand, can only be dismissed for due reason.
In simplified joint stock companies (« société par actions simplifiée », SAS), a company form created in 1994, officers are in principle be dismissed “ad nutum”, but the articles of association may derogate from this rule and provide that they may only be dismissed for due reason.
A recent decision of the Cour de cassation, the highest judicial court in France, is of particular interest.
It concerns simplified joint stock companies (“SAS”), the most successful company form in France: one in two newly created companies is an SAS.
In SASs, it is the articles of association that determine the conditions under which the company is managed, and in particular the conditions for the dismissal of the officers.
The decision of the Court of Cassation of 12 October 2022 (No. 21-15.382) establishes a principle: although extra-statutory acts may supplement the articles of association, they may not derogate from them.
In this case, the articles of association of an SAS provided that the chief executive officer could be dismissed at any time, and without any reason being necessary, by decision of the partners or the sole partner, and that the dismissal of the CEO would not entitle him to any compensation.
A chief executive officer had been appointed by the sole shareholder. On the same day, the sole shareholder sent a letter to the CEO stating that if he was dismissed without due reason, he would receive a lump-sum compensation equal to six months’ remuneration.
A few years later, the company dismissed the officer, who demanded payment of his indemnity. When the company refused to pay him, the former CEO sued for payment of the indemnity.
The Court of Appeal and then the Court of Cassation ruled in favour of the company: the former officer was not entitled to the indemnity. For the Court of Cassation, the articles of association set the terms of dismissal of the chief executive officer, and it is the articles of association that take precedence. Although extra-statutory acts may supplement these articles, they may not derogate from them. And even if the extra-statutory act comes from the sole partner, or if all the partners have agreed to it.
Our recommendation
One must carefully analyse the articles of association and the extra-statutory acts such as shareholders’ agreements or agreements with the officer in order not to take risks when dismissing the officer of an SAS.
Every employer should manage the risk of employee lawsuits. Many companies believe that they treat their workers well and that their employees are happy. As a result, they believe that they are not at risk of a lawsuit. But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.
Employers should proactively manage this risk instead of hoping lawsuits never come. Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive. It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations. But employers can take steps before a dispute arises to reduce the impact of a lawsuit. I discuss eight such steps below.
First, employers should consider purchasing insurance that may cover employee claims. In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance. These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit. They may also pay the employee the amount he or she demands or that a court awards. Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.
Second, employers should implement and enforce sexual harassment policies. Policies like these discourage the type of behavior that can subject a company to liability. But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.
Third, employers should seriously examine disparities in pay and job roles. If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination. Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination. Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.
Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court. Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them. Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less. But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.
Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue. Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job. But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination. Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.
Sixth, employers should ensure they make consistent decisions. If an employer allows one employee to work from home, other employees may want the same treatment. And if an employer lays one employee off, she may wonder why another employee did not meet the same fate. Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.
Seventh, employers should frequently consult a lawyer they trust when employment issues arise. Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.
And finally, employers should consider settling disputes with employees, even if they are meritless. No company wants an employee to take advantage of them. But lawsuits are often more expensive and a hassle than the cost of a settlement. Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.
Summary – While China’s economy bore the brunt of the initial economic impact, the COVID-19 outbreak is bringing both direct and indirect complications for economies around the world. With China’s key role in the supply chain and manufacturing, in combination with lockdowns restricting movement, trade and business – fiscal authorities are implementing new measures to protect and stimulate their respective economies.
The Australian Government has announced a series of new regulatory, legislative and administrative changes that strengthen the country’s position moving through the crisis. The International Monetary Fund and the Organisation for Economic Co-operation and Development forecast Australia’s growth outpacing many comparable countries, including France, Canada, Japan, Germany, and the UK – all without endangering Australia’s debt sustainability.
Australia’s Response
The Australian Federal Government has, in a series of announcements, revealed a consolidated package of $320 billion AUD or $200 billion USD[1] support – equivalent to 16.4% of the country’s nominal GDP. They have made a clear stance that Australia is prepared to protect its national interest and respond to the broad and prolonged impact of the outbreak.
The stimulus measures can be considered in three separate categories, each with an intended purpose:
- support businesses;
- support the flow of credit; and
- support individuals and households.
The measures come with consideration of varying factors, including helping with the management of short-term cash flow, assist severely affected communities and regions, to prop up individuals and households dealing with sudden loss of employment, maintaining employees’ connections with business, and to ensure the continued flow of credit.
The Coronavirus Economic Response Package (Payments and Benefits) Act 2020 and Coronavirus Economic Response Package Omnibus (Measures No. 2) were passed by parliament on 8 April 2020. More legislation is expected to come as Australian authorities continue to study the broader prolonged impacts of COVID-19.
State and local governments within Australia have also announced a wide range of measures in addition to those announced by the Federal Government.
[1] Based on AUD-USD exchange rate 21 April 2020
Support for Businesses
JobKeeper Subsidy
The Australian government has committed $130 billion in ongoing support to business through the JobKeeper subsidy. The payment is available to businesses that are suffering a reduction in turnover to keep Australians employed during the outbreak. The JobKeeper subsidy is a gross fortnightly payment of $1,500 for each eligible employee for a 6-month period. The full $1,500 payment is to be paid to each eligible employee, either as a partial subsidy if their wage is greater than $1,500, or as a full subsidy if their wage was previously less than $1,500. The gross payment will be taxed at normal rates, although employers are not obliged to make additional superannuation contributions.
The scheme includes sole traders as well as businesses and not-for-profits (NFP).
Boosting Cash Flow for Employers
Small and medium businesses, as well as NFP are eligible for cashflow boosts to further assist in retaining employees. Tax-free cash flow boosts of $20,000 to $100,000 will be delivered to eligible businesses and organisations with aggregated annual turnover under $50 million. The Government has specifically acknowledged the increasing demand for NFP services during this crisis.
In a series of two payments, each payment will be equivalent to the business’ withheld salary and wages, with a minimum of $10,000 and maximum of $50,000. The first cashflow boost is set to be available between March and July 2020; the second boost will be made to businesses who received the first and will be of an equal sum, to be paid between June to September 2020. By splitting the support into two equal payments, the intention is to provide continued cash flow support over a longer period – increasing confidence and assisting businesses to maintain their operations.
Temporary Relief for Financially Distressed Businesses
Recognising the need for a safety net to allow businesses to resume operation post-crisis, this measure provides legislative support to financially distressed businesses. The temporary changes include reducing thresholds for creditors to issue statutory demands and initiate bankruptcy proceedings, increasing time available to respond to statutory demands, relieving directors from personal liability for trading while insolvent, and providing flexibility in the Corporations Act 2001 when dealing with unforeseen circumstances stemming from the COVID-19 crisis.
The Australian Taxation Office is willing to tailor solutions for directors and owners currently suffering. These may include reductions in payments or deferrals and withholding enforcement actions.
Changes to Asset Write-Off and Depreciation Deductions
The threshold for instant asset write-off is increased from $30,000 to $150,000 and access is expanded to businesses with aggregated annual turnover less than $500 million (previously $50 million) until the end of the 2019-20 financial year (i.e. 30 June 2020).
Up until the end of the 2020-21 financial years, depreciation deductions are accelerated for businesses under the same $500 million threshold. Upon installation of assets, 50% can be deduced with existing depreciation deduction rates to the balance. This measure is considered an investment incentive for businesses.
Supporting Apprentices and Trainees
Eligible employers may have 50% of an apprentice’s or trainee’s wage subsidised between 1 January 2020 and 30 September 2020. When businesses are unable to retain their apprentice or trainee, the subsidy can be provided to a new employer. As a part of this program, Australia’s National Apprentice Employment Network will provide further support in coordinating re-employment of workers affected by the COVID-19 crisis.
Support for Affected Regions and Industries
$1 billion of stimulus funds is reserved to support regions that are most impacted by the COVID-19 crisis. The purpose is to provide assistance during both the outbreak and the recovery. Further, the Australian airline industry is receiving tax and fee relief, with an estimate value of $715 million.
Support Flow of Credit
Immediate Cash Flow Needs for SMEs
The Government is providing guarantees of 50% for SME lenders to encourage new short-term unsecured loans for SMEs. By increasing lender’s willingness to provide credit, Australian businesses will be in a better position to secure loans and increase their cash flow.
Quick and efficient access to credit for small business
Small businesses will have more and faster access to credit as an exemption is provided to ‘responsible lending’ requirements.
Reserve Bank of Australia Measures to Support Credit Flow
The Reserve Bank of Australia (RBA) has made funding available for banks at a fixed interest rate of 0.25%. This measure will reinforce a lower cash rate, helping to reduce interest rates for borrowers. The RBA funding is incentivised to banks who expand their business lending, especially for new loans to SMEs. To complement the interest rate cut, the RBA is taking active steps to achieve a 0.25% yield on Australian Government securities
Support for Non-ADI and smaller ADI lenders in the securitisation market
The Australian Office of Financial Management (AOFM) is receiving $15 billion in funding to invest in structured finance markets. The target of this measure is smaller authorised deposit taking institutions (ADI) and non-ADI lenders.
Australian Prudential Regulatory Authority (APRA) Supporting Lending
APRA is temporarily changing their expectations of a banks’ capital ratios in order to support their lending.
Supporting Individuals and Households
JobSeeker Payment
In response to a sudden and sharp increase in the number of unemployed Australians, a new streamlined processing of JobSeeker claims was introduced. JobSeeker is a pre-existing welfare payment available to eligible Australians while they are unemployed and in the active pursuit of gainful employment.
An employee cannot be in simultaneous receipt of JobKeeper and JobSeeker payments.
Changes to Other Income Support Payments
Recipients of income support payments are eligible for an additional fortnightly payment of $550 for a temporary six-month period. At the same time, eligibility for the payments has been expanded to allow for more Australians to receive the income support, and the supplementary fortnightly payment.
In addition to the ongoing payments, two separate $750 payments may be made to Australian income support recipients. The first payment was made on 31 March 2020, and the second payment is scheduled for 13 July 2020. The second payment is not available to recipients of the $550 fortnightly supplement. These stimulus injections are intended to increase confidence and domestic demand in the economy.
Changes to Superannuation
Australia’s superannuation program mandates wage contributions to a superfund in the purpose of supporting retirees and ensuring they have the financial means to survive and maintain quality of life. With the COVID-19 outbreak, two new measures have been introduced to allow Australian retirees to manage the impact of recent downturn on their superannuation and financial circumstances.
The first measure is allowing individuals to withdraw up to $10,000 from their superannuation in 2019-20 and an additional $10,000 in the following financial year. This withdrawal will not be taxed, nor will it affect income testing for income support payments.
The second measure is a temporary reduction of Superannuation drawdown requirements for retirees with account-base pensions. A reduction of 50% applies in both 2019-20 and 2020-21. This will lower the need to sell investment assets to fund minimum drawdown requirements.
Reduction of Social Security Deeming Rates
Both upper and lower social security rates were dropped by 0.5% on 12 March 2020. Another reduction has been announced, from 1 May 2020 the upper rate will be 2.25% and the lower 0.25%. This measure is in response to lowering interest rates and the reduction of savings income. Practically, this will mean an average increase of $105 in the Age Pension during the first year.
France is a great market for franchise networks where almost 2,000 networks are operated. It is one of the most successful scheme of developing business.
Franchisor must mainly respect French regulations on pre-disclosure information and French and EU competition regulations, among others rules. Although the control of the quality of its network and of its brand image is a very important and legitimate issue for franchisor, the latter cannot interfere too much in the day-to-day activity of the franchisees, since franchisees are independent businesses. Therefore relations between franchisors and franchisees are only based on commercial law and not on employment law. However, recent French rules will lead franchisors to implement some employment law rules with their franchisees and franchisees’ employees.
Foreign franchisors operating franchise networks in France must indeed know how to deal with the constraints incurred by the Employment Act (dated 08 August 2016) and its Decree (dated 04 May 2017), and effective as from May 07 2017, relating to the creation of an employee forum for the whole franchise network. Indeed this Social Dialogue Committee can impact deeply the organization of franchise networks.
First of all, only networks in which operators are bound by franchise agreements are concerned by the new social dialogue committee. Accordingly, trademark licensing and distribution contracts appear not to be included. Franchise agreements should be understood as sui generis contracts that are the sum of three separate agreements: a trademark licensing agreement, a know-how licensing agreement, and a commercial or technical assistance agreement. However, the Act of 08 august 2016 creates some confusion by stating that the franchise agreements concerned by this Social Dialogue Committee are the agreements “referred to in article L330-3 of the French Commercial Code”, although not only does that article not define what a franchise contract is, it may also apply to other contracts (exclusive distribution agreements) to determine whether the network fall into the scope of this Act.
Furthermore, according to the Act, only specific franchise agreements including “clauses that have an impact on work organisation and conditions in franchisee businesses” are concerned. The Act does not define such clauses although, on the one hand, whether a social dialogue committee is called for depends on identifying such clauses, and on the other hand, franchisees are in essence independent of the franchisor when organising and managing their business, including in employment matters. It will therefore be necessary to conduct an employment audit of all franchise agreements (for instance, what happens if a clause sets opening hours or defines a dress code?) to determine whether the network fall into the scope of this Act.
Finally, a Social Dialogue Committee is only called for in franchise networks employing at least 300 staff working (full-time) in France. It would seem that this does not include the franchisor’s employees or the employees of operators that are not bound to the network’s head by a franchise agreement (e.g., operators bound by a trademark licensing contract).
An implementation implying a long negotiation
Even where the legal requirements are met, franchisors are under no obligation to set up a Social Dialogue Committee spontaneously. However, once a trade union has called for an Social Dialogue Committee to be set up, the franchisor does have an obligation to take part actively in the negotiations initiated by that trade, to check with all the franchisees whether the number of employees in its network reaches the 300 threshold, and then to set up a “negotiation forum” made of representatives of employees (trade unions) and of employers (franchisor and franchisees) to negotiate an agreement creating and organizing the future Social Dialogue Committee.
The negotiations with trade unions and franchisees will end, within six months, in an agreement subject to the consent of franchisor, trade union(s) and at least of 30% of the franchisees (representing 30 % of the employees of the network). This agreement shall define the Social Dialogue Committee’s composition, how its members are designated, their term of office, the frequency of meetings, if and how many hours employees may dedicate to the committee, the material or financial means required for the committee to fulfill its purpose, and how running and meeting costs and representatives’ travel and subsistence expenses are handled, among other things. This last issue could be a major concern not only for franchisor but also for franchisees-employers. Failing to reach such agreement, the Decree imposes the creation of the Social Dialogue Committee with several strict and minimum provisions which could create unreasonable burden for the franchisor.
Once set up, internal rules define precisely how the Social Dialogue Committee is to function (required majorities, notices of meeting and referral, publication of debates, etc.).
Much ado about nothing?
The Social Dialogue Committee does not have the authority to investigate cases or to issue binding rulings, but the Social Dialogue Committee must be kept informed of franchisees joining or leaving the network and “of the franchisor’s decisions liable to impact the volume and structure of staff, working time, or the employment, work, and vocational training conditions of the franchisees’ employees”.
The Social Dialogue Committee may also make suggestions for improving such conditions throughout the network.
The impact of the Social Dialogue Committee is eventually rather limited, but franchisors have to master and control seriously the implementation of the rules in order to avoid loss of times and energy by their own franchisees and a disorganisation of its network.
Vietnam 
China 
Egypt 
Italy 
The incorporation of limited liability companies in The Netherlands and in Spain
- Corporate
-
Netherlands -
Spain
Contact Clotilde
USA – How to Manage the Risk of Employee Lawsuits
26 September 2022
-
USA
- Employment
- Litigation
Under what conditions can company officers be dismissed in France?
This depends on the form of the company.
Let us take the most common forms of commercial companies in France.
The manager of a limited liability company (« société à responsabilité limitée », SARL) can only be dismissed for due reason, i.e. if he or she has committed a fault, or if his or her dismissal is necessary to protect the company’s interests.
In a public limited company (« société anonyme », SA), the members of the board of directors and the chairman of the board of directors can be dismissed “ad nutum”, i.e. at any time and without having to give any reason. This rule may not be departed from. The chief executive officer, on the other hand, can only be dismissed for due reason.
In simplified joint stock companies (« société par actions simplifiée », SAS), a company form created in 1994, officers are in principle be dismissed “ad nutum”, but the articles of association may derogate from this rule and provide that they may only be dismissed for due reason.
A recent decision of the Cour de cassation, the highest judicial court in France, is of particular interest.
It concerns simplified joint stock companies (“SAS”), the most successful company form in France: one in two newly created companies is an SAS.
In SASs, it is the articles of association that determine the conditions under which the company is managed, and in particular the conditions for the dismissal of the officers.
The decision of the Court of Cassation of 12 October 2022 (No. 21-15.382) establishes a principle: although extra-statutory acts may supplement the articles of association, they may not derogate from them.
In this case, the articles of association of an SAS provided that the chief executive officer could be dismissed at any time, and without any reason being necessary, by decision of the partners or the sole partner, and that the dismissal of the CEO would not entitle him to any compensation.
A chief executive officer had been appointed by the sole shareholder. On the same day, the sole shareholder sent a letter to the CEO stating that if he was dismissed without due reason, he would receive a lump-sum compensation equal to six months’ remuneration.
A few years later, the company dismissed the officer, who demanded payment of his indemnity. When the company refused to pay him, the former CEO sued for payment of the indemnity.
The Court of Appeal and then the Court of Cassation ruled in favour of the company: the former officer was not entitled to the indemnity. For the Court of Cassation, the articles of association set the terms of dismissal of the chief executive officer, and it is the articles of association that take precedence. Although extra-statutory acts may supplement these articles, they may not derogate from them. And even if the extra-statutory act comes from the sole partner, or if all the partners have agreed to it.
Our recommendation
One must carefully analyse the articles of association and the extra-statutory acts such as shareholders’ agreements or agreements with the officer in order not to take risks when dismissing the officer of an SAS.
Every employer should manage the risk of employee lawsuits. Many companies believe that they treat their workers well and that their employees are happy. As a result, they believe that they are not at risk of a lawsuit. But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.
Employers should proactively manage this risk instead of hoping lawsuits never come. Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive. It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations. But employers can take steps before a dispute arises to reduce the impact of a lawsuit. I discuss eight such steps below.
First, employers should consider purchasing insurance that may cover employee claims. In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance. These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit. They may also pay the employee the amount he or she demands or that a court awards. Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.
Second, employers should implement and enforce sexual harassment policies. Policies like these discourage the type of behavior that can subject a company to liability. But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.
Third, employers should seriously examine disparities in pay and job roles. If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination. Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination. Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.
Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court. Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them. Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less. But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.
Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue. Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job. But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination. Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.
Sixth, employers should ensure they make consistent decisions. If an employer allows one employee to work from home, other employees may want the same treatment. And if an employer lays one employee off, she may wonder why another employee did not meet the same fate. Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.
Seventh, employers should frequently consult a lawyer they trust when employment issues arise. Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.
And finally, employers should consider settling disputes with employees, even if they are meritless. No company wants an employee to take advantage of them. But lawsuits are often more expensive and a hassle than the cost of a settlement. Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.
Summary – While China’s economy bore the brunt of the initial economic impact, the COVID-19 outbreak is bringing both direct and indirect complications for economies around the world. With China’s key role in the supply chain and manufacturing, in combination with lockdowns restricting movement, trade and business – fiscal authorities are implementing new measures to protect and stimulate their respective economies.
The Australian Government has announced a series of new regulatory, legislative and administrative changes that strengthen the country’s position moving through the crisis. The International Monetary Fund and the Organisation for Economic Co-operation and Development forecast Australia’s growth outpacing many comparable countries, including France, Canada, Japan, Germany, and the UK – all without endangering Australia’s debt sustainability.
Australia’s Response
The Australian Federal Government has, in a series of announcements, revealed a consolidated package of $320 billion AUD or $200 billion USD[1] support – equivalent to 16.4% of the country’s nominal GDP. They have made a clear stance that Australia is prepared to protect its national interest and respond to the broad and prolonged impact of the outbreak.
The stimulus measures can be considered in three separate categories, each with an intended purpose:
- support businesses;
- support the flow of credit; and
- support individuals and households.
The measures come with consideration of varying factors, including helping with the management of short-term cash flow, assist severely affected communities and regions, to prop up individuals and households dealing with sudden loss of employment, maintaining employees’ connections with business, and to ensure the continued flow of credit.
The Coronavirus Economic Response Package (Payments and Benefits) Act 2020 and Coronavirus Economic Response Package Omnibus (Measures No. 2) were passed by parliament on 8 April 2020. More legislation is expected to come as Australian authorities continue to study the broader prolonged impacts of COVID-19.
State and local governments within Australia have also announced a wide range of measures in addition to those announced by the Federal Government.
[1] Based on AUD-USD exchange rate 21 April 2020
Support for Businesses
JobKeeper Subsidy
The Australian government has committed $130 billion in ongoing support to business through the JobKeeper subsidy. The payment is available to businesses that are suffering a reduction in turnover to keep Australians employed during the outbreak. The JobKeeper subsidy is a gross fortnightly payment of $1,500 for each eligible employee for a 6-month period. The full $1,500 payment is to be paid to each eligible employee, either as a partial subsidy if their wage is greater than $1,500, or as a full subsidy if their wage was previously less than $1,500. The gross payment will be taxed at normal rates, although employers are not obliged to make additional superannuation contributions.
The scheme includes sole traders as well as businesses and not-for-profits (NFP).
Boosting Cash Flow for Employers
Small and medium businesses, as well as NFP are eligible for cashflow boosts to further assist in retaining employees. Tax-free cash flow boosts of $20,000 to $100,000 will be delivered to eligible businesses and organisations with aggregated annual turnover under $50 million. The Government has specifically acknowledged the increasing demand for NFP services during this crisis.
In a series of two payments, each payment will be equivalent to the business’ withheld salary and wages, with a minimum of $10,000 and maximum of $50,000. The first cashflow boost is set to be available between March and July 2020; the second boost will be made to businesses who received the first and will be of an equal sum, to be paid between June to September 2020. By splitting the support into two equal payments, the intention is to provide continued cash flow support over a longer period – increasing confidence and assisting businesses to maintain their operations.
Temporary Relief for Financially Distressed Businesses
Recognising the need for a safety net to allow businesses to resume operation post-crisis, this measure provides legislative support to financially distressed businesses. The temporary changes include reducing thresholds for creditors to issue statutory demands and initiate bankruptcy proceedings, increasing time available to respond to statutory demands, relieving directors from personal liability for trading while insolvent, and providing flexibility in the Corporations Act 2001 when dealing with unforeseen circumstances stemming from the COVID-19 crisis.
The Australian Taxation Office is willing to tailor solutions for directors and owners currently suffering. These may include reductions in payments or deferrals and withholding enforcement actions.
Changes to Asset Write-Off and Depreciation Deductions
The threshold for instant asset write-off is increased from $30,000 to $150,000 and access is expanded to businesses with aggregated annual turnover less than $500 million (previously $50 million) until the end of the 2019-20 financial year (i.e. 30 June 2020).
Up until the end of the 2020-21 financial years, depreciation deductions are accelerated for businesses under the same $500 million threshold. Upon installation of assets, 50% can be deduced with existing depreciation deduction rates to the balance. This measure is considered an investment incentive for businesses.
Supporting Apprentices and Trainees
Eligible employers may have 50% of an apprentice’s or trainee’s wage subsidised between 1 January 2020 and 30 September 2020. When businesses are unable to retain their apprentice or trainee, the subsidy can be provided to a new employer. As a part of this program, Australia’s National Apprentice Employment Network will provide further support in coordinating re-employment of workers affected by the COVID-19 crisis.
Support for Affected Regions and Industries
$1 billion of stimulus funds is reserved to support regions that are most impacted by the COVID-19 crisis. The purpose is to provide assistance during both the outbreak and the recovery. Further, the Australian airline industry is receiving tax and fee relief, with an estimate value of $715 million.
Support Flow of Credit
Immediate Cash Flow Needs for SMEs
The Government is providing guarantees of 50% for SME lenders to encourage new short-term unsecured loans for SMEs. By increasing lender’s willingness to provide credit, Australian businesses will be in a better position to secure loans and increase their cash flow.
Quick and efficient access to credit for small business
Small businesses will have more and faster access to credit as an exemption is provided to ‘responsible lending’ requirements.
Reserve Bank of Australia Measures to Support Credit Flow
The Reserve Bank of Australia (RBA) has made funding available for banks at a fixed interest rate of 0.25%. This measure will reinforce a lower cash rate, helping to reduce interest rates for borrowers. The RBA funding is incentivised to banks who expand their business lending, especially for new loans to SMEs. To complement the interest rate cut, the RBA is taking active steps to achieve a 0.25% yield on Australian Government securities
Support for Non-ADI and smaller ADI lenders in the securitisation market
The Australian Office of Financial Management (AOFM) is receiving $15 billion in funding to invest in structured finance markets. The target of this measure is smaller authorised deposit taking institutions (ADI) and non-ADI lenders.
Australian Prudential Regulatory Authority (APRA) Supporting Lending
APRA is temporarily changing their expectations of a banks’ capital ratios in order to support their lending.
Supporting Individuals and Households
JobSeeker Payment
In response to a sudden and sharp increase in the number of unemployed Australians, a new streamlined processing of JobSeeker claims was introduced. JobSeeker is a pre-existing welfare payment available to eligible Australians while they are unemployed and in the active pursuit of gainful employment.
An employee cannot be in simultaneous receipt of JobKeeper and JobSeeker payments.
Changes to Other Income Support Payments
Recipients of income support payments are eligible for an additional fortnightly payment of $550 for a temporary six-month period. At the same time, eligibility for the payments has been expanded to allow for more Australians to receive the income support, and the supplementary fortnightly payment.
In addition to the ongoing payments, two separate $750 payments may be made to Australian income support recipients. The first payment was made on 31 March 2020, and the second payment is scheduled for 13 July 2020. The second payment is not available to recipients of the $550 fortnightly supplement. These stimulus injections are intended to increase confidence and domestic demand in the economy.
Changes to Superannuation
Australia’s superannuation program mandates wage contributions to a superfund in the purpose of supporting retirees and ensuring they have the financial means to survive and maintain quality of life. With the COVID-19 outbreak, two new measures have been introduced to allow Australian retirees to manage the impact of recent downturn on their superannuation and financial circumstances.
The first measure is allowing individuals to withdraw up to $10,000 from their superannuation in 2019-20 and an additional $10,000 in the following financial year. This withdrawal will not be taxed, nor will it affect income testing for income support payments.
The second measure is a temporary reduction of Superannuation drawdown requirements for retirees with account-base pensions. A reduction of 50% applies in both 2019-20 and 2020-21. This will lower the need to sell investment assets to fund minimum drawdown requirements.
Reduction of Social Security Deeming Rates
Both upper and lower social security rates were dropped by 0.5% on 12 March 2020. Another reduction has been announced, from 1 May 2020 the upper rate will be 2.25% and the lower 0.25%. This measure is in response to lowering interest rates and the reduction of savings income. Practically, this will mean an average increase of $105 in the Age Pension during the first year.
France is a great market for franchise networks where almost 2,000 networks are operated. It is one of the most successful scheme of developing business.
Franchisor must mainly respect French regulations on pre-disclosure information and French and EU competition regulations, among others rules. Although the control of the quality of its network and of its brand image is a very important and legitimate issue for franchisor, the latter cannot interfere too much in the day-to-day activity of the franchisees, since franchisees are independent businesses. Therefore relations between franchisors and franchisees are only based on commercial law and not on employment law. However, recent French rules will lead franchisors to implement some employment law rules with their franchisees and franchisees’ employees.
Foreign franchisors operating franchise networks in France must indeed know how to deal with the constraints incurred by the Employment Act (dated 08 August 2016) and its Decree (dated 04 May 2017), and effective as from May 07 2017, relating to the creation of an employee forum for the whole franchise network. Indeed this Social Dialogue Committee can impact deeply the organization of franchise networks.
First of all, only networks in which operators are bound by franchise agreements are concerned by the new social dialogue committee. Accordingly, trademark licensing and distribution contracts appear not to be included. Franchise agreements should be understood as sui generis contracts that are the sum of three separate agreements: a trademark licensing agreement, a know-how licensing agreement, and a commercial or technical assistance agreement. However, the Act of 08 august 2016 creates some confusion by stating that the franchise agreements concerned by this Social Dialogue Committee are the agreements “referred to in article L330-3 of the French Commercial Code”, although not only does that article not define what a franchise contract is, it may also apply to other contracts (exclusive distribution agreements) to determine whether the network fall into the scope of this Act.
Furthermore, according to the Act, only specific franchise agreements including “clauses that have an impact on work organisation and conditions in franchisee businesses” are concerned. The Act does not define such clauses although, on the one hand, whether a social dialogue committee is called for depends on identifying such clauses, and on the other hand, franchisees are in essence independent of the franchisor when organising and managing their business, including in employment matters. It will therefore be necessary to conduct an employment audit of all franchise agreements (for instance, what happens if a clause sets opening hours or defines a dress code?) to determine whether the network fall into the scope of this Act.
Finally, a Social Dialogue Committee is only called for in franchise networks employing at least 300 staff working (full-time) in France. It would seem that this does not include the franchisor’s employees or the employees of operators that are not bound to the network’s head by a franchise agreement (e.g., operators bound by a trademark licensing contract).
An implementation implying a long negotiation
Even where the legal requirements are met, franchisors are under no obligation to set up a Social Dialogue Committee spontaneously. However, once a trade union has called for an Social Dialogue Committee to be set up, the franchisor does have an obligation to take part actively in the negotiations initiated by that trade, to check with all the franchisees whether the number of employees in its network reaches the 300 threshold, and then to set up a “negotiation forum” made of representatives of employees (trade unions) and of employers (franchisor and franchisees) to negotiate an agreement creating and organizing the future Social Dialogue Committee.
The negotiations with trade unions and franchisees will end, within six months, in an agreement subject to the consent of franchisor, trade union(s) and at least of 30% of the franchisees (representing 30 % of the employees of the network). This agreement shall define the Social Dialogue Committee’s composition, how its members are designated, their term of office, the frequency of meetings, if and how many hours employees may dedicate to the committee, the material or financial means required for the committee to fulfill its purpose, and how running and meeting costs and representatives’ travel and subsistence expenses are handled, among other things. This last issue could be a major concern not only for franchisor but also for franchisees-employers. Failing to reach such agreement, the Decree imposes the creation of the Social Dialogue Committee with several strict and minimum provisions which could create unreasonable burden for the franchisor.
Once set up, internal rules define precisely how the Social Dialogue Committee is to function (required majorities, notices of meeting and referral, publication of debates, etc.).
Much ado about nothing?
The Social Dialogue Committee does not have the authority to investigate cases or to issue binding rulings, but the Social Dialogue Committee must be kept informed of franchisees joining or leaving the network and “of the franchisor’s decisions liable to impact the volume and structure of staff, working time, or the employment, work, and vocational training conditions of the franchisees’ employees”.
The Social Dialogue Committee may also make suggestions for improving such conditions throughout the network.
The impact of the Social Dialogue Committee is eventually rather limited, but franchisors have to master and control seriously the implementation of the rules in order to avoid loss of times and energy by their own franchisees and a disorganisation of its network.
