Employment Contract and SARL Manager’s Mandate in French Law: The Practical Interests of Combining the Two

Introduction

In French business law, one of the recurring questions for entrepreneurs, managers, and legal advisors concerns the possibility of combining a corporate mandate (mandat social) with an employment contract (contrat de travail). This question is not merely theoretical: it determines whether a manager who leaves his position can benefit from severance pay, redeployment assistance, unemployment insurance coverage, and protection from the AGS (Association pour la Gestion du régime de Garantie des créances des Salariés) in case of insolvency proceedings.

However, combining these two statuses is fraught with legal uncertainties. Both France Travail (formerly Pôle emploi) and the AGS scrutinize such situations closely, often challenging the right of company managers to unemployment benefits. French case law, built up over decades, has established strict conditions under which the combination may be recognized, particularly the existence of a real employment contract distinct from the corporate mandate, exercised under a genuine relationship of subordination.

This article offers a comprehensive analysis of the subject, detailing the conditions, jurisprudence, risks, and practical advice. It is designed for lawyers, entrepreneurs, accountants, and business managers who seek clarity on this complex but essential topic.

1. Practical Interest of Combining a Corporate Mandate of Gérant of SARL and an Employment Contract

1.1. The advantages for the manager

For a manager, having both a corporate mandate and an employment contract can significantly improve social protection. If recognized as an employee, the manager may claim:

• Severance pay in case of dismissal.

• Redeployment measures as provided under labor law.

• Unemployment benefits under the general insurance scheme, if his departure is involuntary.

• Guarantees under the AGS scheme, in case the company enters safeguard, receivership, or judicial liquidation proceedings.

This framework offers managers a safety net that would otherwise be unavailable if they held only a corporate mandate, since mandataires sociaux are not covered by unemployment insurance in principle.

1.2. Skepticism of France Travail and AGS

Despite these advantages, public institutions show great caution. According to Unédic, the combination is only possible for minority managers, i.e., those who do not exercise controlling power in the company. Even then, France Travail often disputes entitlement to unemployment insurance, forcing managers to seek pre-emptive opinions on their eligibility.

In addition, the existence of voluntary unemployment insurance schemes (e.g., GSC – Garantie Sociale des Chefs d’entreprise) reflects the institutional reluctance to assimilate managers with employees.

2. The Legal Framework: Subordination of the Employee and Distinction of Functions

2.1. The principle of compatibility

French case law has long established that there is no absolute prohibition against combining a corporate mandate with an employment contract. The decisive element is whether the individual performs actual salaried functions distinct from those of management, and whether these functions are exercised under a state of subordination.

This principle was affirmed in landmark rulings such as Cass. soc. July 21, 1981, no. 80-11672, and repeatedly confirmed in subsequent jurisprudence.

2.2. The subordination link

The relationship of subordination is the cornerstone of labor law. It presupposes that the company has the power to give orders, control execution, and sanction breaches.

For managers, this condition is often problematic. By definition, they exercise powers of direction, which complicates the demonstration that they are subject to higher authority. For example:

• Partners’ control over the manager is not equivalent to a hierarchical link (Cass. soc. Jan. 28, 1998).

• A manager who holds all decision-making powers, including financial signature authority, cannot be regarded as subordinated (Cass. soc. Dec. 10, 2014).

Courts assess subordination on a case-by-case basis, considering the actual circumstances rather than merely the shareholding structure.

2.3. Distinct technical functions

A manager’s salaried role must be real and technical, separate from the global functions of management. The jurisprudence provides numerous illustrations:

• A sales director role may be rejected if it overlaps entirely with the company’s purpose (Cass. civ. 2nd ch., March 14, 2013).

• Conversely, technical independence, especially in specialized fields (e.g., engineering), does not preclude subordination if the manager still reports to higher authority (Cass. soc. May 23, 2007).

Thus, in small businesses, proving the duality of functions is especially difficult.

2.4. Separate remuneration

Dual functions require dual remuneration. The employment contract must be reflected in separate pay slips that clearly distinguish remuneration for salaried duties from potential compensation for the corporate mandate. Courts, however, consider this a presumption rather than conclusive proof of the combination (Cass. soc. Dec. 1, 1993).

3. Jurisprudential Illustrations of Admissible and Inadmissible Combinations of Employment Contract with the Status of SARL Manager

3.1. Combinations excluded by lack of subordination

Courts have refused recognition of employment contract in cases where:

• The manager exercised all administrative, legal, and financial powers without oversight.

• The functions invoked as salaried employee overlapped with the mandate (e.g., purchasing and sales director roles).

• No disciplinary authority was exercised over the manager.

These decisions confirm that autonomy and control powers of the SARL manager are incompatible with salaried status.

3.2. Combinations admitted by proof of technical subordination

By contrast, courts have accepted the combination when:

• An IT engineer, co-founder of a company, was subject to directives and criticisms from another manager, proving subordination (Cass. soc. Jan. 14, 1998).

• A saleswoman, later appointed manager without shareholding, continued to perform her role under the authority of the partners (Cass. soc. May 14, 1998).

• A manager also worked as a delivery agent with remuneration strictly limited to this salaried role (Cass. soc. Oct. 21, 1998).

These cases highlight that the reality of the employment contract depends less on title and more on factual exercise.

4. The Continuation or Suspension of the Employment Contract

4.1. Employee appointed as a SARL manager

If an existing employee is appointed manager, two possibilities arise:

• If the employee continues his functions under subordination, the contract is maintained alongside the mandate.

• If he exercises functions autonomously, the employment contract is suspended during the mandate, resuming upon termination.

For example, in Cass. soc. Nov. 5, 2015, the Court held that seniority acquired before the suspension must be added to post-mandate seniority for severance pay purposes.

4.2. Obligation of loyalty

Even during suspension, the manager remains bound by duties arising from the employment contract, notably the duty of loyalty. Breaches may justify termination, as recently reaffirmed (Cass. soc. April 19, 2023).

5. The Situation of Different Types of Managers

5.1. Majority SARL managers (“gérant majoritaire“)

The jurisprudence is clear: majority managers cannot combine their mandate with an employment contract. The reasoning is simple: holding the majority of shares gives them decisive control, excluding any subordination link.

This also applies to de facto managers who, without formal title, effectively control the company.

5.2. Equal managers (“gérant égalitaire“)

Equal managers (gérants égalitaires) may, in theory, combine the two statuses. However, in practice, proving subordination remains very difficult, given their parity in power.

5.3. Minority managers (“gérant minoritaire“)

For minority managers, the situation is more favorable. Courts regularly admit the combination if technical functions and subordination are established. For example, Cass. soc. March 14, 2007 confirmed this possibility.

6. Burden of Proof and Evidentiary Issues

6.1. Who must prove what?

The general rule is that the manager claiming salaried status must prove the reality of the employment contract. However, if the opposing party alleges the contract is fictitious, the burden shifts to them (Cass. soc. Jan. 9, 2002).

6.2. Role of payslips

The issuance of payslips creates a strong presumption of salaried employment. Courts often consider this sufficient unless clear proof of fictitiousness is provided. Even an unsigned employment contract may suffice if accompanied by payslips and hiring declarations (Cass. soc. April 13, 2022).

7. The Procedure of Regulated Agreements

Under Article L. 223-19 of the Commercial Code, an employment contract between a company and its manager constitutes a regulated agreement. It must be:

• Submitted to shareholder approval.

• Subject to annual review.

This procedure applies even if the contract is signed after appointment. Failure to comply may expose the manager to liability, but the contract remains valid. Examples:

• A manager could not claim seniority bonuses where no convention had been approved (CA Paris, 3 July 1976).
• Unapproved salary increases may be challenged by shareholders.

8. Risks and Practical Recommendations

8.1. Risks of requalification

If the employment contract is considered fictitious:

• The manager loses entitlement to unemployment benefits.
• Social contributions paid as an employee may be contested.
• The company may face requalification risks during audits.
• France Travail often refuses coverage for managers, especially majority/ equal ones.
• Social contributions may be reassessed if the contract is requalified.

8.2. Best practices

To maximize chances of recognition:

1. Draft a clear employment contract specifying technical functions.
2. Maintain separate remuneration and payslips.
3. Ensure genuine subordination, possibly by appointing supervisory bodies.
4. Submit the contract for approval as a regulated agreement.
5. Consult France Travail preemptively for an eligibility opinion.
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Conclusion

The combination of an employment contract and a manager’s mandate in French law is both possible and advantageous, but it remains a high-risk strategy. Courts adopt a restrictive interpretation, insisting on the dual conditions of distinct technical functions and a genuine subordination link.

For majority managers, the door is effectively closed. For minority managers, the combination is legally possible but requires careful structuring of roles and remuneration, supported by robust documentation.

In practice, the safest approach is to seek legal advice, secure partner approval under the regulated agreements procedure, and obtain confirmation from France Travail on unemployment insurance eligibility. Only then can a manager hope to benefit fully from the dual protection of corporate and salaried status.

Best Practices for Entrepreneurs and Managers

1. Draft contracts carefully: clearly define technical duties.
2. Maintain evidence of subordination: reporting, performance reviews, directives.
3. Ensure shareholder approval: follow regulated agreement procedures.
4. Avoid conflicts of interest: separate mandate pay from salary.
5. Seek legal advice early: each case depends on specific facts and case law.

FAQs

Q: Can a majority manager also be an employee?
 No. Courts consistently deny this, as majority managers cannot be subordinate.

Q:  What about minority managers?
 Yes, provided they prove technical duties and subordination.

Q: Does the contract automatically resume after mandate ends?
 Yes, if suspended, with seniority preserved.

Q: Must the contract be approved by shareholders?
 Yes, through the regulated agreements procedure.

Q: Can the mandate be unpaid?
 Yes, but the employment contract must always carry remuneration.

Q: What if the manager was already an employee before?
 The contract continues only if duties remain technical and subordinated. Otherwise, it is suspended.

The possibility of combining a mandate as SARL manager and an employment contract remains a complex and high-risk legal strategy.

• For majority managers, the answer is clear: it is not possible.
• For minority or equal managers, it is possible but difficult, requiring careful drafting, evidence, and shareholder approval.
• Authorities (France Travail, URSSAF, courts) are highly vigilant and often reject or requalify such arrangements.

At FrenchCo.Lawyer, we assist entrepreneurs, managers, and companies in structuring governance, drafting compliant contracts, and managing disputes with administrative authorities. If you are considering such a setup, contact us for tailored legal advice.