Principle and scope of application
French employment law, pursuant to European legislation, contains measures that are aimed at protecting employees in the context of a transfer of a business (TUPE provisions).
In this respect, French law provides that “if there is a change in the legal status of an employer such as a succession, sale, merger, change in structure of the business or a transformation into a company, all the contracts of employment existing on the day of the change will continue to exist between the new employer and the staff of the previous employer”.
In this context, French TUPE regulations apply if there is a transfer of an autonomous economic entity which retains its identity following the transfer. Such autonomous economic entity is defined as “an organised group of persons and tangible and intangible elements enabling the carrying out of an activity which follows its own purpose”.
The mere transfer of the shares of an employing entity does not impact the employees’ situation and therefore would not trigger the application of TUPE provisions, since, in such a case, employees are not transferred as a result of the transaction as they remain employed by the same legal entity.
There is no specific procedure which must be complied with by the employer towards its employees when TUPE applies although it is usually advisable to send a letter to each employee informing them that they will be transferred as a result of the transaction.
However, the transferor and/or transferee will generally be required to inform and consult with their respective works council(s), and possibly with their health and safety committee(s) (if any) in respect of the contemplated transfer, before any definite decision is made on such transfer.
It should also be noted that any entity employing less than 250 employees (subject to certain conditions) must inform its employees when it proceeds with the sale of its business as a going concern (“vente de fonds de commerce”) so that employees are given the possibility to make a proposal to buy the business/company.
The employment contracts existing on the day of the transfer of business are automatically transferred to the transferee under exactly the same terms and conditions as prior to the transfer and the transferee is liable for all rights and obligations of the transferor in respect of the employees. Employees cannot opt out of the transfer and the transferee cannot refuse to take on transferring employees. Specific rules may apply to particular categories of employees (such as employees’ representatives).
Finally, the application of French TUPE regulations also has an impact on the collective status of the transferred employees as well as on the employees’ representative bodies in place.
Dismissal before and after the transfer
In principle, employment contracts can be terminated before a transfer of business if, for example, it is necessary to reorganise the company before selling it. There must, however, be a strong genuine and important reason for the dismissals as any economic dismissal notified prior to the transfer in order to avoid the application of French TUPE regulations would be considered as void.
Where a transferor and transferee together attempt to avoid the application of French TUPE regulations, they may be held jointly liable for the consequences of dismissal(s) – employees can seek damages for unfair dismissal against either employer or ask the court to hold them jointly liable to pay damages for unfair dismissal.
With respect to dismissals notified following the transfer, the new employing entity may proceed with dismissals after the transfer in accordance with the French legal framework, provided that such measures are not aimed at avoiding the application of French TUPE regulations.