The new law brings clarity to the definition of redundancy and economic difficulties, addresses the transfer of companies in the midst of redundancies, and imposes an obligation on companies contemplating a project of dismissal to contribute to the revitalization of the affected market.

On 21 July 2016, France’s Parliament adopted the draft law relating to Work, Modernization of Social Dialogue, and Securing of Professional Processes.

The final text of the new labor law clarifies the definition of redundancy and frames the notion of economic difficulties. The law also opens up the possibility to the transferor of a company or an establishment to make employees redundant where a transfer of such company or establishment is contemplated. Finally, the labor law strengthens the obligation of a company or group of companies with more than 1,000 employees to include actions, within the scope of a redundancy plan, to revitalize the affected employment market or markets.

New Definition of Redundancy

From 1 December 2016, the following will constitute a dismissal for economic reasons:

The dismissal carried out by an employer for one or more motives other than inherent to the person of the employee resulting from a removal or transformation of employment or a modification, refused by the employee, of a substantial element of the employment contract, resulting notably from:

1. Economic difficulties characterized either by the significant evolution of at least one economic indicator such as a decrease of the orders or of the turnover, operating losses or a degradation of treasury or of the gross operating surplus, or either by any other element likely to justify these difficulties.

A significant decrease of the orders or of the turnover is established as soon as the duration of this decrease is, when compared with the same period of the previous year, at least equal to:

  1. one quarter for a company of less than eleven employees;
  2. two consecutive quarters for a company of at least twelve employees and of less than fifty employees;
  3. three consecutive quarters for a company of at least fifty employees and of less than three hundred employees;
  4. four consecutive quarters for a company of three hundred employees and more.  

2. Technological mutations.  

3. A reorganization of the company necessary to the safeguarding of its competitiveness.  

4. The termination of the company’s activity.

(new Article L. 1233-3 of the Labor Code)

The adverb “notably” in the first paragraph reminds us that this list is only indicative.

Compared to the previous wording of Article L. 1233-3 of the Labor Code, two grounds have been added: the company’s reorganization necessary to safeguard its competitiveness, and the termination of the company’s activities. These additions are not decisive, however, as such grounds were already retained by case law to reasonably justify a redundancy.

Legal Criteria for the Assessment of Economic Difficulties

A harshly criticized aspect of the labor law during the parliamentary debates (but retained in the final version) is the fixing of legal criteria for the assessment of economic difficulties justifying a redundancy. The stated goal is to frame judges’ discretion and reduce the legal insecurity that results from litigation. These criteria are now fixed by No. 1 of the first paragraph of Article L. 1233-3 of the Labor Code excerpted above.

The new labor law notably takes into consideration the duration of the decrease of orders or turnover in characterizing the economic difficulties used to justify a dismissal. This duration varies according to the company’s size.

Geographical Perimeter for Assessment of Economic Difficulties Remains Unchanged

The draft law forecasted that the economic difficulties should be determined

  • at the company level, when it does not belong to a group of companies; or
  • otherwise, at the level of the line of business common to companies established in the group’s national territory.

According to the Prime Minister, the goal of retaining this national perimeter was to enable France “to become more attractive for the international investors”. Nevertheless, facing strong disagreement from trade unions, the French government has removed this innovation from the final version.

The geographical perimeter for assessment of economic difficulties remains thus unchanged and corresponds to the line of business of the group to which the company belongs. When it is an international group, the companies of the line of business in a foreign state must also be taken into account.

Nevertheless, the final version of the law points out that the reality of the removal of the work position, the transformation of the work, or the modification of the terms and conditions of the employment contract is determined at the company level.

Ability to Make Employees Redundant before a Business Transfer

In applying the provisions of Article L. 1224-1 of the Labor Code, a transfer of business assets leads to the automatic transfer to the transferee of the employment contracts linked to the business assets. Hence, case law considers, with some exceptions, that the redundancies pronounced by the transferor immediately before the transfer of business assets will have no effect.

The labor law adopted by French Parliament on 21 July states that when a redundancy plan contains a resumption of site in order to avoid the closure of one or more establishments and to safeguard some employment contracts, the aforementioned rules about automatic transfer of the employment contracts will not prevent the transferor from proceeding to the dismissal of the employees who are not kept.

This exception only affects companies employing more than 1,000 employees in France, as well as those below this threshold that have the obligation to implement a retraining program called “congé de reclassement” (those belonging to a group employing 1,000 or more employees in a member state of the European Economic Area). Within this scope, the benefit of the provisions about automatic transfer of the employment contracts to the transferee is limited to employees who have not been dismissed at the date of the transfer.

This exception to the principle stated by article L. 1224-1 aims to favor the company’s resumption by another business, which will no longer have to dismiss employees after the resumption, enabling the business not to interrupt the implementation of the redundancy plan when a transferee comes forward during an ongoing redundancy process.

It must be reminded that the 2014 “Hamon” law introduced an obligation, for the aforementioned companies contemplating the closure of an establishment with a corresponding collective dismissal and redundancy plan, to actively look for a potential transferee before the implementation of the redundancy plan.

Implementation of the Obligation of Revitalization

In applying the provisions of Article L. 1233-84 of the Labor Code, a company or group of companies employing at least 1,000 employees having proceeded to a collective dismissal must contribute to the actions of revitalization of the affected employment market or markets.

The final version of the labor law seeks to oblige companies to take actions to revitalize the affected employment market or markets, which companies could implement voluntarily before a project of dismissal. Thus, when these actions of revitalization post-dismissal are mentioned within a contractual document signed with the French government, they will be taken into account in the revitalization agreement concluded post-collective dismissal.

A second revitalization aspect of the law is the application of the legal provisions about revitalization in case of geographically diffused collective dismissals. Thus, when the dismissals concern at least three departments, the law requires that a national framework convention of revitalization must be signed between the French government and the company. Its conclusion must intervene within a six-month period from the notification of the project of dismissal leading to a redundancy plan.

The amount of companies’ contribution to the revitalization is between two and four times the monthly minimum wage (1.466,62 euros on 1 January 2016) of each employee whose contract was terminated.

The Constitutional Court has validated all the provisions discussed above in a decision dated 4 August 2016. The law was published on 9 August 2016 in the Official Journal.