Law firm specialising in employment law
and social security law.
Law firm specialising in employment law
and social security law.
Introduced by Law no. 2013-504 of 14 June 2013 on securing employment, the portability system enables former employees to maintain their group cover free of charge if their employment contract is terminated.
Over the last few years, this system has been the subject of numerous questions. In particular, the question has arisen as to the situation of an employee whose contract is terminated following the compulsory liquidation of his employer.
This system is guaranteed by Article L. 911-8 of the Social Security Code, which states that :
“Employees covered collectively, under the conditions laid down in article L. 911-1, against the risk of death, risks to the physical integrity of the person or linked to maternity or the risks of incapacity for work or disability benefit from the continuation free of charge of this cover in the event of termination of the employment contract, not as a result of gross negligence, giving entitlement to reimbursement by the unemployment insurance scheme, in accordance with the following conditions:
1° The continuation of cover is applicable from the date of termination of the employment contract and for a period equal to the period of unemployment benefit, within the limit of the duration of the last employment contract or, where applicable, the last employment contracts when they are consecutive with the same employer. This period is assessed in months, rounded up where necessary, but may not exceed twelve months;
2° The continuation of cover is subject to the condition that rights to additional reimbursements have been opened with the last employer;
3° The cover maintained for the benefit of the former employee is that in force in the company;
4° The continuation of cover may not result in the former employee receiving compensation in an amount greater than the unemployment benefit he or she would have received for the same period;
5° The former employee provides proof to his insurer, at the start of and during the period of continued cover, of the conditions laid down in this article;
6° The employer indicates the continuation of these benefits in the employment certificate and informs the insurer of the termination of the employment contract referred to in the first paragraph.
This article applies under the same conditions to the employee's dependants who are effectively covered by the guarantees mentioned in the first paragraph on the date of termination of the employment contract.”
It should be noted that the opening of insolvency proceedings cannot, on its own, justify termination of the contract or the company's membership, apart from the annual deadline or the legal procedure for non-payment. On the other hand, once the company has been wound up, there is no longer any cover, as the insurance contract is effectively terminated for lack of a policyholder.
A recent ruling on 15 February has once again taken a position on these issues.
Due to the many questions surrounding the application of such a scheme in the context of a judicial liquidation, the Cour de cassation issued 5 opinions (n°17013 to 17017) on 6 November 2017, in which it indicated that this scheme was applicable to former employees of an employer placed in judicial liquidation who met the conditions set out in this text. It specified that the continuation of the scheme was, however, subject to the contract or membership between the employer and the insurer not being terminated.
In the absence of any clarification, the Government was to set out in a report the conditions for implementing the continuation of cover in such a situation (including funding); the report was never submitted to Parliament.
These rules were then applied by the Court of Cassation in 2018. (Cass civ 2ème, 18 January 2018, n°16-27.332)
In this decision, the Court of Cassation reiterated the very essence of the text:
“While this text does not expressly exclude employees whose company has been declared bankrupt from this protective measure, it does require that “the guarantees maintained for the benefit of the former employee are those in force in the company” (article L.911-8, paragraph 1, 3° ); this condition, laid down in 2013, implies, on the one hand, the continuation of the insurance contract and, on the other hand, the existence of the company benefiting from the health and provident cover in order to ensure that the insurer pays the contributions due, it being noted that article 4 of the law of 14 June 2013 specifically provides, to compensate for the exclusion of this category of employees, that ‘the government [will] submit to parliament, before 1 May 2014, a report on the arrangements for paying for the continuation of health and provident cover for employees when a company is in receivership; this report [will] in particular present the possibility of involving a mutual fund, existing or to be created, to finance the continuation of health and provident cover when a company is in compulsory liquidation, under the same conditions as those set out in Article L. 911-8 of the Social Security Code,”.
In order to remedy this shortcoming, the Cour de cassation has added a financial condition to the use of the portability of provident cover in the context of a judicial liquidation, in addition to the condition of validity of the contract:
“It can be deduced from the combination of these texts and the preparatory work done by the National Assembly for Law no. 2013-504 of 14 June 2013 that the free continuation, for the benefit of an employee who has been made redundant, of the health and provident cover referred to in article L. 911-8 of the Social Security Code cannot be applied after a company has been wound up by court order, which results in the immediate cessation of business, unless the court authorises the company to continue, and in the absence, on the date on which this Court gives its ruling, of a scheme to finance the continuation of health and welfare cover for employees made redundant as a result of their employer being wound up by court order;”.
The Court of Cassation's position is justified by the underlying problem of risk pooling. In principle, the portability of cover for former employees should be paid for by the company ‘in bonis’, through contributions paid by the employer and employees. However, in the event of a court-ordered liquidation, the risk can no longer be pooled as soon as the business ceases and all employees are likely to be made redundant, which can happen as soon as the liquidation procedure is initiated.
In a ministerial reply dated 14 May 2020 (rep. Min. n°504, JOAN Q 14 April 2020 p. 2816), the Ministry of Solidarity and Health reiterated these provisions:
“In the absence of an effective collective contract, the scheme is no longer financed and cannot be implemented for the benefit of former employees [...] the absence of a financing scheme constitutes an obstacle to maintaining collective cover free of charge for the benefit of an employee who has been made redundant”.
However, in a ruling dated 5 November 2020 (Cass civ 2ème, 5 November 2020, no. 19-17.164), the Cour de cassation finally limited the scope of its ruling of 18 January 2018. Using its sovereign discretion, it gave a strict interpretation of Article L. 911-8 of the Social Security Code, which is a provision of public policy.
“The law made the portability of rights in favour of dismissed employees subject only to the existence and application of a collective supplementary contract on the day on which the employee was dismissed and created only one exclusion in favour of gross negligence’.
Thus, ‘the public policy nature of this text does not allow the company [...] to contractually derogate from the legal conditions it lays down;”.
Although it is being wound up by the court, a company has legal existence until the judgment closing the liquidation. As such, in the absence of any evidence of unpaid premiums, and in the absence of a formal notice of termination, the insurer is obliged to maintain cover.
In this case, the Court of Cassation set aside the criterion relating to the development of a financial mechanism enabling portability to be implemented in the context of a court-ordered liquidation. It pointed out that the principle and procedures for maintaining mutual cover maintain an obligation for the insurer and do not specify how it is to be financed. By redefining the financing system, it demonstrated that the risk pooling system invoked by the insurer in its defence was not a factor to be taken into account.
“This analysis also clashes with practice, as not all employees are obliged to take out the insurance offered by their employer if their spouse has joint cover with another company. Furthermore, if in a company with 100 employees, 99 employees who have been made redundant will benefit from portability, the only remaining active employee will not have to pay the contributions of the employees who have been made redundant. The distribution system should therefore be seen in a global macro-economic context and not be restricted to a member company”.
The Court of Cassation confirmed the position of a number of lower courts.
In particular, a few months earlier, the Colmar Court of Appeal had confined itself to a strict interpretation of the text, which included provisions of public policy from which the insurer could not derogate by means of contractual provisions. It established that, in any event, the provisions of article L. 911-8 of the Social Security Code are a matter of public policy and allow all employees to benefit from portability, with the exception of employees dismissed for gross misconduct. The stipulation that ‘the cover maintained for the benefit of the former employee is that in force in the company’ (article L. 911-8 3°) only requires verification that the provident fund contract has not been terminated at the time of the request for portability. In this sense, portability is not conditional on the existence of a financing mechanism, notwithstanding the objections and amendments debated during the parliamentary proceedings (CA Colmar, 25 September 2019, no. 16/05113).
The Paris Court of Appeal applied the same reasons as above. However, it added that the objections and amendments debated during the parliamentary proceedings and in particular that ‘Article 4 of the law of 14 June 2013 is not of public order’ (CA Paris, 29 September 2020, no. 19/07502).
This had the effect of making the insurers responsible for the portability of the contract, which could lead to criticism from the insurers, who felt that the obligation to port provident rights was above all an employer's obligation, and should remain the responsibility of the employer.
In its ruling of 15 February 2024 (Cass., 15 February 2024 no. 22-16.132), the 2nd Civil Division of the Court of Cassation reiterated that ‘the cover maintained for the benefit of the former employee is that in force in the company’ (article L. 911-8 3°) and required verification that ‘the provident fund contract or the membership linking the employer to the insurer has not been terminated’.
As a result of the termination of the contract by the insurer due to the judgment ordering the closure of the judicial liquidation, no cover is any longer in force in the company, preventing the continuation of previous cover.
In so doing, the court resumed its previous decisions.
A ruling by the 2nd civil chamber of the Court of Cassation (Cass civ 2ème, 5 November 2020, no. 19-17164) found that the contract had not been terminated. The insurer was therefore obliged to maintain the portability system.
In another ruling by the 2nd civil chamber of the Court of Cassation (Cass civ 2ème, 10 March 2022, no. 20-20898), the insurer terminated the insurance contract. The costs incurred by the portability of cover after termination were to be borne by the employer. The liquidator therefore took out the one-year extension.
However, this is not the end of the matter, given the questions that remain unanswered following this decision.
The first question concerns the cost of portability. To what extent should this employer obligation be borne by the insurers before the contract is terminated? It would seem difficult for a company in liquidation to bear the cost when it is in financial difficulty.
As mentioned in the Court of Cassation ruling of 5 November 2020 (Cass civ 2ème, 5 November 2020, no. 19-17.164), the cost of portability to be borne by insurers would lead to an increase in contributions. As a result, a surcharge to compensate for the risk of the company defaulting will be adopted by all insurers, a cost that has not yet been taken into account in pricing.
It is also stated that this obligation is a matter of public policy.
However, once the contract has been terminated, the employee no longer benefits from the portability system, even though the period for maintaining his or her rights has not expired. There is a risk of unequal treatment in this situation.
The idea of creating a compensation fund for insurers faced with this situation may emerge as a way of mitigating this additional premium on the one hand, and this inequality of treatment between different employees who have been made redundant on the other.
As envisaged by the government in the law of 14 June 2013, a report was to be produced. Its purpose was to specify the conditions for implementing the maintenance of cover in such a situation, and in particular the creation of a compensation fund.
It would be more than appropriate to reflect on this issue and finally arrive at a definitive solution.