Traditional rules and pitfalls
New potential risk for companies
Comment
A new case law trend that has recently emerged in some labour courts and courts of appeal is exposing companies to a higher risk of litigation when implementing reorganisation processes in France, especially where the reorganisation plan involves a headcount reduction. In such cases the lack of a genuine economic motive can lead to the entire restructuring process being deemed null and void.
Traditional rules and pitfalls
Downsizing in France has always been a complex process, requiring compliance with mandatory rules set out in the French Labour Code, as well as collective bargaining agreements and case law.
In order to mitigate the risk of litigation, employers must comply with the following key rules in particular:
- prior information and consultation of staff representatives (works council or personnel delegates) on the proposed restructuring process;
- in companies with more than 50 employees, presentation and implementation of a social plan (ie, measures and financial support aimed at facilitating employees' redeployment);
- active redeployment search (ie, identifying and offering vacancies across the entire group, both in France and abroad);
- application of selection criteria within the same professional categories in order to determine which employees will be made redundant (unless all positions are made redundant); and
- justification of the redundancy in a detailed termination letter to be notified to each employee, evidencing a genuine economic rationale.
Non-compliance with these rules may trigger the payment of damages - in addition to statutory entitlements - to those employees who decide to challenge their redundancy before a court.
The only rule whose violation will lead to the entire process being considered null and void is the lack of a social plan including redeployment measures. According to Article L1235-10 of the Labour Code, "the redundancy procedure is considered null and void as long as the employer has not presented a consistent redeployment plan to the staff representatives".
If a court rules that a redundancy process is null and void, all related dismissals are also null and void, entitling the employees to reinstatement and/or damages, as well as back payment of wages and social security contributions since the termination date.
This is an extremely severe penalty for employers, which thus usually ensure that a redeployment-focused social plan is presented to the works council and the local labour authorities before launching any redundancy process.
New potential risk for companies
In several decisions issued in 2011 and early 2012, which have been severely criticised by legal commentators, some courts have exceeded the traditional scope of Article L1235-10 by ruling that staff representatives could challenge the economic rationale behind a restructuring plan from the outset of the consultation procedure, and that the lack of a valid economic rationale meant that the entire redundancy process was null and void.
The courts of appeal not only allowed the works council to initiate emergency litigation freezing the consultation process, but also ruled that the economic rationale presented by the employer was not sufficiently serious, and that the entire redundancy process was thus null and void.
Works councils have increasingly been availing of this new litigation tool since May 2011 in order to postpone or even jeopardize downsizing plans across the entire country.
It is now down to the Supreme Court to render its decision on these rulings, which exceed the scope of the law and have resulted in a strong - and arguably unacceptable - intrusion of the judiciary into business decisions. The Supreme Court is due to issue its eagerly awaited verdict before Summer 2012 - presumably after the May 2012 presidential elections.
Comment
Until the Supreme Court has ruled on the issue, it is now recommended more than ever that employers intending to downsize in France - especially where the business is profitable at global level - be able to justify the economic rationale for their restructuring plans, based either on financial losses or on an absolute need to maintain competitiveness (eg, by providing figures, market trends, competition reports, margin evolution), as this rationale will undoubtedly be scrutinised by local players.
For further information on this topic please contact Nathalie Devernay at Bird & Bird AARPI' by telephone (+33 4 78 65 60 00), fax (+33 4 78 65 60 11) or email ([email protected]).