Over the last few years, French case law has developed the concept of co-employment so that parent companies and their subsidiaries are jointly liable. Consequently, when a subsidiary cannot meet its own liabilities with regard to its employees, the parent company becomes liable for any payments due.
A parent company is most frequently called upon to pay termination costs following collective redundancies. A very recent decision of the Supreme court, dated 12 September 2012, has however extended the scope of this liability to health and safety indemnification.
When looking at the framework of a group of companies, the first criteria used by judges to determine whether or not a company (most often, the parent) could be considered as a co-employer is the existence of a master-servant relationship between such company and the employee, regardless of whether or not there is an employment contract between the employee and the parent company.
The judges also consider economic criteria. In doing so, they look at whether the companies share common interests, activities and management. They will question whether, and to what extent, the parent company interferes, or is involved, in the subsidiary's day-to-day management and whether the subsidiary is financially dependent on the parent. They take into account information such as: the level of capital investment by the parent company in the subsidiary, the degree of integration for tax purposes, the number of common managers, the level of shared services and so on.
Aim of the co-employment concept
The main aim of co-employment is to permit employees a remedy against a more solvent entity. When their subsidiary employer is insolvent, for example, they have the ability to pursue their remedy against an alternative, and hopefully more solvent, employer.
Most often seen in cases of collective redundancy, case law has recently extended the scope of co-employment to health and safety, concluding that the foreign parent company of a French subsidiary was jointly liable in a case in which the employer was held to have committed an inexcusable fault in failing to prevent the occurrence of an occupational accident and/or disease.
Recommendations to parent companies
Parent companies which are keen to limit the risk of co-employment and of liability should seek to reduce their involvement in the management of the subsidiary. Practically, this means ensuring that there are no common managers and no financial dependence on the parent company. The subsidiary should be autonomous. So, practically, in the event of collective redundancies, there should be no announcement by the parent company and the exercise should be managed by the subsidiary.