Unfair Dismissal: Employer Must Reimburse Even if Employee Sets Up Their Own Company

Imagine a shopkeeper in Cluses, in Haute-Savoie, who dismisses an employee for a reason he believes is valid. A few months later, the former employee, unemployed, decides to set up a micro-enterprise. The shopkeeper thinks he is done with the matter. But then the ASSEDIC (now Pôle emploi) demands reimbursement of all unemployment benefits paid. Can they really ask him to pay, even though the employee has bounced back?

The Court of Cassation answered this question on 11 October 1989, in a decision that remains authoritative. In essence, the judges said: yes, the employer must reimburse, from the date of dismissal until the judgment, even if the employee has set up their own business. A decision with heavy financial consequences, and one worth examining.

Whether you are a business owner in Sallanches or a dismissed employee anywhere in France, this decision concerns you. I will explain why, and above all how to avoid finding yourself in this situation.

The Facts: A Story That Happens Every Day

Mr. X is an employee of SIPS, a company based in Lille. In 1985, his employer dismisses him. Mr. X contests the dismissal before the employment tribunal. In the meantime, he is unemployed and receives benefits from ASSEDIC (the unemployment insurance fund).

At the same time, Mr. X does not remain idle: he sets up his own business. He becomes his own boss. ASSEDIC continues to pay him benefits, because setting up a business does not always interrupt benefit payments (as provided by Article L. 351-22 of the Labour Code, in its 1980 version).

Before the employment tribunal, the employer is ordered to pay damages for dismissal without genuine and serious reason. ASSEDIC then seeks reimbursement of all benefits paid to Mr. X, amounting to 15,258.15 francs (approximately €2,325 today). The Douai Court of Appeal grants the claim only in part: it limits reimbursement to the period before the business was set up. ASSEDIC appeals to the Court of Cassation, arguing that reimbursement should cover the entire period from dismissal to judgment.

The judicial saga ends before the Court of Cassation, which rules in favour of ASSEDIC. The Court of Appeal's decision is quashed, and the case is remitted to another Court of Appeal.

The Reasoning of the Court — Analysed

The legal question is this: does Article L. 122-14-4 of the Labour Code (which allows the judge to order the employer to reimburse unemployment benefits) apply to all periods of compensation, including after the creation of a business?

The Court of Cassation answers in the affirmative, relying on two provisions. First, Article L. 122-14-4, which provides that the judge may order the employer to reimburse unemployment benefits paid to the employee dismissed without genuine and serious reason, up to a limit of six months' benefits. Second, Article L. 351-22, which provides for the continuation of unemployment benefits in the event of business creation, subject to certain conditions.

The reasoning is compelling: the law draws no distinction based on whether the employee has set up a business or not. As long as ASSEDIC has paid benefits, the defaulting employer must reimburse them. What few people know is that this reimbursement can be ordered by the judge of his own motion, without ASSEDIC having to request it (although in practice it often does).

In short, the employer cannot hide behind the employee's initiative to escape his obligation. The unjustified dismissal is the direct cause of the loss suffered by the unemployment insurance fund, and this loss continues until the day the judge rules.

What This Means for You — Practically

If you are an employer in Cluses, this decision reminds you that dismissing without a valid reason can cost you dearly. In addition to damages payable to the employee, you will have to reimburse Pôle emploi for all unemployment benefits paid, potentially for several months. For example, for an employee unemployed for 6 months with a benefit of €1,200 per month, the employer's bill could reach €7,200, in addition to the employment tribunal award.

If you are an employee, this decision protects you: it ensures that the defaulting employer does not benefit from your retraining to evade responsibility. Even if you set up your own business, the employer must reimburse what the unemployment insurance fund has paid. However, you must still challenge your dismissal within the time limits (12 months from notification).

If you are a business founder in Sallanches, know that your project does not cause you to lose your unemployment benefits, but it does not absolve your former employer. You can therefore combine your new activity with legal action against him.

undefined, I have encountered cases where the employer, believing that the creation of a business ended his obligations, refused to reimburse ASSEDIC. The result: additional proceedings, legal fees, and ultimately a heavier penalty. Better to anticipate.

Four Tips to Avoid This Type of Dispute

• Before dismissing, check the reason: A dismissal for personal reasons must be based on a genuine and serious cause (employee misconduct, professional inadequacy, etc.). An economic dismissal must comply with strict criteria. Seek advice from an employment lawyer before any decision.
• Document everything: Build a solid file: warning letters, appraisals, evidence of economic difficulties. Without evidence, the judge will consider the dismissal unjustified.
• Consider a settlement: If the reason is weak, a mutual termination agreement or a settlement (with compensation) can avoid employment tribunal proceedings and reimbursement of unemployment benefits. The settlement must be signed after the dismissal, and it extinguishes any future claim.
• Ensure you have legal cover: Legal protection insurance can cover defence costs in the event of a challenge. Check the limits and exclusions.

Further Reading: Related Case Law and Developments

The Court of Cassation has confirmed this position on several occasions. For example, in a decision of 5 November 1991 (No. 89-42.123), it held that reimbursement of unemployment benefits must include the period after the creation of the business, even if the employee had received income from his new activity. The trend is therefore consistent: the employer cannot escape reimbursement by invoking the employee's retraining.

However, a notable development occurred with the Law of 6 August 2015 (Macron Law), which capped the amount of reimbursement at 6 months' benefits, regardless of the loss. Previously, the judge could order reimbursement of all benefits paid, without limit. Today, the cap is 6 months, which reduces the risk for employers but does not eliminate it.

What this means for the future: employers must remain vigilant, as reimbursement can still amount to several thousand euros. And for employees, the 6-month cap does not prevent them from claiming additional damages for the harm suffered.

Checklist Before Acting

FAQ - Frequently Asked Questions

• Q: Can I challenge the reimbursement demanded by Pôle emploi?
  A: Yes, before the employment tribunal. But you must show that the dismissal was justified or that the amount claimed is incorrect. In practice, it is difficult to oppose if the dismissal has been found to be without genuine and serious cause.
• Q: What should I do if I am an employee and my employer does not reimburse Pôle emploi?
  A: You are not directly concerned, as it is Pôle emploi that takes action. But if your dismissal is challenged, ensure that Pôle emploi is informed so that it can claim reimbursement. You can also ask the judge to order this reimbursement.
• Q: Is there a limitation period for Pôle emploi to claim reimbursement?
  A: Yes, Pôle emploi's action is barred by a 2-year limitation period from the judgment finding the dismissal unjustified. After this period, the claim is inadmissible.
• Q: Is reimbursement automatic?
  A: No, the judge may decide not to order it, for example if the employer is acting in good faith or if the employee quickly found another job. But in practice, reimbursement is often ordered.
• Q: Can I negotiate a payment plan with Pôle emploi?
  A: Yes, it is possible to request an instalment plan. Contact Pôle emploi's legal department to discuss it.

Are you in a similar situation? A 30-minute initial consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →