It is a fact of life in French employer-employee relations that employees have no hesitation in bringing actions against their employer, in particular following termination of an employment, and that litigation is therefore not just a virtual weapon. Not only do employees sue their employer but, where the employer is a part of a group of companies, they have sought to impose liability on the group parent company in such employment litigation where they consider that the parent company was too involved in the management and decisions of its French subsidiary and that such involvement had proven detrimental to the French entity.
Historically, such actions were initially based on a claim by the employees that they were in fact co-employed both by the company with which they had their employment and by the group parent. However, over the course of several years, French case law has rendered more stringent the criteria entitling the employee to claim co-employment by the group parent, making the chances of success of an action based on such ground more difficult.
However, the door has not been entirely closed with respect to the ability of an employee to bring a claim directly against the parent company, as grounds of action against parent companies exist other than a claim of co-employment and this is what the French Supreme Court has recently recalled in several decisions rendered on 24 May 2018.
In one of these decisions, following the judicial liquidation of Lee Cooper France which had led to the dismissal of 74 employees, several of them lodged a claim against the holding company of the group. The claim was firstly based on alleged co-employment by the parent entity, but this argument was rejected by the court, on the basis of the principle that co-employment is defined restrictively as follows: a company belonging to a group can only be considered as the co-employer of staff initially employed by another entity if, beyond the necessary coordination of economic actions between entities belonging to the same group, there is a confusion of interests, activities and management between them resulting from an interference in the social and economic management of the other entity.
However, the employees also made an alternative claim for damages from the holding entity on the basis of tort liability (responsabilité délictuelle ) for actions which according to the employees had led to the loss of their employment.
On these grounds, the court of appeal ruled that because the parent entity had – through various questionable acts aimed at favoring its own interests – made faulty decisions which created economic difficulties and led to the disappearance of job positions within its subsidiary, it was liable to pay damages to the employees of the French subsidiary. More precisely, the holding entity was found to have required the French subsidiary to do the following:
– make a financial contribution to the group beyond the subsidiary’s financial capacity;
– effect a free transfer of a trade mark license to another entity of the group while the French subsidiary continued to bear the license fee;
– provide a real estate guarantee for the benefit of another entity of the group;
– purchase a stock of goods to another entity of the group when such stock was already subject to a right of retention in favor of a creditor;
– provide services to other entities of the group which were only partially paid.
The decision of the appeals court was subsequently confirmed by the French Supreme Court, which ruled that such behavior was faulty and damageable for the French entity and its employees.
In an earlier decision of 8 July 2014, the French Supreme Court had already admitted that tort liability constituted valid grounds to hold a parent entity directly liable towards the employees of its French subsidiary. The recent decisions of 24 May 2018 have confirmed this possibility while providing more details as to the scope of the faulty behavior of the parent entity on which such an action must be based, i.e., management decisions made abusively by the parent entity in its sole interest, which prevent the subsidiary from acting in accordance with its own corporate social interest.
Therefore, it is essential that within groups of companies a line can be drawn between the necessary economic interactions amongst the various entities of the group and the situation where the decisions made at group level would endanger its subsidiary and would fall into the category of faulty behavior which the French jurisdictions have constituted grounds upon which the actions of the parent company may trigger claims for damages.