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France on the verge of passing new measures on go-back bonuses for material risk takers

France
19/11/2018
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With Brexit drawing closer, the PACTE bill currently discussed by the French Parliament contains several measures aiming at asserting Paris’ strength as a financial center of the EU.

Among those provisions, one introduces measures on traders’ variable compensation as per the 604/2014 Regulation of 4 March 2014 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution's risk profile:

  • the variable compensation owed to material risk takers in financial institutions may be reduced in whole or in part or be recovered whenever individuals disregarded regulations on risk taking laid down by the company, and in particular if they are liable for actions that caused substantial loss to the company or did not comply with their duties of professional care;
  • the reduced or recoverable part of such bonuses will be excluded from the calculation base of statutory severance pay and of damages for wrongful dismissal.

Specific legislation had to be taken in order to allow financial institutions to reduce or recover part of the variable compensation since French Labour Code prevents all kinds of financial sanctions.

It has to be stressed that French Government tried to pass identical measures earlier in 2018. However, they were rejected by the French Constitutional Court for procedural reasons.

As to the content of these provisions, the opinion given by the French Council of State on 18 June 2018 states that they do not infringe the constitutional principle of equal treatment before the law.

If voted by Parliament, these measures could enter into force as early as the first quarter 2019.

Louis Paoli, Associate, and Caroline Froger-Michon, Partner, CMS Francis Lefebvre Avocats.

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