Undeclared work: an employee working in France must be declared in France


In a decision dated March 12th, 2019 (n°17-80.744), the French Supreme Court confirmed the criminal liability of a Swiss company for undeclared work for non-compliance with its obligation to declare its two employees living and working in France. An opportunity to recall the significance of declaration and registration obligations.

Employees recruited in Switzerland to work in France

Two employees living in France were recruited by a Swiss bank as mutual funds sellers to increase the bank’s activity on the French territory.

The company did not have any legal entity in France and the employment contracts were governed by Swiss Law. Procedures and declarations related to these jobs were made to the competent authorities in Switzerland only.

However, following a complaint from one of the dismissed employees, criminal judges declared the Swiss company guilty of undeclared work on the French territory.

In this context, the following question was asked to the French Supreme Court: did the Swiss employer of employees recruited in Switzerland but working in France had to comply with French declaration obligations even though their working relationships were governed by Swiss Law?

By responding positively, the Supreme court confirmed the criminal liability of the Swiss company and the primacy of the French Law territoriality principle.

Applicability of French law

When working relationships have a cross-border dimension, the territoriality principle set by French Law makes it possible to resolve conflicts of laws between parties. Indeed, two rules may apply:

  • First, under the territoriality principle of criminal law, any act constituting an offence committed on the French territory leads to the application of French criminal law, even if the responsible person is a foreigner (Article 113-2 of the Criminal code).
  • Second, under the territoriality principle of social security law, the employee must be registered to the social security law applicable in the country in which he performs his work, regardless of his domicile or the headquarter of the employer (except in case of posting as per the EU Regulations n°883/2004 of April 29th, 2004, and n°987/2009 of September 16th, 2009).

Thus, in working relationships, the main criteria to determine the applicable law is the connection between employees’ duties and the national territory.

As judges underlined, the employees had been hired to carry out the majority of their activity (if not all) in France, where they had also chosen to leave. Therefore, it did not matter whether the employer had regularly carried out the mandatory steps and declarations provided for by Swiss law since the link between the activity performed by the employees and France was established. The employer should have complied with French Law by declaring these employees to French authorities.

This decision clearly illustrates the importance given to the application of repressive rules to fight against employment fraud in France.

French rules on illegal work

Undeclared work is a category of illegal work which consists in intentionally hiding the exercise of an activity or the employment of employees in France (Articles L. 8221-3 and L. 8221-5 of the Labour Code). That is the case when the employer does not declare the employee to social security and tax authorities, as in the present case.

Indeed, throughout the working relationship, the employer is subject to certain declarations to the French Administration.

At the time of hiring, the employer must fulfill the so-called employee’s prior individual declaration at the earliest eight days before commencement of work (Article L. 1221-10 of the Labour Code). Failure to comply with this rule per se constitutes the offense of undeclared work.

During the execution of the employment contract, the employer makes, each month, the so-called company’s “social declaration”, to declare to the concerned authorities all data necessary to manage employees’ social security (Article R. 133-13 of the Social Security Code). Failure to comply with this rule also constitutes an offense.

In the present case, contrary to the Swiss company’s argument, compliance with the declaration obligations provided by Swiss Law (which was the law applicable to the contracts) did not exempted it from fulfilling the prior employment declaration of its two employees in France, since the bank was perfectly aware of the fact that the employees would be working and living in France.

Furthermore, the fact that only two employees were concerned by the concealment was irrelevant: The Supreme Court considers that this was not a valid criteria likely to exclude the offense.

Thus, the offence of undeclared work was characterized. It remained necessary to establish the employer’s intention to avoid its reporting obligations.

On this point, the Supreme Court retained with a strict interpretation of the concept of intent. Indeed, the mere observation of a breach in reporting obligations with full knowledge of the facts was deemed sufficient to characterize the employer’s guilty intention to conceal the activity (Supreme Court, February 27th, 2018, n°17-80.856). Also, the employer cannot use an accounting error as an excuse to justify his failure to proceed to the declaration insofar as he is responsible for ensuring the company’s compliance with applicable rules (Supreme Court, March 27th, 2018, n°17-83.355).

On this basis, judges considered that the Swiss bank managers could not ignore that they were subject to French reporting obligations given their role and level of seniority. Indeed, it was clearly established that the employees had been recruited to work solely in France.

Thus, the Swiss company’s intentional and wrongful omission to comply with French Law was characterized.

Therefore, foreign companies, and in particular those having cross-border activities, must be careful when recruiting employees to perform their duties in France: even if the employment contract is governed by a foreign law, the employee must be the subject of a prior employment declaration in France.