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France

Transposition of the EU Directive1: The rules on transfer of undertakings are mainly enshrined in articles L. 1224-1 to L. 1224-4 of the French labor code which largely preexisted the Directive.

Scope

Covered Employees.
Are covered full-time, part-time and indefinite-term or fixed-term employees.  Independent contractors or other persons who are not regarded as “employees” are not covered.Are covered full-time, part-time and indefinite-term or fixed-term employees.  Independent contractors or other persons who are not regarded as “employees” are not covered.

Covered Transactions.
French law relies on the same test as provided under the Directive as interpreted by the European Court of Justice (“ECJ”) and requires the relevant business (or part) to constitute an “economic entity”.  However, by contrast to the ECJ case-law, French case-law is more demanding on the nature of the assets transferred by the transferor to the transferee and requires that substantial assets are transferred. This implies that businesses that rely on manpower and do not use material assets (e.g., cleaning services) are usually not considered to characterize an economic entity for the purpose of the application of French rules on transfer of undertakings whereas the ECJ has accepted to apply the Directive to this type of activities.

Excluded Transactions.
French rules on transfer of undertakings do not generally apply to:

  • Stock Sales. 
  • Transfers of assets not constituting an “economic entity” or where the economic entity does not retain its identity.  However, the analysis of whether the transfer of assets constitutes an economic entity is fact-specific, and legal advice should always be sought before concluding that French rules do not apply.
  • With respect to transfers happening in the framework of bankruptcy or analogous insolvency proceedings, French law permits the bankruptcy Court to authorize the liquidator (or similar practitioner) to proceed with some dismissals to happen prior to the transfer of the economic entity, an exception to the general rule that dismissals related to the transfer are prohibited (see “Protection Against Dismissal” below).  In addition, liabilities owed to the employees and relating to the period prior to transfer are not transferred to the transferee.
  • Specific rules govern the transfer of economic entities from the private sector to the public sector and vice and versa, including the conditions under which the transferee is required to offer to the transferred employees private law or public law governed employment agreements (as applicable).

Transfer of Employment and Certain Rights and Obligations by Operation of Law

  • In General.  Employees assigned to the business transfer automatically by operation of law to the transferee at the same time as the business is transferred, and on their existing terms and conditions of employment.  After having retained that employees partially assigned to the business were transferred for the portion of their employment agreement dedicated to this business, French case-law seems now to consider that only employees who are fully dedicated or those who dedicate most of their activity to the transferred business transfer along with the business.  The transferee becomes the new employer.  As a result, all rights and obligations arising from the employment contracts of those transferred employees, or from the employment relationships more broadly, are also transferred to the transferee.
  • Joint and Several Liability. French rules on transfer of undertakings provide that, after the transfer, the transferor remains jointly and severally liable with the transferee vis-a-vis the employee for obligations that arose in respect of the transferred employees before the transfer. The transferee can nonetheless get reimbursement from the transferor for the liabilities relating to the period prior to transfer. Notwithstanding the foregoing, in case of transfer of an economic entity without any agreement between the transferor and the transferee (e.g., in case of change of service provider), the transferee is not jointly and severally liable with the transferor.
  • Collective Agreements.  The transferee is required to continue to observe the terms and conditions agreed in any collective agreement applicable to the transferred employees on the same terms as the transferor, until the termination or expiry of the collective agreement or the entry into force of a new negotiated collective agreement or a maximum period of time of generally 15 months comprised of (i) the termination notice provided in such collective agreement (generally 3 months) and (ii) the continuation period provided in such collective agreement (generally 12 months). In the absence of collective agreement concluded during that period of time, the obligation to observe the terms of the collective agreements applicable to the transferred employees will terminate but the transferee will be required to maintain to the transferred employees a level of compensation at least equal to the compensation that stemmed from these collective agreements and enjoyed by the transferred employees during the 12-month period prior to the transfer.

    The transferor, the transferee and the recognized trade unions can sign prior to the transfer a collective bargaining agreement in order to determine the collective bargaining agreements that will remain applicable after the transfer.

    Unilateral commitments of the transferor as well as customs or usages applicable to the transferred employees are binding on the transferee by operation of law. The transferee must continue them subject to the general rules on the termination of unilateral commitments, customs and usages.
  • Employee Representative Recognition.  If the transferred business (or part) preserves its autonomy and is maintained as a separate operating unit after the transfer, the status and function of employee representatives (i.e., social and economic committee, recognised trade unions) must also be preserved by the transferee.

Specific Employee Protections

  • Protection Against Dismissal.  The corporate transaction cannot, in itself, constitute grounds for dismissal by either the transferor or the transferee of the employees who are part of the transferred undertaking.  Dismissals for economic reasons by the transferor prior to a transfer are deemed by French case-law to be related to such transfer and are voidable. The dismissed employee is entitled to either get damages from the transferor or be reinstated in its former job position with the transferee.
  • Substantial Changes in Working Conditions.  The rule pursuant to which the employer remains responsible for the termination of employment in case the transfer involves a substantial change in working conditions to the detriment of an employee and the employment is terminated has not specifically been implemented under French law. However, general rules of French law tend to the same purpose since a refusal by an employee of a change in its working conditions does not allow the employer to consider that the employee has resigned but rather requires the employer to initiate a dismissal procedure.
  • Right to Object to the Transfer.  French rules on the transfer of undertaking do not permit to the employees to object to the transfer of their employment agreement. The transfer is an obligation for the transferor, the transferee as well as for the employee.
  • Contracting Out.  Any purported waiver by an employee of rights under the Directive is deemed to be invalid as a matter of public policy.

Employee Engagement

  • Obligation to Provide Information and to Consult.  French law does not provide for a specific requirement to inform and consult in relation to transfer of undertakings. However, general rules on information and consultation of the social and economic committee established in companies with 50 employees or more generally require that the social and economic committee be informed and consulted prior to any decision relating to the modifications of the legal or economic organisation of the business, which generally encompasses transfer of undertakings. As a result, binding agreements to consummate a transfer of undertaking cannot be entered into prior to the completion of such information and consultation procedure.

    In addition, in case of transfer of an undertaking as a sale of a going concern (vente de fonds de commerce), the following rules are applicable:

    • In companies with less than 50 employees, the employer must, at least two months prior to the signing of the asset purchase agreement, inform all the employees assigned to such undertaking of its intention to sell the business with a view to allow one or more of such employees to make an offer for the purchase of such business. The 2-month time frame can be reduced if all employees waive their right to make an offer.
    • In companies with 50 employees or more and less than 250 employees and whose turnover is less than EUR50 million or whose total balance sheet is less than EUR43 million (or both), the employer must, simultaneously with the procedure of information and consultation of the social and economic committee, inform all the employees assigned to such undertaking of its intention to sell the business with a view to allow one or more employees to make an offer for the purchase of such business.

    According to the position of the administration, the seller is not obliged to accept an offer of the employees (if any) or to negotiate with the employees.

  • Parent Decisions. The obligations to inform and consult apply irrespective of whether the decision resulting in the transfer is taken by the employer or by a parent.

[1] Directive 2001/23/EC.