Previous practice

Before 2008, transferring French employees to another group company (whether in France or overseas) with their consent was a fairly simple process, involving a simple tri-partite agreement between the employee, the existing group company in France and the new group employer (whether in France or elsewhere). This mechanism allowed for clear termination of the employee's original employment contract (to preclude future claims against the first employer) and removed the risk of any future claims by the employee in relation to the transfer.

'Agreed termination'

In 2008 a new procedure permitting termination of employment contracts by mutual consent was introduced.(1) This is used where the employee and employer genuinely both want to terminate the employment contract.

For the 'agreed termination' to be valid and effective, the employer and employee must agree the terms of the departure (with a 'cooling-off' period during the discussions during which time both parties are free to change their mind), and the employee must be paid an indemnity sum equivalent to at least the termination payment under the applicable collective bargaining agreement (or, if no collective bargaining agreement applies, the minimum termination payment required under law). The agreement between the parties must also be sent to the authorities for validation and the procedure takes approximately 45 days.

Until recently, there was no Supreme Court finding that this mandatory agreed termination procedure should apply to the transfer of employees between group companies, notwithstanding that their employment contract with the original employer was, in effect, ending by consent.

Supreme Court decision

However, the Supreme Court recently held that – save for limited cases specifically identified by law – all terminations by mutual agreement (arguably including intra-group transfers of employees) must follow the specific procedure set out above – requiring a period of at least approximately 45 days and validation by the authorities.(2)

Risks of non-compliance

The Supreme Court's decision now means that the simplified procedure for intra-group transfers could be subject to challenge by the transferred employee. The risks could be as follows:

  • Termination of the initial employment contract may be held to be a dismissal without real and serious cause, resulting in a claim from the employee for termination payments and damages; or
  • The initial contract may be considered to be still in force. This could mean that if a dispute with the employee arises in the future, he or she may seek to bring claims not only against the new employer, but also potentially against the former employer (notwithstanding the intra-group transfer).

Comment

Pending clarification by the courts of the correct approach to take for intra-group transfers, one means of reducing the risks may be to avoid referring to termination of the initial employment. Possible alternatives may be to novate the contract to the new group employer (again with the employee's consent). However, pending further clarification from the courts, this approach may not be entirely free of the potential risks outlined above.

Emma Röhsler or Lauriane Gregor

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.