Dismissal and settlement agreement: the limitation period for the challenge action may be suspended

In a ruling handed down on 9 April 2026, the Social Chamber of the French supreme Court (Cour de cassation) provided an important clarification on the relationship between the settlement agreement concluded after a dismissal and the limitation period for the action challenging the dismissal.

The Court rules that, when the settlement agreement bars the employee’s legal action, the limitation period for the action challenging the dismissal is suspended from the date of signing of the settlement agreement. It only begins to run again from the date of the judicial declaration of nullity of that settlement agreement.

This decision is important for employees who have signed a settlement agreement with their employer and subsequently wish to challenge its validity.

The 12-month period to challenge a dismissal

In employment law, the action relating to the termination of the employment contract must be brought within a period of 12 months from notification of the termination. This period results from Article L. 1471-1 of the French Labour Code (Code de travail).

This period is short. It requires the employee to act quickly when intending to challenge their dismissal before the labour tribunal.

But the difficulty arises when a settlement agreement has been concluded after the dismissal.

Settlement agreement and challenge of the dismissal: what difficulty?

The settlement agreement aims to put an end to a dispute between the employer and the employee. In principle, it prohibits the parties from bringing or pursuing legal action with the same subject matter. This is the effect of Article 2052 of the french Civil Code (Code civil), as recalled by the French supreme Court (Cour de cassation).

The employee who signs a settlement agreement relating to their dismissal therefore finds themselves in a particular situation:

• on the one hand, the settlement agreement prohibits them from legally challenging what has been settled by the agreement;
• on the other hand, the 12-month period attached to the challenge of the dismissal continues, in appearance, to run.

Before the ruling of 9 April 2026, this interaction created legal uncertainty. An employer could argue that the employee’s action was time-barred if the employee referred the matter to the labour tribunal more than 12 months after notification of the dismissal, even if the settlement agreement barred their action.

The solution: the settlement agreement suspends the limitation period

The French supreme Court (Cour de cassation) now holds that the settlement agreement may constitute a impediment to action within the meaning of Article 2234 of the French Civil Code (Code civil).

This article provides that the limitation period does not run or is suspended when the person is unable to act due to an impediment arising in particular from the law, an agreement, or force majeure.

In practice, this means that as long as the settlement agreement exists and has not been judicially annulled, it bars the employee’s action aimed at challenging the dismissal or the claims already settled by the agreement. The employee may, however, refer the matter to the court in order to seek the nullity of the settlement agreement. If such nullity is declared, the impediment disappears and the limitation period for the action relating to the dismissal begins to run again for the remaining time.

The Court deduces therefrom that the limitation period is:

1. suspended from the date of signing of the settlement agreement;
2. begins to run again from the date of the judicial declaration of nullity of the settlement agreement.

In other words, the employee does not benefit from a new full 12-month period. They have the remainder of the time left to run.

Suspension or interruption: an essential distinction

It is important to note that the settlement agreement does not cause an interruption of the limitation period, but a suspension.

The difference is important since suspension temporarily halts the running of the period, without erasing the time already elapsed. This is what Article 2230 of the French Civil Code (Code civil) provides.

Interruption, on the other hand, causes the period to start again from zero.

Action for nullity of the settlement agreement: a 5-year period

This solution must be read alongside another important ruling handed down by the Social Chamber of the French supreme Court (Cour de cassation) on 8 October 2025.

In that decision, the Court held that the action for nullity of a settlement agreement that put an end to a dispute relating to the performance or termination of the employment contract falls under the ordinary five-year limitation period, i.e. 5 years, on the basis of Article 2224 of the French Civil Code (Code civil).

This means that an employee has in principle 5 years to seek the annulment of the settlement agreement. If such annulment is declared, the limitation period for the action challenging the dismissal begins to run again for the time that remained available at the date of signing of the settlement agreement.

Enhanced protection for the employee

This case law protects the employee against a particularly unfavourable situation.

Without suspension of the period, an employee who had signed a settlement agreement could have found themselves deprived of any action in respect of the dismissal, simply because the 12-month period would have expired while the settlement agreement was producing its effects.

Henceforth, if the settlement agreement is subsequently annulled — for example due to a defect affecting its validity — the employee retains the possibility of bringing an action, subject to the remaining time available.

The settlement agreement can therefore no longer be used as a shield allowing, in practice, the limitation period to run while the employee is legally prevented from acting.

Heightened vigilance for employers

For employers, this decision calls for heightened vigilance when drafting and negotiating post-dismissal settlement agreements.

A poorly secured settlement agreement may expose the employer to deferred litigation: if the settlement agreement is annulled, the employee will be able not only to challenge the validity of the agreement, but also to resume their action relating to the dismissal, within the limit of the remaining period.

It is therefore essential to ensure in particular:

• that genuine reciprocal concessions exist;
• that the subject matter of the settlement agreement is clear;
• that there are no excessively general or ambiguous waivers;
• that the conditions for the validity of consent are respected;
• that there is consistency between the sums paid and the risks genuinely extinguished by the settlement agreement.

 In practice, this case law serves as a reminder that the post-dismissal settlement agreement remains a useful tool for securing employment relations, but that it only genuinely protects the employer if it is legally sound.

An imprecise, unbalanced or insufficiently substantiated settlement agreement may be challenged several years after its signing and reopen litigation relating to the dismissal.

Our lawyers assist employers and employees in the negotiation, drafting and analysis of post-dismissal settlement agreements, in order to secure the agreements concluded, anticipate the risks of challenge and preserve the legal effectiveness of the negotiated solution.

Are you considering concluding, challenging or securing a settlement agreement following a dismissal? Contact our firm to obtain assistance tailored to your situation.