Brief topics : New rules for 2015

New regulations have come into force effective January 2015, including the following:

  • The right to individual training (“droit individuel à la formation”, DIF) has been replaced by a new training scheme: “the personal account for training” (“compte personnel de formation”). Do not forget to inform your employees before 31st January 2015 of their accrued rights with respect to the DIF;
  • Sanctions against clandestine work (particularly where this involves several employees or vulnerable / dependent employees) have been strengthened.

Transfers of business: Q&As regarding the obligation to inform the employees of such transactions

The law of 31 July 2014, completed by a decree dated 28 October 2014, created a new obligation to inform employees in the event of contemplated sales of small businesses as from 1st November 2014. Please find below our answers to some frequently asked questions on this new legislation:

  • Which companies are concerned? Any company employing less than 250 employees. Companies employing between 50 and 250 employees are concerned when they are characterized as small or medium-size (SME) under French law, i.e. when they employ less than 250 employees, and their annual turnover does not exceed 50 million Euros / or their total balance sheet is less than 43 million Euros. These criteria are assessed at company level.
  • Which transactions are concerned? Any transaction transferring ownership of the business, or of shares representing more than 50% of the share capital of the company (except for family transfers, successions, and liquidation of a matrimonial regime). Specific provisions deal with companies operating in regulated businesses.
  • Who must be informed? What information is compulsory? Any employees who are currently employed by the relevant company (whatever is the form or duration of the employment contract, including employees whose contract is suspended). The employees should be informed of the proposed transfer of share or business (the nature of the contemplated transaction should be specified), and of their ability to make an offer to purchase it.
  • When do we need to inform the employees? And how? This depends on the headcount of the company, and whether it has elected employee representatives. In companies employing less than 50 employees, and those who have not elected any works council (WC) or staff delegates (DPs), the information should be provided at least 2 months prior the transfer date (ie the date where the property of the business is transferred to the buyer). This period may be shortened if all employees indicate that they do not wish to make any offer, explicitly and in an unambiguous manner. In companies employing at least 50 employees having elected a WC or DPs, the information should be delivered when the WC is informed and consulted regarding the contemplated transfer, at the latest. Specific modalities have been implemented regarding successive contemplated transactions.  Such information may be delivered by any means, provided it enables the specific date where the employees are informed to be ascertained.
  • What are the employees’ rights and obligations? The employees may be assisted by specific persons in order to prepare the offer they wish to make to purchase the business. Such persons, as well as the employees themselves, are subject to a confidentiality obligation with respect to the information they receive provided such information has been presented as confidential by the employer. Any employee is free to make an offer (and the employer is free to accept or refuse such offer).
  • What is the timeframe for the completion of the transaction? This also depends on the headcount of the company, and whether it has elected employee representatives. In companies employing less than 50 employees, and those who have not elected any works council (WC) or staff delegates (DPs), the minimum timeframe is 2 months after the last employee has been informed (unless the 2 month period is shortened – please see above).  In companies employing at least 50 employees having elected a WC or DPs, the transfer may not take place before the WC has given an opinion on the contemplated transaction.
  • What are the sanctions? If no information has been delivered, or if such information is incomplete / late, any employee employed by the company at the time at which the employees should have been informed may file a claim with the commercial court to nullify the transaction within a 2 month period running from the date on which all of the employees have been informed of the sale of the shares / business. The 2 month time period does not begin to run if the employee has not been informed of the completion of the business / share transfer which is why it is important to notify each employee of the completion of the transaction.

The « Macron » draft law : A revival for French employment law ?

A draft law aiming at facilitating growth and activity, also known as the « Macron » draft law, was presented before the government in France last 10 December.  The main topics covering employment law are:

  • Sunday work: current legislation would become more flexible, in order to increase the exceptions to the prohibition of Sunday work. In particular, the mayors of each city would be entitled to permit non-food retail stores to stay open up to 12 Sundays per year (instead of the current 5). In addition, geographical areas in which automatic exemptions to the Sunday work prohibition currently exist would be redefined and widened (three categories of areas would be created: tourism areas, trading areas and international tourism areas). In order to be permitted to stay open on Sundays, the relevant companies would be required to be subject to a collective agreement (entered into at branch, company or specific geographic area level) providing for specific financial counterparts for the employees volunteering for Sunday work;
  • Night work: the Macron draft law also aims at enabling employees of retail stores located in international tourism areas to stay open more easily at night. For these areas, the 9pm-12pm period would not be considered as night working time, provided the relevant companies are subject to a collective agreement, and the employees are volunteers. The remuneration of the employees during this period would be twice their usual remuneration, and they would be entitled to additional rest. Employers would also be required to implement specific means to ensure that their employees could return home safely;
  • Employment courts: employment litigation procedures are currently very long. The draft law aims to encourage alternative dispute resolution procedures. Specific procedures would also be implemented to shorten the timeframes for litigation procedures (particularly where the employees’ claims concern dismissal or judicial termination of the employment contract). Finally, the training of employment judges would be improved, and employees could be assisted before the courts by new advisors;
  • Fighting against clandestine work: financial sanctions related to infringement of rules relating to secondment of employees by employers would be increased, the maximum amount being raised to 150,000 Euros (instead of the current figure of 10,000 Euros). Moreover, in the event of a serious infringement by a foreign employer of the fundamental rights of employees seconded to France, French authorities could order the suspension of the service provided by the foreign employer during a maximum period of 1 month (without this having harmful consequences for the seconded personnel);
  • Economic dismissals: the draft law, if promulgated in its current form, would allow employers to provide by collective agreement or by a unilateral document that the selection criteria which are to be applied to select the employees of the company who are to be dismissed for economic reasons may vary from one establishment to another.  The reason for this provision is to render inapplicable current case law which provides that such selection criteria may only be implemented at company level.
  • The various company profit-saving schemes would be simplified and streamlined.

This draft law has raised some controversy so there is no doubt that its content will be widely amended during the discussions before Parliament.

Probationary period : beware of the term of the notice period

Under French employment law, the provision of a probationary period in an employment contract entitles the employer to terminate the contract during such period without being required to follow a dismissal procedure or to justify the termination on real and serious grounds. However, the termination of an employment contract during a probationary period must be preceded by a notice period the length of which depends on the employee’s length of service within the company. In this respect, the labor code states that the notice period does not extend the term of the probationary period.

In this context, issues have recently arisen concerning the consequences of non-compliance with the notice period in the event of termination during a probationary period. Recent case law and a subsequent statute have clarified the situation, specifying that non-compliance with the notice period will only entail the payment of a financial indemnity representing the wages the employee would have received had he/she continued to work during such period.

However, the solution was still unclear in those cases in which notice of the termination was given prior to the end of the probationary period but part of the notice period would actually be worked by the employee after the term of the probationary period.

In a decision of the Supreme Court dated 5th November 2014, a sales director was hired on 17th January 2011, with a 3-month probationary period. By letter dated 8th April 2011, the employer terminated the employment contract with effect on 22nd April 2011 (in order to comply with the applicable two weeks’ notice). Subsequently, the employee claimed payment of damages for unfair dismissal before the employment tribunal, on the grounds that, as he had worked beyond the probationary period, his employment agreement had become definitive.

The Supreme Court held that, as the termination of the employment contract was notified during the probationary period, the employment contract should have reached its term at the end of the notice period if worked through and at the latest at the expiry of the probationary period. The Supreme Court judges deemed that the continuation of the contract beyond the term of the probationary period gave rise to a new indefinite term employment contract which had to be terminated by a proper dismissal.

In practice, if the notice period at the time of the termination exceeds the remaining probationary period provided in the contract, it is recommended that the employee should stop working at the latest at the expiry of the probationary period. The employer would obviously be required to pay to the employee a financial indemnity corresponding to the salaries and benefits for the remainder of the notice period exceeding the term of the probationary period (according to the new statute), but if the employee is not working, the employer would not incur the sanction of an unfair dismissal.

A termination by common agreement may be considered as unfair dismissal

As is the case for all contracts, employment contracts are subject to ordinary civil contract law. Civil law allow the parties to agree on the termination of the contract by which they are bound. Drawing the consequences from this general principle, French case law had admitted for many years the ability of an employer and an employee to terminate the contractual relationship by common agreement.

However, since the introduction in 2008 of the “rupture conventionnelle homologuée” (“RCH”), which has implemented a formal procedure to terminate an employment contract by mutual agreement subject to the authorisation of the labour authorities, there has been some uncertainty about the ability to continue use the prior “ordinary” termination by common agreement technique, particularly in the context of “intra-group” transfers, where a new employment contract is entered into immediately following the termination by mutual agreement.

In a decision of the Supreme Court dated 15th October 2014, an employee and her employer agreed on the termination of the employment contract via a document signed by both parties and formalising the end of the employment relationship without the application of the legal procedure relating to the RCH. Shortly thereafter, the employee decided to challenge the termination of her contract and filed a claim before the employment tribunal seeking damages for unfair dismissal.

The judges of the Court of Appeal, ruling that the termination should have complied with the procedural requirements relating to the conclusion of a RCH, held that the termination constituted a dismissal which, as non-justified, was necessarily unfair. The Supreme Court upheld the ruling of the Court of Appeal and held that a termination by mutual agreement could only be validly effected through the implementation of a RCH except in the limited circumstances provided by French law, otherwise, such termination must be deemed to constitute an unfair dismissal.

This new development in case law does not really come as a surprise as previous recent decisions of the Courts had already led most observers to believe that the Supreme Court would issue such a decision. However, although this solution seems justified in classic situations of termination of employment contract, such solution will be more difficult to implement in situations of intra-group mobility and transfers where employees are proposed a new employment contract. Hopefully, the Supreme Court will adopt a more pragmatic approach in these circumstances.

The limits of the confidentiality obligation of works council members

Under French employment law, the works council must be informed and consulted on a very wide range of matters concerning the running of the company. The Labor code states that the works council members are bound by an obligation of discretion with regard to any information of a confidential nature and presented as such by the employer.

In practice, it is quite common for employers to present all the documents transmitted to the works council as confidential, especially when such documents concern sensitive projects such as reorganisation projects and mass redundancy schemes.

In a decision of the Supreme Court dated 5th November 2014, in the context of a consultation procedure relating to a reorganisation project, a company had transmitted to its works council various documents classified as confidential. Subsequently, the works council filed a claim in summary proceeding in order to contest the confidentiality obligation on the documents communicated and to require that the consultation procedure be started afresh from the beginning.

The Supreme Court held that, for the obligation of confidentiality to be enforceable, not only must the document be presented by the employer as being confidential but such document should also be of a confidential nature in light of the legitimate interests of the company, and the burden was on the company to demonstrate that this was the case. As a consequence, the Supreme Court held that (i) since the employer had not demonstrated the necessity for imposing a confidentiality obligation on the documents communicated to the works council, the employer had prevented the works council from effectively preparing the meetings, and (ii) the only way to remedy the situation was to order that the procedure should be resumed from its beginning.

This solution is particularly innovative with regard to the sanction which was imposed on the company. It is indeed the first time, to our knowledge, that the judges of the Supreme Court ordered an information and consultation procedure to be resumed at its starting point in similar circumstances. This sanction is based on the grounds that the unlawful confidentiality obligation prevented the works council from discussing the project with third parties, thus impacting on the preparation of the meetings.

Therefore, employers will have to exercise great care in determining what information will be presented as confidential to the employee representatives and must ensure that the use of confidentiality is based on genuine and legitimate interests of the company. Save in exceptional and very specific circumstances, it no longer seems possible to claim that all documents communicated to the works council in the course of a consultation process are confidential. This could result in claims of the employee representatives that the consultation procedure should be resumed from its beginning, in addition to the potential risk of committing the offence of hindrance of the works council (délit d’entrave), currently punishable by an imprisonment of up to one year and a fine of up to 3,750€ for the legal representative and 18,750€ for the legal entity.

The surveillance of employees by an internal service is permitted

When it comes to the control and surveillance of the employees' activity at the workplace, French employment law generally requires a series of conditions to be fulfilled in order to ensure that the evidence collected through such control can be used against an employee. In particular, the implementation of means of monitoring the employees’ activity must be preceded by the individual information of the employees as well as information to and consultation with the employees' representatives (if any) and, where relevant, the intervention of the French data protection authority. Breach of these rules by the employer entitles a court to reject any evidence obtained by illicit means against an employee.

In a ruling of the Supreme Court dated 5th November 2014, the Supreme Court provided clarifications regarding the surveillance of employees by an internal service of a company. In this case, a public transport company had implemented a system under which some employees were in charge of observing the work performed by the bus controllers in their daily work and notably their working time and time schedule, such employees being required to draft regular reports. Following one of such reports evidencing various misconduct, an employee was dismissed for gross misconduct. Challenging this decision, the employee lodged a claim for unfair dismissal before the employment tribunal claiming that the surveillance put in place by the employer was illicit and infringed his privacy right.

The Supreme Court held that the control of the employee's activity, within the limits of his working time and place of work, by an internal service in charge of such surveillance did not constitute per se an illicit manner of collecting evidence, even though the employee had not been informed thereof beforehand. Furthermore, the Supreme Court also decided that no violation of the employee's right to privacy was characterized in this case since the surveillance had been limited to his working hours and place of work.

By this decision, the Supreme Court reaffirmed its stance with regards to the control of the employees' activity. The control carried out by the employer itself or by an internal service to which the employer has entrusted such mission does not require compliance with a specific procedure if it is carried out during working hours and at the place of work. However, this ability is not without constraints, as employers would, in any case, be required to respect the employees' right to privacy (for example, the surveillance could not be extended to the employee’s home). Besides, and more generally, employers must ensure that the measures implemented are justified by the nature of the task to be performed and are proportional to the purpose sought.