France: Reducing Unfair Damages Exposure in Collective Economic Dismissals - a Key Ruling From the French Supreme Court

When French companies with 50 employees or more carry out economic dismissals affecting at least 10 employees within a 30-day period, they are required to implement a Plan de Sauvegarde de l'Emploi, commonly referred to as the Social Plan.

The Social Plan, which inter alia sets out the grounds for the dismissals and accompanying measures to the employees affected, has to be expressly approved by the Labour Administration (“DRIEETS”).

To ensure the Labour Administration’s approval, employers must demonstrate that they have implemented sufficient measures aimed at helping the affected employees find a new professional activity and providing them with transitional assistance. The ex gratia payment (i.e., an additional indemnity granted beyond the statutory payments) is—together with training, outplacement, relocation aids, etc.,—a typical measure provided in a Social Plan.

Traditionally, the payment of an ex gratia amount did not prevent dismissed employees from filing a claim in order to obtain additional damages for unfair dismissal. Employees could therefore benefit from the ex gratia payment while seeking additional indemnification by challenging their dismissal.

In an unprecedented decision dated 14 January 2026, the French Labour Supreme Court has ruled that a Social Plan may validly make the granting of the ex gratia payment conditional upon the absence of a claim for unfair dismissal from the employee.

In the case at hand, the Social Plan mentioned that the ex gratia payment was aimed at compensating the employees for the harm suffered in connection with the economic dismissal. The agreement further specified that this indemnity served the same purpose as the damages for unfair dismissal and, as a consequence, it would only be paid after a one-year period—corresponding to the statute of limitations, after which employees are barred from challenging the validity of their dismissal.

The French Supreme Court decision may come as a surprise, since the highest jurisdiction has consistently held that the benefits provided under a Social Plan could not be made conditional upon signing of an individual settlement agreement (Cass. soc. 20-11-2007 no. 06-41.410) or upon the waiving of the employee’s right to sue their employer (Cass. soc. 22-1-2025 no. 23-11.033), as such clause would be deemed null and void (Cass. soc. 14-6-2006 no. 04-48.157).

With regard to this case, the Supreme Court relies on the fact that the benefit of an ex gratia payment overlapping with the damages for unfair dismissal does not prevent the claimants from filing a legal action based on other grounds.

Considering that unfair dismissal damages account for the largest portion of employment claims, this ruling is likely to be a thorn in the side for employees, as it potentially mitigates an important part of the employer’s financial exposure in case of litigation. As such, the ex gratia payment will constitute strong leverage for the employer when negotiating the Social Plan with the employee representatives or the unions.

Points of Caution

Several considerations merit attention when relying on this ruling:

• Novelty of the decision: This is an unprecedented ruling from the French Supreme Court, which still needs to be confirmed through future case law.
• Negotiated Social Plan: The decision was rendered in the context of a Social Plan negotiated with trade unions and not of a social plan that was unilaterally adopted. Still, in our opinion, there is no obvious legal reason that the outcome could not be the same in the case of a unilaterally adopted Social Plan, since the manner of adoption has no influence on the common aim of the ex gratia payment and of the unfair dismissal damages.
• Drafting the ex gratia clause: Employers should consider the various approaches available when drafting the ex gratia clause, including whether to disburse the indemnity only after expiry of the one-year limitation period or to pay it immediately while providing clawback wording should the employee ultimately succeed in obtaining damages for unfair dismissal.
• Proportionality of the ex gratia payment. In this case, the ex gratia amount was nearly equivalent to the statutory damages scale (known as “barème Macron”) applicable to unfair dismissals. A court might award damages when an ex gratia payment fails to fully compensate the harm linked to the employee's dismissal that would be considered unfair. 

The Supreme Court’s ruling of 14 January 2026 offers employers an interesting tool to manage litigation risk in the context of collective economic dismissals. By carefully structuring ex gratia provisions within a Social Plan, companies may be able to provide meaningful support to their dismissed employees while simultaneously reducing their litigation exposure. However, given the pending questions raised by this new case law, employers should seek tailored legal guidance when drafting their Social Plan.