OD FLASH | Mutual termination agreement: a defect in the employer’s consent invalidates the agreement, which has the effect of a resignation

Cour de cassation, Social Division, 19 June 2024, 23-10.817, Published in the Bulletin

The French Supreme Court has ruled that when, in the course of discussions prior to the conclusion of a contractual termination agreement, an employee intentionally withholds information that he knows to be decisive for his employer, the termination agreement is vitiated by fraudulent manoeuvring and has the effect of a resignation.

The decision under review concerns a case in which an employment contract was terminated by means of a Mutual termination agreement before the company brought a claim before the employment tribunal for the mutual termination agreement to be declared null and void on the grounds of fraud.

The Toulouse Court of Appeal ruled that the employee had committed fraudulent manoeuvres, i.e. had obtained ‘ the consent of the other party by manoeuvres or lies’. Intentional concealment by one of the contracting parties of information that he knows is decisive for the other party also constitutes fraud “. (Article 1137 of the French Civil Code).

The employer produced evidence in court to show that, while the employee had told his employer that he wanted to change his career to management, he had deliberately omitted to tell his employer about his business project in the same sector of activity as his employer, in the context of a competing company being set up with two people from the same group. In addition, it could be established from the exchanges that the employee was aware that the information relating to his retraining was crucial to the employer’s consent, so that the employer would not have agreed to the mutual termination agreement with full knowledge of the facts.

As a result, the Court of Appeal ordered the employee to reimbourse to the employer the sums received in respect of the specific indemnity that had not been properly paid, and ordered him to pay the employer compensation in lieu of notice.

The employee appealed to the French Supreme Court, arguing that he was under no obligation to provide information and was not subject to a non-competition or exclusivity clause. The employee also challenged that the cancelled mutual termination agreement had the effect of a resignation.

The Court of Cassation dismissed the appeal. It confirmed that the employer’s consent had been vitiated, even though the employee was under no contractual obligation to provide information, without infringing his freedom of enterprise. It noted the decisive nature of the employee’s manoeuvres, and thus validated for the first time an employer’s claim for nullity of a mutual termination agreement on the grounds of a defect in consent producing the effects of a resignation.

It should be noted that the French Supreme Court had already confirmed that in the event of a defect in the employee’s consent originating in fraud on the part of the employer, the mutual termination agreement may be cancelled and produce the effects of a dismissal without real and serious cause (Cass. soc., 30 January 2013, no. 11-22.332).