Employee Profit-Sharing: A Commercial SARL Outside the Scope of the 1987 Decree

Imagine: you are the manager of an SARL in Bourbourg, specialising in retail trade. You employ 120 employees. A trade union demands that you implement a profit-sharing agreement. You thought you were subject to the general regime of the 1986 ordinance? Not so simple. The question that torments many business leaders is: am I affected by the 1987 decree applicable to public companies? This decision of the Court of Cassation of 6 June 2000 (No. 98-20.304) provides a clear answer.

In this case, the SARL Hôtel Frantour Paris-Berthier, a private law company operating a hotel, was asked by a trade union to conclude a profit-sharing agreement. The company refused, arguing that it was not a public company. The Court of Cassation upheld its position: a private law entity with a purely commercial activity does not fall within the scope of the Decree of 26 November 1987, regardless of the origin of its capital. It remains subject to Article 7 of the Ordinance of 21 October 1986.

What this means for you, owner of an SARL in Coudekerque-Branche or elsewhere: if your company is neither a public company nor a nationalised company, you are subject to the general law on profit-sharing, not the special regime. But beware: the thresholds and rules differ. Let us decipher this decision and its practical implications together.

The Facts: A Story Like Any Other

The case began in Paris, but it could have taken place in Dunkirk, Bourbourg or Coudekerque-Branche. The SARL Hôtel Frantour Paris-Berthier operates a hotel. It employs more than 100 employees. Its capital is majority-owned by public entities? No matter: it is incorporated as an SARL and carries out a purely commercial activity. A trade union (the CGT local union of the 17th arrondissement) sues it to compel it to conclude a profit-sharing agreement, in accordance with the Decree of 26 November 1987.

The company resists. It argues that this decree applies only to public companies and nationalised companies, and that it is not one of them. The Paris High Court ruled against it at first instance? No, the Court of Appeal (Paris, 1998) confirmed the company's position: the 1987 decree does not apply to it. The trade union appeals to the Court of Cassation.

The Court of Cassation dismisses the appeal. It recalls that the Decree of 26 November 1987 applies to 'public companies and nationalised companies' and distinguishes those on a list. An SARL, even with majority public capital, is not a public company if its activity is commercial. It therefore remains subject to the Ordinance of 21 October 1986 relating to employee profit-sharing. A twist? No, a confirmation of legal logic: the nature of the activity prevails over the origin of the capital.

The Reasoning of the Court — Analysed

The Court of Cassation relies on two texts. First, Decree No. 87-1024 of 26 November 1987, which sets out the profit-sharing rules for public companies. Second, Article 7 of Ordinance No. 86-1134 of 21 October 1986, which makes profit-sharing mandatory for private companies with more than 100 employees. But how do you know which text applies? The Court answers: you must look at the legal nature of the company and its object.

The 1987 decree concerns only 'public companies' and 'nationalised companies' (Article 1). However, the SARL Hôtel Frantour is a private law entity with a purely commercial activity. It is neither a public company (defined by law as a public law legal person or a nationalised company) nor a nationalised company. The fact that its capital is majority-owned by public entities does not change anything: consistent case law holds that majority state ownership does not turn an SARL into a public company if it carries out a commercial activity in private law form. In other words, what matters is not the shareholding, but the form and the object.

In short, the judges considered that the trade union could not require the application of the 1987 decree. The company simply had to comply with the 1986 ordinance, which imposes profit-sharing, but under different rules (for example, the formula for calculating the special profit-sharing reserve is not the same). This reasoning is a confirmation of previous case law: the Court of Cassation does not innovate; it applies a classic distinction between the public sector and the private sector. What few people know is that this distinction has significant practical consequences on the amount of profit-sharing and reporting obligations.

What This Means for You — Practically

If you are at the head of an SARL, an SAS or an SA with commercial activity, even with public shareholders, you are not subject to the 1987 decree. You fall under the 1986 ordinance (codified in Articles L. 3322-1 et seq. of the Labour Code). Concretely, this means that:

• For the director: you must negotiate a profit-sharing agreement with employee representatives if you employ at least 50 employees (threshold lowered since 2019). But the calculation rules for the reserve are those of the ordinance, which may be more favourable to the company than the decree in some cases.
• For the employee: your profit-sharing rights are calculated according to the legal formula (net profit - equity x 5%). Under the 1987 decree, the calculation may include different elements (such as dividends paid to the State). Result: in Coudekerque-Branche, an employee of a commercial SARL will potentially receive less than their counterpart in a public company, but the company has a lower burden.
• For the trade union: you cannot require the application of the 1987 decree to a commercial company, even with public capital. Your claim must be based on the 1986 ordinance.

Let us take a numerical example: an SARL in Bourbourg employs 150 employees. Its net profit is €500,000. Under the 1986 ordinance, the profit-sharing reserve is (500,000 - 0) x 5% = €25,000. If the 1987 decree applied, the calculation might be different (for example, including depreciation charges), which could increase the reserve. But the company is not required to do so. How to react? Check your legal form and object: if you are a commercial company under private law, you are outside the scope of the decree.

Four Tips to Avoid This Type of Dispute

• Check your legal form and activity. If you are an SARL, SAS, SA with a commercial object, you are not a public company. Do not be intimidated by trade unions that invoke the 1987 decree.
• Implement a profit-sharing agreement in accordance with the 1986 ordinance. As soon as you reach 50 employees (current threshold), negotiate an agreement. Failing that, the tax authorities may impose penalties (late payment interest).
• Keep evidence of the commercial nature of your activity. Articles of association, Kbis extract, annual accounts: show that you carry out a commercial activity, even if public entities hold shares.
• Anticipate trade union demands. If a trade union demands the application of the 1987 decree, reply by registered letter referring to this decision (No. 98-20.304). This may avoid a lawsuit.

Further Reading: Related Case Law and Developments

This decision is part of consistent case law. For example, a judgment of the Social Chamber of 12 July 1995 (No. 93-41.546) already held that a mixed-economy public limited company was not a public company within the meaning of the 1987 decree. More recently, the Court of Cassation recalled in a judgment of 13 January 2021 (No. 19-17.234) that the qualification of a public company depends on the nature of the activity and not on the ownership of capital. The trend is clear: judges prioritise the legal form and corporate object over shareholding. This means that, even if the State owns 100% of a commercial SARL, it remains subject to the general law on profit-sharing. In future, we can expect this distinction to be maintained, unless the legislator intervenes to extend the 1987 decree to companies with majority public capital.

Frequently Asked Questions

• What is a public company? A public law legal person (State, local authority) or a nationalised company. A commercial SARL is not one, even if the State holds the majority of its capital.
• Can I be sued if I do not apply the 1987 decree? No, if you are a private law entity with a commercial object. However, you must apply the 1986 ordinance (profit-sharing) if you have at least 50 employees.
• What are the deadlines for implementing a profit-sharing agreement? You must negotiate within one year of crossing the 50-employee threshold. Failing that, the administration may unilaterally set the rules.
• What is the cost of profit-sharing? The reserve is capped at 20% of the wage bill and cannot exceed 75% of the annual Social Security ceiling per employee. The actual cost depends on the profit.
• What should I do if a trade union sues me? Contact a lawyer specialising in labour law or company law. You can rely on this decision to exclude the application of the 1987 decree.

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