Compensatory Payment in Lieu of Notice: Employer Only Pays if They Dispense with the Employee's Notice

Imagine the scene: in Mimizan, an employer and his employee shake hands over coffee. The employee resigns, the employer agrees to dispense with the notice period (the obligatory working period after resignation). "No problem, you can leave immediately," says the employer. Except that a few months later, the employee claims a compensatory payment in lieu of notice (a sum paid to replace the unworked notice period). The employer believes they owe nothing because they were in agreement. Who is right?

This seemingly simple question divided the courts. The French Supreme Court (the highest judicial court in France) ruled on 28 January 2005 in a decision that remains authoritative. It recalled a key principle: the employer must pay the compensatory payment in lieu of notice only if they, of their own volition, dispensed with the employee's obligation to work the notice, or if the failure to perform is due to their fault. If both parties agreed, the payment is not due.

But what does this actually mean for an employer in Mont-de-Marsan or an employee in Mimizan? A lot. This decision protects the good-faith employer but traps the employee who may have thought they could obtain double payment. In this article, I break down the judges' reasoning, the practical implications, and give you tips to avoid disputes.

The Facts: An Everyday Story

Mr. Y..., an employee of a company in Mont-de-Marsan, submitted his resignation on 27 June 2003. His employer, Mr. X..., replied in writing: "I note your resignation effective 27 June 2003 and give my agreement regarding the waiver of the notice period." In other words, the employee left his job immediately, without working the notice months provided for in his contract or collective agreement (the period during which he should have continued working before leaving).

But once he left, the employee believed the employer should have paid him a compensatory payment in lieu of notice, i.e., the equivalent of the wages he would have received if he had worked during that period. He brought a claim before the industrial tribunal (lawyer court for employment disputes) to obtain this sum. The employer defended himself by saying: "We agreed that he would leave immediately; I did not force him. Why should I pay?"

The industrial tribunal ruled in favour of the employee: it ordered the employer to pay the compensatory payment. The lower court judges reasoned that the employer had dispensed with the employee's notice, so he must pay. But the employer appealed to the Supreme Court. The Court examined the case: was there a unilateral waiver by the employer, or a mutual agreement?

Plot twist: the Supreme Court quashed the industrial tribunal's judgment. It noted that the lower court judges had themselves found that the failure to perform the notice had been decided "by mutual agreement between the parties." However, the rule is clear: if the employer does not unilaterally decide to waive the notice, but both agree, no compensatory payment is due. The case was remitted to another industrial tribunal for rehearing in accordance with this rule.

The Court's Reasoning — Analysed

The Supreme Court relied on the former Article L. 122-8 of the Labour Code (now Articles L. 1234-1 et seq.), which provides that an employee who resigns must serve a notice period, unless waived by the employer. If the employer unilaterally waives it, they must pay a compensatory payment (an amount equal to the salary the employee would have received). But this rule has an exception: if the failure to perform the notice is decided by mutual agreement, the compensatory payment is not due.

In clear terms, the Court distinguishes two situations:

• Unilateral waiver by the employer: the employer says "I no longer want you to come to work, leave now"; they must pay the compensatory payment, because it is their sole decision that deprives the employee of their salary.
• Mutual agreement: the employee proposes to leave without notice, the employer accepts, or vice versa; in this case, the compensatory payment is not due, because the employee consented to not working and not being paid.

What few people know is that the burden of proof is crucial. It is for the employer to prove that there was mutual agreement. In Mr. Y...'s case, the employer's letter saying "I give my agreement" sufficed to prove the agreement. But if the employer had simply let the employee leave without saying anything, this could have been interpreted as a unilateral waiver, and the compensatory payment would have been due.

This decision is not a reversal of precedent but a confirmation of a constant principle. The Supreme Court has already ruled in this way on several occasions (e.g., Soc., 13 May 1998, No. 95-44.111). It simply reminds that the industrial tribunal cannot ignore its own findings.

Note, however: if the employer is the cause of the failure to perform the notice (e.g., they refuse to let the employee work), the compensatory payment is due. But here, the employee resigned and agreed not to serve the notice.

What This Means for You — Practically

For the employer in Mont-de-Marsan: if an employee asks to leave without notice and you agree, ensure you formalise the agreement in writing (letter, email) stating that both parties agree to waive the notice period. This way, you will avoid a later claim for compensatory payment. undefined, I have seen cases where an employer, through a mere oral agreement, ended up being ordered to pay several thousand euros due to lack of proof of agreement.

For the employee in Mimizan: if you resign and the employer waives your notice, ask yourself whether you prefer to be paid for that period (compensatory payment) or leave immediately. If you agree to leave without payment, make sure it is clear: a written document stating "waiver of the compensatory payment in lieu of notice" is ideal. Caution: if the employer forces you to leave without your agreement, you are entitled to the compensatory payment.

Example with figures: an employee with a monthly salary of €2,500 and a notice period of 3 months. If they leave by mutual agreement without notice, the employer saves €7,500. But if the employer unilaterally waives the notice, they must pay this sum. The difference is huge.

Practical advice: for both parties, the golden rule is writing. A simple dated email can be used as evidence before the industrial tribunal. Do not hesitate to consult a lawyer to draft a letter waiving the notice period.

Four Tips to Avoid This Type of Dispute

• Formalise the agreement in writing: whether you are employer or employee, as soon as the waiver of notice is mentioned, draft a document signed by both parties stating that the notice will not be served and that this is by mutual agreement. Indicate the contract end date and the waiver of any compensatory payment.
• Distinguish unilateral waiver from agreement: if the employer alone decides to waive the notice, they must pay. To avoid any ambiguity, state in the writing: "The parties mutually agree to waive the employee's obligation to serve the notice period."
• Keep all communications: emails, letters, texts. In the event of a dispute, this is your best evidence. If the agreement is oral, have it confirmed in writing immediately.
• Consult a lawyer lawyer: before signing anything, an employment lawyer can advise you on the consequences. The cost of a consultation is negligible compared to a judgment from the industrial tribunal.

Further Analysis: Related Case Law and Developments

This 2005 decision is part of a consistent line. For example, in a judgment of 13 May 1998 (No. 95-44.111), the Supreme Court had already held that "the employer who waives the employee's obligation to serve notice must pay the compensatory payment, unless this waiver results from mutual agreement." More recently, the Social Chamber reaffirmed this principle in a judgment of 17 March 2015 (No. 13-26.947).

The trend is therefore stable: judges are very attached to the parties' intention. If the agreement is clear and proven, the compensatory payment is not due. On the other hand, courts are strict on the burden of proof: it is for the employer to demonstrate the agreement. In the absence of a writing, they often presume a unilateral waiver.

For the future, there is no indication of legislative change. But note: some collective agreements may provide for more favourable rules for the employee (e.g., a minimum compensatory payment even in case of agreement). Always check your collective agreement.

Checklist Before Acting

• Q: What to do if the employee asks to leave without notice?
  A: Propose a written document stating that both parties agree to the waiver and waive any compensatory payment. Keep a copy.
• Q: Can the employer unilaterally impose the waiver?
  A: Yes, but they will have to pay the compensatory payment. They can also refuse the waiver and require the employee to work the notice.
• Q: Can the employee refuse the unilateral waiver?
  A: Yes, they can insist on working the notice and being paid. But if they accept, they lose their right to the compensatory payment.
• Q: What are the time limits for claiming the compensatory payment?
  A: The employee has 3 years from the end of the contract to bring an action before the industrial tribunal (limitation period).
• Q: What is the cost of a consultation?
  A: An initial consultation with a lawyer lawyer costs between €150 and €300, but can prevent costly mistakes.

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