« Golden hello » sign-on bonuses are a common practice in certain industries such as the banking and financial sector and aim to attract talents and/or compensate medium or long-term bonuses forfeited by employees when leaving their previous employer. These bonuses are also a way to retain employees. The French Supreme Court, in a recent ruling, granted them full effectivity.
Until this ruling, the French Supreme Court had systematically considered that compensation automatically accrued based on time worked and that it could not be subject to a condition based on being present within the company beyond the date of such accrual. Moreover, the Court considered that deferred compensation, such as making the payment of an end-of-year bonus dependent on employees being still employed on 30 June of the following year, was a breach of employees' freedom to engage in work and to pursue a freely chosen or accepted occupation.
In this recent ruling, the French Supreme Court stated that this type of clause does constitute a limitation of employees' freedom but that such limitation was neither unjustified nor disproportionate. 2 conditions mut be met: the bonus must be distinct from the employee's normal compensation and its objective must be to retain an employee with which the employer seeks a long-term relationship. However, the Court appears to exclude the possibility for an employer to seek the full reimbursement of the sign-on bonus.
Key Action Points for Human Resources and In-house Counsel
- Seek advice before drafting « golden hello » sign on clauses.
- Review existing clauses to ensure compliance with this recent case law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.