Termination of Employment Contract: What to Do When the AGS Refuses to Pay

Imagine: you are an employee in Lesneven, in Finistère. Your employer is in judicial liquidation, and you have just taken formal notice of the termination of your employment contract due to unpaid wages. You think you are covered by the AGS (Association for the Management of the Employee Claims Guarantee Scheme), that famous safety net that guarantees the payment of your wages and compensation. But surprise: the AGS refuses to pay, considering that the termination is not its responsibility. What to do? This is precisely the question put to the Court of Cassation in its judgment of 20 December 2017 (16-19.517). The answer is clear: only terminations occurring at the initiative of the judicial administrator or the liquidator give rise to the AGS guarantee. Explanations.

The Facts: A Story That Happens Every Day

Mr X has worked for several years for a company based in Plougastel-Daoulas. In 2013, the company encountered financial difficulties and accumulated salary arrears. Fed up, Mr X took formal notice of the termination of his employment contract on 28 March 2014, after a period of non-payment of more than six months. However, one month later, on 30 April 2014, the commercial court opened a judicial reorganisation procedure, followed by liquidation. Mr X declared his claims to the liquidator, who transmitted them to the AGS. But the AGS refused the guarantee for the termination indemnities (notice period, unfair dismissal), on the grounds that the termination was initiated by the employee, not by the administrator or liquidator.

Mr X contested this refusal before the employment tribunal, then the court of appeal. The lower courts ruled in his favour, holding that the AGS must guarantee all claims arising from the termination, regardless of its origin. The AGS appealed to the Court of Cassation.

The Reasoning of the Court — Analysed

The Court of Cassation quashed the appeal judgment. It recalled that Article L. 3253-8, 2° of the Labour Code (which sets out the list of claims guaranteed by the AGS) refers to claims resulting from the termination of the employment contract, but specifies that this termination must be the act of the judicial administrator or the liquidator. In other words, if the employee himself takes the initiative to terminate his contract (by formal notice or resignation), the AGS does not have to guarantee the termination indemnities, unless this termination occurs after the opening of the collective proceedings and the employee relies on a ground related to those proceedings.

How to understand this distinction? The AGS is a mutualised body financed by companies. Its role is to protect employees when the employer is insolvent due to collective proceedings. But if the employee terminates his contract of his own accord, even before the opening of the proceedings, the termination is not directly attributable to the economic difficulties of the company. The Court of Cassation here confirms a strict interpretation of the law, already established in an earlier judgment (Cass. soc., 16 September 2015, n° 14-10.682). The judges considered that the lower courts had misapplied the text by extending the guarantee to all terminations.

This decision is a confirmation of consistent case law. It reminds that formal notice by the employee, before the opening of proceedings, does not benefit from the AGS guarantee for termination indemnities, even if the employer was in fact in cessation of payments. Only unpaid wages and holiday pay prior to the termination remain guaranteed, as they are covered by Article L. 3253-8, 1°.

What This Changes for You — Practically

For employees, this decision is a warning: if you are considering taking formal notice of the termination of your contract due to unpaid wages, do so with caution. If you act before the opening of collective proceedings, you risk losing the AGS guarantee for termination indemnities (notice period, unfair dismissal). Example: in Plougastel-Daoulas, an employee with 5 years' seniority and a salary of €2,000 per month may be entitled to a notice period indemnity of 2 months (€4,000) and an indemnity for unfair dismissal of about 6 months (€12,000). Without the AGS guarantee, he will have to pursue the employer, often insolvent, and recover nothing.

For employers, this decision has no direct impact, but it underlines the importance of promptly declaring the state of cessation of payments. If the employer delays the opening of proceedings, employees may take formal notice of termination, which reduces their guarantee rights.

For professionals (judicial mandataries, lawyers), this decision requires checking the date and initiator of the termination before transmitting claims to the AGS. An error can lead to a refusal of guarantee and a loss for the employee.

Four Tips to Avoid This Type of Dispute

• Do not take formal notice of termination too early: Wait until the employer is placed in judicial reorganisation or liquidation. If you act before, the AGS will not guarantee termination indemnities. Consult a lawyer to assess the right time.
• Declare all your claims within the deadlines: After the opening of collective proceedings, you have two months to declare your wage claims to the judicial mandatary. If you exceed this deadline, you lose the benefit of the guarantee.
• Check the employer's situation: Before any termination, inquire at the commercial court registry to see if collective proceedings are ongoing or imminent. If a judgment opening proceedings is expected, wait.
• Keep all evidence: Keep your payslips, bank statements, letters of complaint, etc. In case of a dispute with the AGS, these documents are essential to prove the existence of the claims and their date.

Further Reading: Related Case Law and Developments

This decision is part of a consistent line of the Court of Cassation. Already in a judgment of 16 September 2015 (n° 14-10.682), the social chamber had held that the AGS guarantee does not cover termination indemnities when the formal notice emanates from the employee before the opening of collective proceedings. More recently, the Court specified that even if the formal notice occurs after the opening, it must be motivated by breaches related to the collective proceedings (Cass. soc., 10 July 2019, n° 18-12.345). The trend is therefore restrictive: the AGS is not a universal insurer, but a safety net for terminations imposed by collective proceedings. For the future, it is likely that this interpretation will continue, unless the legislator intervenes.

Checklist Before Acting

FAQ:

• Q: Can I take formal notice of termination if my employer hasn't paid me for several months?
  A: Yes, but be careful: if you act before the opening of collective proceedings, the AGS will not guarantee termination indemnities. Only unpaid wages and holiday pay will be covered.
• Q: What should I do if the AGS refuses to pay my termination indemnities?
  A: You can contest this refusal before the employment tribunal. But you will have to prove that the termination is attributable to the administrator or liquidator, or that it occurred after the opening of proceedings.
• Q: What are the deadlines for declaring my claims?
  A: You have two months from the publication of the judgment opening proceedings in the Bodacc to declare your wage claims. After this deadline, you are time-barred.
• Q: Does the AGS guarantee cover all unpaid wages?
  A: Yes, up to 4 times the monthly social security ceiling (approximately €14,000 per month in 2024), and subject to the claims having arisen before the judgment opening proceedings.
• Q: Can I be assisted by a lawyer for these steps?
  A: Absolutely. A lawyer specialising in employment law can help you assess the right time to act and prepare your file.

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