Penalties for breach of obligations
Proposed change: removal of imprisonment risk
What next?


Penalties for breach of obligations

Failure to respect obligations towards employee representatives (ie, the obligation to organise elections and prior consultation in relation to transactions and many other matters) constitutes a criminal offence.

Such offences are punishable by a maximum fine of €3,750 ($4,703) for individuals (€18,750 or $23,515 for companies), and more importantly, potentially up to one year's imprisonment for individuals held to have committed such breaches – this can include management teams based overseas. The risk of imprisonment, albeit small, is a significant one for corporate officers and senior employees (including those based overseas).

While prison sentences are extremely rare, they are a potential risk – for example, in February 2013, the managing director of Molex Automotive SARL and a factory co-manager were given six-month suspended sentences and ordered to pay €10,000 in damages for failure to inform and consult with the works council in advance of a decision to close a site in France (the decision was found to have already been taken by the shareholders).(1)

Proposed change: removal of imprisonment risk

President François Hollande recently announced a proposal to remove the possibility of imprisonment and to limit the penalty to a fine. The French government's intention is to change France's reputation as a complex and risky jurisdiction for overseas investors by eliminating the risk of potential prison sentences for officers and employees who do not comply with their obligations towards employee representatives.

Many questions remain open in relation to the proposal. What level of fine will be set? Will the amount vary depending on the severity of the breach? Will it be increased in case of repeat offences? Will it be an automatic fine or will tribunals have discretionary powers?

What next?

These proposals are to be included in a draft law that will be presented to the French Council of Ministers in December and debated in the French Parliament during the first trimester of 2015.

Trade unions (in particular the CFE-CGC) are strongly opposed to the potential change in penalties and have already criticised the proposal, arguing that this may result in the loss of an important deterrent to breaches of the obligations towards employee representatives.

For further information on this topic please contact Emma Röhsler or Lauriane Gregor at Herbert Smith Freehills LLP by telephone (+33 1 53 57 70 70), fax (+33 1 53 57 70 80) or email (emma.rohsler@hsf.com or lauriane.gregor@hsf.com). The Herbert Smith Freehills LLP website can be accessed at www.herbertsmithfreehills.com.

Endnotes

(1) Toulouse Court of Appeal, February 7 2013, 13194.