One of the main employment aspects to be taken into consideration in corporate transactions, in particular in multijurisdictional ones, is the potential role of the works councils. This is a particularly hot topic when it comes to France where the social and economic committee (known as the CSE) has important powers and its involvement can trigger significant consequences on the timing of the transaction.
As such, the first step is to check whether there is any CSE in the entity(ies) impacted by the corporate transaction in France. If so, and if the entity(ies) employs at least 50 employees, this CSE may have to be involved.
The next step is to analyze whether the corporate transaction, as structured, will trigger an information and consultation procedure of the CSE. The French employment code requires an information and consultation procedure on any topics impacting the organization, management and general running of a company. From a corporate standpoint, this therefore means, for example, that a sale of shares of a company, an asset deal (such as a merger), or a hive down will trigger an obligation to consult the CSE. This may also be the case even if there is there is an indirect sale of a French entity but, in this specific context, a more in depth analysis would need to be undertaken in light of the factual circumstances of the transaction.
In the case where an information and consultation procedure is required, the key issue to be considered and anticipated is the impact of this procedure on the timing of the whole transaction. Anticipation and organization are therefore essential to avoid any delay the transaction.
The legal rule is that the CSE must be consulted and deliver an opinion prior to any definitive decision being taken on a transaction, meaning that the signing of the corporate documentation cannot take place before the CSE has been duly consulted.
The legal time period for the CSE to render its opinion ranges (subject to any specific internal rules providing for a longer consultation period) from one to two months in case of the appointment of an expert. It can be extended to three months in some circumstances. If the CSE has not provided its opinion within the above maximum timeframes, the CSE will be deemed to have issued an opinion on the transaction, thus enabling the transaction to move forward (assuming it has received sufficient information on the transaction).
The legal time-period for the consultation of the CSE starts to run only when the CSE has received a complete written pack of information in French language on the proposed transaction.
This is generally a crucial point to take into consideration as, in practice, the drafting of this written pack of information takes time (often several weeks) depending on the complexity of the transaction. The document will need to cover the economic, legal and financial aspects of the deal, including information on the potential purchaser and on its business plan/ projects as well as detailed information on the consequences of the transaction on the employees/benefits. As such, the purchaser will also generally need to be involved in this drafting exercise.
The key points to keep in mind for the preparation stage are:
- to undertake any legal analysis which may be necessary for the drafting of this document and for the consultation process (e.g. if there is a transfer of employees, whether TUPE will apply or not; potential impact of the transaction on employees’ benefits notably if benefits are granted at group level);
- to draft a written document which is sufficiently detailed and precise to validly trigger the consultation process and avoid the CSE arguing that the consultation has not started because the information is too vague or general;
- to involve the purchaser in the drafting of the sections relating to it;
- to allow sufficient time for the drafting of this document; and
- depending on the complexity of the transaction, the CSE may refuse to give an opinion or make threats for litigation: in this case, the granting of a safety net (e.g. guarantee of employment during a certain period or the maintenance of the level of benefits for a certain period) by the purchaser to the employees may be a practical solution to solve a “conflict” situation. This aspect is also to be anticipated and discussed with the purchaser before the beginning of the consultation process.
Once the written pack of information is delivered to the CSE, the consultation period will start running.
Tips for the consultation period include:
- the questions / requests of information made by the CSE / its expert will need to be answered in a timely manner;
- as a result, this Q&A exercise will need to be managed efficiently and the necessary resources within the company and the group will need to be anticipated, available and proactive; and
- for transactions involving a sale to a third party, it is common practice for the purchaser to attend a meeting of the CSE (so this will need to be prepared and discussed in advance with the purchaser to ensure its availability).
Once the consultation of the CSE is completed, the transaction can then move forward and the signing of the corporate documentation can take place.
In France, the consultation of the CSE is not just a formality and failure to comply with the applicable rules may result in penal sanctions being incurred for hindrance offence (fines), and potential damages. Risk of claims by the CSE (urgency proceedings action) asking for the suspension of the deal until the CSE has been duly informed and consulted and has given its opinion can also be incurred. French law does not permit the contractual documentation to state that the consultation of the CSE is a condition precedent of closing.
As noted above, the two key recommendations for corporate transactions involving CSEs are anticipation and preparation. Taking legal advice from experienced practitioners will also be important to mitigate the effects of the requirements which we have outlined.