Corporate officer and employee: the keys to validly holding several functions
Validly holding an employment contract and a corporate office within a same company is a delicate balance, whose stakes are high for both company and employee.
What are the conditions of validity?
Conditions applicable to all companies
The employee in question must have an effective work contract that is characterised by three elements:
- She or he must carry out technical functions that are far-removed from those she or he exerts as part of the corporate office;
- She or he must have a hierarchical relationship in the exercise of employee functions (i.e. working under the orders and the directives of a hierarchy that has the power to control the execution of the tasks in question and to impose sanction in case of failure);
- She or he must have a remuneration that corresponds to a salary and that is separate from the one potentially received as part her or his corporate office.
These three conditions are rarely fulfilled in a small company.
Conditions applicable to certain companies
Other than the general conditions mentioned above, some rules specific to each corporate structure (joint-stock company, simplified joint-stock company, limited liability company, etc.) must also be applied.
For instance, as regards the French Société par Actions Simplifiée (simplified joint stock company), conditions applicable to holding several functions are set down in the articles of association. Where there are no further specifications, only the existence of an effective employment contract is necessary.
What are the impacts of illegally holding several functions?
Depending on the situation, the employment contract can be suspended during the corporate office, terminated or rendered null and void.
This latter case is only applicable to fraudulent employment contracts whose purpose is to circumvent the rule of free revocability for corporate officers, or to contracts entered into in breach of corporate law.
What are the main consequences of illegally holding several functions?
On salaries and social contributions paid
If the situation is illegal, the employment contract, entered into prior to the corporate officer taking her or his function, will be automatically suspended. The employer therefore no longer needs to pay either salary or social contributions, including those paid to unemployment insurance given that the corporate officer is not eligible to claim unemployment benefits.
If the company has mistakenly paid social contributions during the period of suspension, this will have no impact on calculating the employee’s right to unemployment benefits should the employment contract be terminated.
Additionally, in the event a contract is declared null and void, the judges can impose the restitution of salaries. In this case, the employment centre can also refuse to pay out unemployment benefits.
- Companies or directors who have both a corporate office and an employment contract are advised to ask the advice of the job centre as regards their situation in terms of unemployment insurance (or follow this link for information in French) . Where a negative opinion is issued, or in the event of doubt on the validity of holding both positions, it may be worth subscribing, for the corporate officer, private insurance for involuntary loss of the corporate office.
On inventions and creations completed
Where an employment contract is null and void or suspended, the rules of the code of intellectual property governing the transfer to the company of inventions and creations completed by employees do not apply.
The corporate officer may therefore claim her or his position as an inventor, with all the related financial and use conditions.
- As a precaution, it is possible to ask the corporate officer, who is cumulating functions with an employment contract, to sign a clause transferring all intellectual property rights to the company.
On the non-compete clause
Where an employment contract is null and void, the non-compete clause does not apply to the employee. She or he can therefore directly go to work for a competitor, except if a non-compete clause is attached to her or his status as a corporate officer.
It is therefore important to ensure, as early as possible, that holding several functions is valid and, where it is not, to quickly remedy the situation:
- by terminating the employment contract, or
- by formalising in writing the terms and conditions for suspending the contract, or
- by organising the contractual relationship so that the interested party fulfils the conditions required to validly hold the functions of employee and corporate officer.