Recent changes to redundancy law (“El Khomri law”)

A new law, which came into force on 8 August 2016 (“El Khomri law” n°2016-1088), introduces significant changes to the French Labour Code, particularly with regard to:

  • company-level agreements, which can now provide less favourable provisions than business-sector collective bargaining agreements (subject to certain minimum protections)
  • redundancy plans, by revising the definition of “economic grounds” and allowing a derogation to the TUPE regulations under certain conditions.

A new definition of “economic difficulties”

Article L. 1233-3 of the Labour Code permits specified economic grounds for dismissal as follows:

  • economic difficulties
  • technological advances
  • a need to protect the company’s competitiveness, or
  • the closure of a business (these latter grounds being developed more recently by case law).

To help clarify the meaning of “economic difficulties” in this context, from 1 December, 2016, changes to the Labour Code will list criteria by which such circumstances might be established, including:

  • a significant economic development, such as a decrease in orders or turnover, or evidence of operating losses, erosion of reserve funds, or of the gross operating surplus or
  • by any other element likely to justify these difficulties.

The Labour Code also specifies the minimum duration for relevant decreases in orders or turnover:

  • at least 1 quarter for a company of less than 11 employees
  • at least 2 consecutive quarters for a company of 11 to 49 employees
  • at least 3 consecutive quarters for a company of 50 to 199 employees
  • at least 4 consecutive quarters for a company of 300 employees and more.

The economic difficulties must be assessed at individual company level or, at the level of the group business sector to which the company belongs.

Derogation to TUPE regulations

Upon a transfer of an undertaking, the “TUPE regulations” provide that all employment contracts assigned to the transferring business are automatically transferred to the purchaser. The employer and the purchaser cannot lawfully effect redundancies prior to the transfer.

However, since 10th August, 2016, new Article L. 1233-60 of the French Labour Code has allowed companies to effect redundancies prior to a transfer in limited circumstances, thereby preventing the transfer of employment to the purchaser. The following conditions must apply:

  • the company (or group) must have at least 1,000 employees in Europe
  • the redundancies must arise in the context of a social plan (“PSE”), i.e. at least 10 employees to be made redundant in a company with at least 50 employees
  • the redundancies are made in order to facilitate a purchasing offer which avoids the closure of a site (and consequential higher job losses).