OD FLASH | Shareholding and tax controls: The Council of State rules on the fate of former employees

Decision No. 507814 – Council of State

When a tax audit results in the adjustment of a company’s profits, this automatically leads to an increase in the Special Profit-Sharing Reserve. This raises the question: who should benefit from this “surplus”? The employees who were on the payroll at the time of the adjusted events, or those who were employed at the time of the adjustment? The Council of State has just provided a definitive answer.

The case concerns a former employee of Company X. Having worked for the company between 2012 and early 2022, she was excluded from the distribution of a profit-sharing bonus generated by a tax adjustment covering the fiscal years 2014 through 2018.

The crux of the issue lies in the timing: the agreement between the company and the tax authorities was not signed until December 2022, i.e., after the employee had left. In accordance with the Labor Code, the employer limited the distribution of the bonus to only those employees present in 2022. The plaintiff then raised a Priority Preliminary Constitutionality Question (QPC), alleging a breach of equality and a violation of her right to property.

The Council of State refused to refer the QPC to the Constitutional Council, thereby validating the regulatory framework in force at the time of the dispute (Article D. 3324-40 of the Labor Code).

It noted that profit-sharing is a collective guarantee with deferred effect and that the triggering event for the supplement is not the initial profit, but the tax adjustment that has become final. Employees who left before this event are therefore not in a situation comparable to that of employees still employed, and the difference in treatment is directly linked to the purpose of the regulation. The claim alleging a violation of the right to property, based on Article 1 of the First Additional Protocol to the ECHR, is dismissed, as the former employee had no “legitimate expectation” regarding the sums in question. This decision validates the rationale behind Article D. 3324-40 (now repealed) and reinforces the mechanism incorporated into the new Article L. 3326-1-1 of the Labor Code effective December 1, 2023