In France, the cost of living may justify unequal treatment within a company

Friday, September 30, 2016 | Published by and

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Pursuant to a recent decision by the French Supreme Court, the cost of living is now among the factors justifying a difference in the remuneration of employees in a given company in France.

Principle of “equal work, equal pay”

In France, the principle of “equal work, equal pay” is an expression of the longstanding notion of equal treatment of employees. The principle provides that employees of a company who are placed in the same situation, through working the same jobs or jobs considered of equal value, must be paid the same remuneration. However, an exception applies where the employer-company can show objective and relevant reasons justifying a difference in remuneration.

Previously, the courts have found that the following factors substantiated disparities in the workplace; seniority, experience, quality of work, diplomas, or collective agreements entered into with a union at a given establishment. Now, the difference may be justified not only on basis of the employee’s work or an agreement with a union, but also the cost of living in the area in which the establishment is located.

French Supreme Court Decision

On 14 September 2016, the French Supreme Court (Cass. soc., 14 September 2016, n° 15-11.386, FS PBRI) ruled on the relationship between the cost of living and the principle of “equal work, equal pay”.

The case arose in the context of a unilateral undertaking by Renault to apply a higher pay scale to employees of establishments based in the Paris region as opposed to those based in regional France. Proceedings were brought by a representative trade union for an establishment based in the provincial town of Douai, claiming that the principle of “equal work, equal pay” had been breached. Renault responded that the difference in treatment was justified by an objective and relevant reason, namely the disparity in living costs between the two establishments. In an unlikely turn of events, the CGT trade union appeared as a third party in the proceedings in support of Renault’s arguments. The Court of Appeal ultimately found in favour of Renault, after considering that it had sufficiently proved the disparity in living costs between the two areas.

Upon appeal, the Supreme Court upheld the Court of Appeal’s position, finding that a difference in the cost of living between establishments located in different geographical areas may be considered an objective and relevant reason justifying a difference in the treatment of employees at the respective businesses.

Lessons for Employers

In France, employees working in high cost of living areas may now be paid more than employees working in lower cost of living areas, if the minimum limits provided by law and applicable collective bargaining agreements are met in all circumstances.

However, it is necessary for the employer to prove the difference in living costs between the areas in question. This may be more difficult to demonstrate where the disparity is not between a regional town and the capital, but rather between two or more regional cities. Where the employer has implemented different pay scales in two areas through a unilateral undertaking, but cannot prove that different living costs apply, they are required to respect the equal treatment of the employees concerned: either through raising the remuneration of the aggrieved employees, or through diminishing the remuneration of the higher paid employees. Note: this would be more complicated if the remuneration were included in the employees’ employment contracts, as its modification would require their consent.

The French Supreme Court’s decision opens the door for further exceptions to the principle of “equal work, equal pay” based on reasons that are not directly related to the work itself. Moreover, it reinstates the possibility of a difference in treatment on the basis of workplace location, echoing the situation that existed in France decades ago, in which the minimum wage was higher in Paris than in the other regions.