January- February 2022
Article: Negotiating limitation of liability clauses in commercial contracts
Brief: Flat-rate days: Monitoring the workload: a difficult challenge to overcome in order to secure the annual flat-rate days
Negotiating limitation of liability clauses in commercial contracts
The concept of a limitation of liability clause covers several varieties of clauses, all of which have the purpose of limiting or even excluding the effects of a contractor’s liability. These clauses have a similar regime.
When negotiating a commercial contract, it is advisable to pay particular attention to these clauses, which prove to be an effective protective tool for one of the parties in the event of a dispute relating to the performance of the contract.
What types of limitation of liability clauses can be included in a commercial contract?
In a broad understanding of the concept of limitation of liability clauses, the following clauses can be distinguished
- those which limit or exclude liability, either by listing the cases in which such liability will be admitted or cannot be retained, or by restricting the exercise of the liability action, in particular by providing for a reduced period of time in which to act.
- those which in reality aim only at the reparation of this liability. The quantum of this reparation will be determined beforehand either by a ceiling on damages or by a benefit in kind to be performed by the person liable for the benefit of the victim of the non-performance.
Parties negotiating a commercial contract therefore have a variety of clauses at their disposal to protect themselves in the event of a dispute, which can be modulated according to the negotiation, ranging from a clause limiting or mitigating liability to an exclusive clause or a liability waiver, a disclaimer clause or a clause limiting compensation or damages.
Under what conditions are these limitation of liability clauses valid?
The validity of these limitation of liability clauses is enshrined in article 1231-3 of the Civil Code, according to which the debtor is only liable for the damages that were provided for or that could have been provided for in the contract.
However, case law has identified a number of exceptions to this principle:
- Clauses exempting or mitigating tort liability are void, as articles 1240 and 1241 are of public order (Cass. 1re civ., 5 Jul. 2017, nº 16-13.407).
- If the limitation of liability clause creates a significant imbalance, the clause would fall under Article L. 442-1, I, 2º, of the Commercial Code or, more generally since the 2016 reform of the law of obligations, under Article 1171 of the Civil Code, which deems a non-negotiable clause introducing a significant imbalance in the contract of adhesion to be unwritten.
- A clause limiting liability can also be analyzed under the prism of Article 1170 of the Civil Code, which deems unwritten “any clause that deprives the essential obligation of the debtor of its substance”.
Thus, during the negotiation, it is necessary to take into account the existence of a counterparty to the limitation of liability clause resulting from other contractual stipulations, and, for the limitation of compensation clauses, it is necessary to provide for an amount that is not insignificant.
How to implement a liability clause?
In order to be effective, these clauses must be clear and understandable for the party they bind. If they are not, they cannot be enforced (Cass. com., 27 Feb. 1996, nº 93-21.845).
Secondly, the Court of Cassation has held that the disappearance of the contract does not lead to the annihilation of the limitation of liability clause: “in the event of resolution of a contract for non-performance, the clauses limiting reparation for the consequences of such non-performance remain applicable” (Cass. com., Feb. 7, 2018, nº 16-20.352).
Nevertheless, if the contract is terminated due to fraud or gross negligence on the part of the liable debtor, the limitation clause will be ineffective (Article 1231-3 of the Civil Code).
In conclusion, despite the circumstances that may lead to the exclusion of the limitation of liability clause, it retains all its value and usefulness, particularly in commercial contracts where the prior arrangement of the cases of contractual liability offers negotiating leverage at the time of the conclusion of the contract and brings security to the business relationship.
Flat-rate days: Monitoring the workload: a difficult challenge to overcome in order to secure the annual flat-rate days
It is now well known that the validity of a flat-rate annual workweek agreement is subject to the respect of the employees’ right to health and rest. The French Labor Code establishes as a principle of public policy that the employer must regularly ensure the reasonableness of the employee’s workload and the proper distribution of this work overtime. The terms of implementation of this obligation are set by the collective agreement authorizing and organizing the use of flat-rate working days, or failing that, by the supplementary provisions set forth in the French Labor Code (Art. L. 3121-64 and L. 3121-65 Labor Code).
Notwithstanding this very clear principle, the notion of workload monitoring and the methods of such monitoring remain complex.
The Court of Cassation has noted on several occasions the inadequacy of the workload monitoring and control procedures provided for in collective agreements and company agreements. Notably, in the Crédit Agricole decision (Cass. soc., May 14, 2014, no. 12-35.033) the High Court sanctioned the inadequacy of the agreement because it did not institute “effective and regular monitoring enabling the employer to remedy in a timely manner a workload that may be incompatible with reasonable working hours”. It is therefore the principle of an effective and regular monitoring of the workload that is laid down by the Court of Cassation in several decisions (Cass. soc., Oct. 13, 2021, no 19-20.561; Cass. soc., Sept. 21, 2022, no 21-15.114).
In a decision dated December 14, 2022 (no. 20-20.572), the Court of Cassation subsequently reinforced the requirement for effective and regular monitoring of the workload. It censured the provisions of the collective convention of the non-food retail trade relating to flat-rate day agreements, which provided for the following method of control:
- The number of days worked or days of rest taken is calculated monthly by the person concerned.
- Once a month, the executives concerned submit to their employer, who validates it, a document summarizing the number of days worked, the number of days or half-days of rest taken and those still to be taken.
- This document must be used to monitor the organization of work, the application of this agreement and the impact of the workload on their activity during the day.
- The monitoring of the days is carried out either by means of an automated system or a self-declared document.
These measures were deemed insufficient by the Court of Cassation. The reasoning is that the collective agreement “without instituting an effective and regular follow-up allowing the employer to remedy in due time a workload possibly incompatible with a reasonable duration, is not such as to guarantee that the amplitude and the workload remain reasonable and to ensure a good distribution, in time, of the work of the interested party, from which it was deduced that the flat-rate agreement in days was null and void.”
This ruling once again weakens the agreements instituting annual daily workweeks, which risk being censured on the basis of insufficient monitoring of the workload or its allegedly non-effective nature. Moreover, the Court of Cassation gives little or no indication as to what would be an effective and regular workload monitoring system, so that the negotiation of agreements becomes a particularly complex exercise. On reading the judgment, one might think that the Court’s attention was focused on the a posteriori nature of the control, which does not make it possible to monitor the workload on a day-to-day basis and, if necessary, to intervene immediately in the event of a violation of the employees’ right to rest and health.
Note that in this case the Court of Cassation dismisses the effects of the law of August 8, 2016, which allows the individual agreement concluded in application of an imperfect agreement, only deprived of effect to be “reactivated” in case of subsequent regularization of the collective agreement, or by the implementation of the “crutch” device of Article L. 3121-65 of the Labor Code. This has the effect of imposing the conclusion of a new collective agreement in order to compensate for the inadequacy of the workload monitoring provisions.
This ruling is likely to further fuel the litigation surrounding the annual fixed number of days and generate a considerable risk for companies in the management of labor relations.
In practice, the challenge of the validity of annual flat-rate day agreements is often used as a lever by employees in exit negotiations or in case of litigation. A well-constructed and secure flat-rate agreement is therefore an asset for the company in terms of time and contract management, but also in terms of legal risk management.