Benefits workshops

There are still some uncertainties around the transferability of health and protection covers

Posted on 01 September 2018

Since 2015, people leaving an employer remain within their former employer’s health and protection schemes for up to 12 months. These transferability arrangements provide the employee with some security but - as we feared - a number of special cases have appeared. For instance, what happens with transferability in the event of compulsory liquidation? Since the legislator had not provided specifically for such situations, it is court judges who have ruled on this. In spite of this welcome clarification, there are still a number of grey areas. Here’s why.

There are still some uncertainties around the transferability of health and protection covers

Compulsory liquidation is a transferability ‘blind spot’

Protection schemes cover rare but costly risks: death, disablement, work incapacity and prolonged sick leave. What generally happens is that the employer’s liability is transferred to an insurance company or other benefit provider (“institution de prévoyance”). Transferability of the coverage rights of staff who leave is financed by a supplement included in the contributions paid by the workforce. This is effective risk pooling.

When an employer enters into compulsory liquidation, more and more redundancies occur and so the former employees now covered under the transferability clause become an increasing burden on the remaining workforce. In such situations, it is just not possible to provide cover free-of-charge without the right financing. This, at least, is the argument put forward by insurers.

France’s highest court of appeal has ruled that cover remains in force...until scheme cancellation

The French “Cour de Cassation”, on petition as to the transferability of coverage rights in the event of compulsory liquidation, has ruled in favour of maintaining cover. There is no justification for employees losing their job due to compulsory liquidation having different rights compared to others. This, however, is only valid as long as the contract is not terminated. The law, in fact, stipulates that the coverage maintained shall be that “in force in the company”. If the remaining workforce is no longer covered then transferability ceases automatically. 

A clarification which awakens other fears 

Taking the example of a company redundancy plan, the “Cassation” court ruling quite rightly points out that a similar problem arises when a company is not in liquidation but where staff numbers are drastically reduced. This is, however, not very reassuring! It would be wrong to think that insurers will hold on to the transferability “hot potato” without ensuring underwriting balance. Some scheme contracts already contain a clause that suspends cover as soon as a certain percentage of the workforce enter transferability. If this happens, the legal obligation nevertheless continues to fall on the employer’s shoulders. This is an uncomfortable situation that should incite companies to pay close attention to their scheme wordings. As for the “Cour de Cassation”, it is a certain bet that they have not seen the end of transferability litigation.

Damien VIEILLARD-BARON