Exit strategies for senior executives: negotiating, protecting your interests and maximising your exit package

1. Preliminary review: understanding your rights before negotiating an exit

1.1 – Why a preliminary review matters

Before entering into exit negotiations, a senior executive needs a precise, quantified assessment of their entitlements. Negotiating without identifying accrued rights and applicable minimum protections risks accepting an inadequate offer. A preliminary legal and financial review is the first step towards a well-managed departure.

1.2 – Matters to review

The review should cover all rights and obligations arising from the employment contract and the position held:

• Calculation of the dismissal indemnity: the statutory or collectively agreed amount, whichever is more favourable, based on the correct reference salary (fixed pay, variable remuneration and benefits in kind)
• Notice period and applicable terms: contractual or collectively agreed duration, release from the obligation to work and pay during that period
• Applicable collective bargaining agreement and any provisions specific to executive employees
• Employment contract provisions: non-compete, mobility, training-cost repayment and confidentiality clauses
• Share option, free share and BSPCE plans: accrued rights, vesting conditions and consequences of departure
• Employee savings and supplementary pension arrangements: PEE employee savings plans, collective PER retirement plans and supplementary pension schemes, including legacy arrangements commonly known as “Article 83” and “Article 39” schemes
• Benefits in kind: company car, accommodation, telephone and insurance
• Any golden parachute arrangements under the employment contract or the company’s constitutional documents

2. Choosing the right exit strategy: mutual termination, dismissal or settlement

2.1 – Mutual termination agreements: flexibility within a statutory framework

A mutual termination agreement (rupture conventionnelle) is often an attractive option for senior executives. Neither party has to establish grounds for dismissal; the termination payment can be negotiated above the applicable statutory minimum; the arrangement may give rise to entitlement to unemployment benefits, subject to the relevant eligibility conditions; and the statutory procedure offers safeguards for both parties. However, the agreement must be genuinely mutual and cannot be imposed by either party.

For senior executives, this process provides scope to negotiate the payment, the termination date, any non-compete obligations and the return of company property. There is a statutory withdrawal period of fifteen calendar days, followed in principle by an administrative approval procedure with a fifteen-working-day examination period. For employees with special statutory protection, authorisation from the labour inspector replaces the standard approval procedure.

2.2 – Dismissal: responding strategically

When an employer initiates dismissal proceedings, the executive should promptly assess whether the stated grounds are substantiated, whether the procedure is lawful and the prospects of a successful challenge. A dismissal lacking a genuine and serious cause (cause réelle et sérieuse) may give rise to compensation under the statutory scale, subject to exceptions for void dismissals and other special regimes. Statutory and contractual termination payments must be considered separately.

In some circumstances, it may be strategically preferable not to challenge the dismissal where the proposed payments are satisfactory and the outcome of litigation is uncertain. In others, a legal challenge may be necessary to secure appropriate compensation.

2.3 – Settlement agreements: resolving disputes

A settlement agreement (transaction) is a contract through which the parties, by making reciprocal concessions, resolve an existing dispute or seek to prevent a prospective dispute. Where it settles the consequences of a dismissal, it must be concluded after the dismissal has been duly notified. It bars further proceedings concerning the same subject matter, within the scope of the disputes settled (Article 2052 of the French Civil Code).

For a settlement agreement to be valid, it must:

• Where it concerns a dismissal, be entered into after the dismissal has been notified, in accordance with the applicable case law
• Involve genuine reciprocal concessions by both parties
• Be entered into freely and without any defect of consent

2.4 – Employee-initiated termination for employer breach: a high-risk option

Under the French procedure known as prise d’acte de la rupture, an employee may terminate the employment relationship on the basis of serious breaches by the employer, such as harassment, unilateral alteration of contractual terms or failure to pay remuneration. If the breaches are sufficiently serious to make continued employment impossible, the termination has the legal consequences of dismissal without genuine and serious cause or, in some circumstances, void dismissal. Otherwise, it has the consequences of resignation, without extinguishing accrued salary claims or outstanding holiday pay. Any entitlement to unemployment benefits must be assessed under the applicable unemployment insurance rules. This is a high-risk course of action requiring careful legal advice.

3. Negotiating severance payments: statutory minimums and negotiating leverage

3.1 – Statutory and collectively agreed minimum entitlements

The statutory dismissal indemnity is calculated at one-quarter of a month’s salary for each year of service for the first ten years, then one-third of a month’s salary per year thereafter (Article L. 1234-9 of the French Labour Code). Entitlement is subject, in particular, to the required length of service and the absence of dismissal for faute grave or faute lourde. The calculation is governed by Article R. 1234-2. An applicable collective bargaining agreement may provide a higher payment, but payments serving the same purpose are not automatically cumulative.

3.2 – Negotiating leverage for senior executives

Beyond the statutory or collectively agreed minimum, several factors may support a claim for a higher termination payment:

• Weaknesses in the grounds for dismissal: where the stated reasons are open to challenge, the employer may prefer negotiation to costly proceedings
• Procedural irregularities: certain breaches of procedure may give rise to compensation, depending on the loss suffered and the applicable regime
• Length of service and difficulty securing an equivalent role: factors that may support an enhanced payment
• Restrictions arising from a non-compete clause: where the clause remains in force, its effect on future employment opportunities is a relevant negotiating consideration
• Oral or written commitments: established and legally enforceable undertakings should be taken into account
• Confidentiality and reputation: the announcement of the departure, reciprocal confidentiality and external communications may be addressed through lawful provisions, without restricting protected reporting or the right to give evidence

3.3 – Golden parachute arrangements

The term golden parachute may refer to different payment obligations: a contractual indemnity on termination of employment or a payment triggered by cessation of a corporate office. Whether such payments can be combined, their validity and their tax and social security treatment depend on their legal basis. In listed companies, arrangements benefiting corporate officers must also be assessed against the applicable corporate governance and remuneration policy rules. It would be incorrect to assume that all executive exit payments are subject to the same regime.

4. Non-compete clauses: negotiating a waiver or enhanced compensation

4.1 – The implications of non-compete restrictions for senior executives

A post-termination non-compete clause can be particularly restrictive for a senior executive whose expertise lies within a specialised sector. A properly drafted clause may prevent competing activities for one or two years across a defined geographical area. Such restrictions can significantly affect prospects of finding a comparable position.

4.2 – Negotiating the release of a non-compete obligation

An employer may unilaterally waive a non-compete restriction only where that power is provided for by the applicable contractual terms or legal framework, and subject to the relevant formalities and time limits. The deadline for waiver requires particular attention where the employee is released from working their notice period. A valid waiver releases the employee from the restriction and the employer from the obligation to pay the associated consideration. For an executive, securing such a waiver may be more valuable than negotiating a larger payment, because it can facilitate an earlier return to comparable employment.

4.3 – Negotiating the financial consideration

If the non-compete obligation remains in force, the financial consideration must not be merely nominal or derisory. French case law requires genuine consideration but does not prescribe a general statutory minimum. There is no generally applicable statutory threshold of 20% or 25% of salary: the adequacy of the consideration must be assessed in light of the restrictions imposed and any relevant collective bargaining provisions. Its negotiation is therefore a significant financial issue.

5. Employment-related benefits: share options, free shares and company cars

5.1 – Share options and BSPCE warrants

The treatment of share options and BSPCE warrants (bons de souscription de parts de créateur d’entreprise, a French tax-advantaged equity warrant scheme) on departure depends on the specific statutory provisions, the award decisions and the relevant plan rules. The mechanisms and tax regimes are not the same. Some plans provide for the lapse of unexercised options on departure; others allow a limited post-termination exercise period. Reviewing the plan documentation before negotiations is essential. The timing of the termination may significantly affect an executive’s rights.

5.2 – Free share awards (AGA)

For free share awards (attributions gratuites d’actions, or AGA), it is important to distinguish unvested rights, shares that have vested definitively and any mandatory holding period. The consequences of departure depend on the plan and applicable legislation, including continued-service conditions, provisions for death or disability and the relevant plan terms. Forfeiture of unvested rights is not an invariable rule. Negotiating the preservation of some or all unvested rights can be important where equity makes up a substantial proportion of remuneration.

5.3 – Company cars and other benefits in kind

The return of a company car is usually governed by the employment contract or agreed as part of the termination arrangements. The return date, any preferential purchase option and responsibility for transport costs during the notice period should be addressed expressly. The same applies to telephones, computers, employer-provided accommodation and other role-related benefits.

6. Tax and social security treatment of termination payments

6.1 – Distinguishing payments by type of termination

The tax and social security treatment of termination payments cannot be reduced to a single exemption threshold. It depends on the nature of the payment and the manner in which the relationship ends (dismissal, mutual termination, a redundancy programme known as a plan de sauvegarde de l’emploi or PSE, settlement, or cessation of corporate office). For dismissal indemnities outside a PSE, the income tax exemption is determined under Article 80 duodecies of the French General Tax Code: in particular, the statutory or collectively agreed amount, or the greater of twice the previous year’s gross annual remuneration and 50% of the indemnity, with the latter alternative subject to a ceiling of six annual French social security ceilings (plafond annuel de la sécurité sociale, or PASS).

Social security contributions and the French CSG and CRDS levies are governed by separate limits and conditions, including special rules for certain high-value termination payments. The applicable ceilings must be calculated using the PASS relevant to the period in question, rather than carrying forward figures from an earlier year.

6.2 – Mutual termination agreements and the specific employer contribution

For an individual rupture conventionnelle, the conditions for income tax exemption depend, among other things, on whether the employee is entitled to receive a retirement pension. The specific employer contribution applicable to certain mutual termination indemnities must be distinguished from ordinary social security contributions and the rules governing dismissal payments. Its rate and assessment base should be checked by reference to the relevant termination and payment dates.

6.3 – Salary-related payments and settlement compensation

• Salary, earned bonuses, accrued holiday pay and payment in lieu of notice: these sums generally retain their employment income character and corresponding tax and social security treatment.
• Dismissal indemnities: their treatment depends on the statutory conditions and ceilings applicable to the particular dismissal.
• Settlement payments: their classification depends on their actual purpose and the loss genuinely compensated. The wording of the settlement agreement alone cannot guarantee an exemption.
• Payments relating to corporate office: their tax and social security treatment must be assessed separately from payments arising on termination of the employment contract.

7. Executives holding both a corporate office and an employment contract

7.1 – Concurrent corporate office and employment

Some senior executives hold both an employment contract (for genuinely distinct operational or technical duties) and a corporate office (mandat social, such as president, managing director or gérant). This dual status raises particular issues on departure: removal from corporate office and termination of employment are legally separate events, governed by different rules.

7.2 – Removal from corporate office

The rules governing removal depend on the corporate form, the office held and the company’s constitutional documents. Some corporate officers may be removed without the need to establish just cause. By contrast, the gérant of a French SARL may be entitled to damages if removed without just cause (Article L. 223-25 of the French Commercial Code). Humiliating or otherwise abusive circumstances surrounding removal may also give rise to compensation, independently of the question of just cause. The competent court depends on the nature of the dispute.

7.3 – Protection of the employment contract

Removal from corporate office does not automatically terminate a genuine employment contract. If the contract was suspended during the term of office, the conditions for its resumption must be considered. If it remained in force, any termination must comply with French employment law. Conversely, termination of the employment contract does not, of itself, end the corporate office. This distinction is central to an executive’s exit strategy: they may be removed from office while retaining an employment contract, or dismissed as an employee while remaining a corporate officer.

8. When negotiations fail: preparing French employment tribunal proceedings

8.1 – Building a robust evidential record

Where negotiations fail to produce a satisfactory agreement, proceedings before the French employment tribunal (conseil de prud’hommes) remain a possible remedy. The executive should prepare relevant evidence lawfully, respecting confidentiality, data protection and the requirements that evidence be necessary and proportionate:

• Retain relevant contractual documents: employment contracts, amendments, share option plan documents and workplace rules
• Compile evidence of remuneration: payslips, bonus statements and bonus award confirmations
• Record alleged employer breaches: relevant emails, meeting notes and messages
• Document actual working conditions: working hours, business travel and responsibilities exercised

8.2 – Time limits for bringing claims

Senior executives must pay close attention to the applicable limitation periods:

• 12 months to challenge termination of the employment contract (including dismissal and an individual mutual termination agreement)
• Two years, as a general rule, for claims concerning performance of the employment contract; three years for claims in respect of payments legally characterised as wages, including certain bonuses
• Five years, in principle, for compensation claims arising from discrimination or harassment, subject to the applicable commencement rules and specific provisions

These periods are subject to exceptions and different starting points (see, in particular, Article L. 1471-1 and Article L. 3245-1 of the French Labour Code).

8.3 – Why early legal advice matters

Employment disputes involving senior executives are rarely straightforward. They may involve substantial sums, challenges to employment status, complex remuneration arrangements and a possible overlap with corporate office. Seeking advice from a French employment lawyer at the outset of negotiations, rather than only after they break down, can materially affect the available options and the eventual outcome.

9. Frequently asked questions about exit strategies for senior executives

10. Legal advice on negotiating a senior executive’s departure

The departure of a senior executive can involve employment law, company law, taxation and contract law simultaneously. These issues are interconnected: the form of termination affects the tax treatment of payments, non-compete restrictions influence negotiations, and the status of a corporate officer determines the applicable removal rules. This complexity calls for a coordinated approach informed by each of these areas of French law.

Patchwork Avocats advises senior executives and businesses throughout negotiated exits, from assessing entitlements and developing a negotiating strategy to drafting or reviewing termination and settlement agreements, analysing contractual restrictions and, where necessary, handling employment or commercial litigation.

Are you a senior executive considering leaving your role or facing dismissal proceedings? Contact us.