By Dominic Jensen, Avocat of the Paris Bar, partner of Librato Avocats, a firm dedicated to advising and representing law firms and lawyers.
As France closed down, the government was prompt to announce the content of its relief package for businesses. Many of these measures apply to law firms. This article aims to explain to international firms what the relief package and available measures are for law firms in France and to provide some recommendations as to how to weather the storm in Paris.
Easing the pressure on cash : How the French “relief package” applies to law firms
An immediate grasp of the emergency measures put in place by the government is essential. These measures are of several categories and can be summarized as follows [1] :
For employees (this does not apply to associates) :
- Postponement for three months on all social charges due for employees (these represent up to 65% of the net salary) [2].
- Chômage partiel measures [3]. Employers can apply for temporary and partial unemployment benefits for their employees. All salaried employees are concerned and the government covers up to 80% of the employees’ base salary. Employees are not meant to work during the period which is indemnified.
- Arrêt maladie. As many employees do not have childcare solutions, those employees who must stay at home to be with their children (aged under 16) until schools reopen can apply for sick leave. The employee’s salary is then covered by the State.
For partners:
- Postponement of monthly income tax payments : this is done on a voluntary basis by the partners themselves. (This is not Covid-19 specific but it is a recommended measure).
- Postponement of social charges (URSSAF) paid by the firm for the partners
- Postponement of retirement charges (CNBF) : the March payment has not been collected by the CNBF and will spread out over the rest of the year. The April 30th deadline has been pushed out to the 31st of May.
Banks, rent and other suppliers of the firm :
- Though this is left to the banks’ discretion, most banks are willingly accepting to postpone reimbursement of loans
- The ordonnance of March 25th 2020 [4] neutralizes the effect of penalty or termination clauses for absence of rent payments for a period equivalent to the portion of duration of the contract which was impacted by the “sanitary state of emergency” (e.g. if a penalty or termination clause becomes effective thirty days after default, these thirty days are added to the end of the protected period which is currently set from the 12th of March to the 25th of May) [5]. The rent remains due and will have to be caught up in agreement with the lessor.
- Postponement of payments to suppliers can also be negotiated.
State guaranteed loans :
- The French government has but in place a system referred to as the PGE (Prêt garanti par l’Etat) which enables all eligible businesses to borrow up to the equivalent of three months turnover. The loans are granted by regular banks and the banks are guaranteed by the State (the BPI – Banque Publique d’Inverstissement) for 80% of the loans. Branch offices of law firms would not be eligible for these loans but international firms which have structured their Paris offices as separate legal entities would be.
It must be noted that none of these measures apply to associates (see below). It must also be reminded that under French employment law, pay cuts cannot be imposed on employees though temporary changes to contracts may be negotiated.
The issue of associates
Associates represent a substantial portion of the running costs of law firms. Though there have been some lobbying attempts over the past weeks seeking that firms be given some of the same advantages for their associates as for their non lawyer staff, no such facilities have been granted so far.
Under the French rules applying to the legal profession, associates are not considered employees. They are considered as independent lawyers (i.e. independent contractors) and, as a result, do not benefit from any specific aid. Some relief measures are being implemented for lawyers facing dire financial difficulties, but these would not be relevant for associates of large firms.
The Paris Bar has issued the following guidelines regarding their relationships with their associates over this troubled period [6] :
In these exceptional circumstances, we are counting on the collegial / fraternal behavior of all to avoid, as much as is possible, the termination of associates.
The Covid 19 crisis cannot justify unilateral changes to the contracts of associates but it can - on a temporary and exceptional basis - justify certain arrangements which can be possible with the agreement of all parties.
In this spirit, the Bar Commission in charge of associates has set up special meetings between firms and their associates, under the authority of members and former member s of the Bar Concil, in order to agree on how to pursue contracts or possibly their termination, in which case the contractual notice periods will apply.
The commission can organize these meetings by visio-conference if necessary
As a result, associate pay cuts can only be applied with the written consent of the concerned associates. It is important that any announcements in this respect should be made with reference to the applicable rules.
If a firm chooses to terminate a contract with an associate, the Covid-19 crisis does not exempt the firm from respecting the mandatory notice period provided by Bar rules. The standard notice period is three months to which an extra month must be added for each year after the third year with a limit of six months.
When a firm’s global policy for managing this crisis involves pay cuts for associates or having to cut down on the number of associates, it is strongly recommended to take these French specificities into account.
If things start to go wrong
Difficult times exacerbate tensions, pre-existing difficulties and frustrations. Some activities are less vulnerable, and some lawyers are more resourceful. The resilience to pay cuts or lesser profit share varies enormously from one partner to another.
If problems occur during the Covid-19 crisis which go as far as causing a firm to terminate a partner or cause a partner to leave with outstanding claims against the firm, the various services of the Paris Bar are still functioning. This includes the Commission de l’exercice en groupe which is in charge of solving disputes between lawyers mostly in the context of separations and departures.
Such matters fall within the jurisdiction of the Bâtonnier of the Bar. Bar rules provide for a mandatory conciliation meeting prior to filing a claim for arbitration before the Bâtonnier. The Commission has an excellent track record of getting parties to reach a settlement at the conciliation stage. More than 80% of cases are closed after the conciliation hearing. During the confinement / lock-down period, these meetings can be held over the phone. The conciliation takes place with one or three current or former members of the Bar council appointed by the Commission. Each party can be assisted by counsel.
In these matters, there is an ongoing debate as to whether the provisions of an LLP’s members agreement should apply to lawyers practicing in France when these are different from the rules or customs of the Bar. Over past years, the Commission has been efficient in helping the parties find solutions to reduce the gaps which may appear between LLP rules and local rules.
While they are helping their clients, law firms should also help themselves by implementing all the available measures. Paris branches of international firms are eligible to many of these. Advice must be sought before applying firmwide decisions in order to consider some of the French specificities. Finally, in the event of difficulties, the services of the Bar are operational.
About LIBRATO AVOCATS www.librato-avocats.com
LIBRATO AVOCATS is the first firm in France to have created an entire department dedicated to lawyers and professional firms. This practice combines the experience and expertise of three partners : Christophe Thévenet, Dominic Jensen and Juliette Schweblin who all have a strong and established reputation in advising and representing lawyers and their firms. The firm’s clients are both French and international firms. LIBRATO AVOCATS is the main actor in this expanding market. LIBRATO AVOCATS advises lawyers and their firms on the choice of their legal structure, restructuring, acquisitions, innovative projects, development strategy and internal organization, profitability, partner disputes and ethical issues.
About Dominic JENSEN - d.jensen@librato-avocats.com
Dominic advises French and international lawyers and law firms in the development and structuring of their activities. He advises on the legal structuring of law firms, on rules of professional practice and also conflicts between partners. Dominic has also developed a specific expertise regarding the activities of UK and US LLPs in France. He is a recognized expert regarding the strategy and organization of law firms and a respected analyst and observer of the legal market and its evolution. He holds a DESS de Droit du Commerce Exterieur (Paris 1 – Panthéon Sorbonne) and an LLM (Masters of Law) from New York University School of Law. Dominic Jensen has dual British and French nationality.
He is the author of the reference book in France about law firms « Cabinet d’avocats, création et stratégie, organisation et gestion » collection Référence, Editions Dalloz and Scientific Director of Dalloz Avocats, exercer et entreprendre. He is also the author of numerous articles in leading publications concerning the organization and strategy of law firms and professional practice issues. Dominic is a member of the Structures Professionnelles de l’Avocat Commission at the Conseil National des Barreaux and he teaches at the Ecole de Formation du Barreau.
[1] The Paris Bar has put together a guide that can be found at : https://bit.ly/3a1Zhq1 [2] https://bit.ly/34OBzN2 [3] décret no 2020-325 du 25 mars 2020 relatif à l’activité partielle [4] Ordonnance 2020-306, article 4 completed by Ordonnance of the 15th April 2020 [5] Dates of the “Etat d’urgence sanitaire” (sanitary state of emergency) [6] Above mentioned Covid-19 guide of the Paris Bar, section 10 #covid19 #LibratoAvocats #AvocatdAvocats #conseil #Avocat