Presented in such a way as to enhance the competitiveness of enterprises and to increase and preserve jobs, the El Khomri law commonly known as the new “Labour Law” presented to the Council of Ministers on 23 March 2016 and debated in the National Assembly in the course of the last few weeks, has been the subject of numerous amendments.

One such amendment, accepted by the Government as a concession, has a direct impact on franchise networks.

This amendment, which has added an article 29b to the Law (creating articles L.23-121-1 and following of the French Labor Code) provides for the creation of a "franchise network dialog forum”.

What is this "dialog forum" and how should it function?

It is a committee chaired by a representative of the franchisor, and a representative of the franchisees and at least 5 elected representatives of the employees of the franchisor and franchisees (this number increasing according to the size of the network). Employees elected are protected employees who may not be dismissed without the prior authorization of the labor inspectorate, failing which there is punishment by fine and prison sentence.

This forum is implemented upon the initiative of the franchisor, franchisees or representative trade union organizations by means of a Memorandum of Understanding. Failing to do so entitles the first instance judge to order the implementation of the dialog forum. The Franchisor bears all implementation and functioning costs.

The committee must gather at least four times per year, with the possibility of holding exceptional meetings at the request of the majority of employee members. Each employee  elected  must  be  released  from  at  least  20 working hours per month to enable him to devote time to this activity.

What are the powers and responsibilities of the dialog forum?

The dialog forum must notably be informed quarterly on the activity, the economic and financial situation, the development and the annual or long term employment forecasts as well as possible preventive action envisaged in light of these forecasts, social policy and working conditions of the entire network.

It is also informed of decisions concerning the organization, management and general functioning of the franchise network. It formulates, at its initiative, and examines, at the request of the franchisor or the representative of the franchisees, any proposal intended to improve conditions of work, employment, and professional training of employees in the entire network.

The franchisor must also inform the dialog forum of the businesses that enter and leave the network.

The franchisor and the franchisees must finally regularly inform the dialog forum of jobs available within them.

The text recalls furthermore, codifying current and criticized case law of the social Division of the Cour de Cassation that the redeployment obligation of employees of the franchisor and the franchisee in the event of dismissal for economic reasons is carried out at network scale.

Finally, the forum can implement social and cultural activities, the management of which it assures for the whole of the employees of the franchise network.

Other provisions of the amendment: Trade union representatives and collective agreements of the network

The draft bill moreover provides that each representative trade union organization in the network may designate a trade union representative to represent it before the network employers who enjoys the same prerogatives as any trade union representative.

Finally, the draft bill allows the conclusion of collective agreements and agreements within the network.

Who is concerned by these provisions?

All franchise network comprising 50 and more employees are concerned by the draft bill which includes in fact the majority of the 1,834 franchise networks identified in France.

Thus, if this bill is finally adopted by Parliament, even the networks of modest size will be subject to these stringent legal obligations.

It is to be noted that the text only targets “franchise networks”, which raises uncertainty concerning similar business models such as partnership networks, dealerships, commission based affiliation, license or even cooperative networks. It is not possible at this stage to know whether these networks can be equated to franchise for the purposes of application of the text or if they would be exempt from its application. The draft law is therefore a potential source of disputes and litigation.

The reasons why it is not a good law

Financially, the reform impacts not just franchisors - especially the smaller ones - but also franchisees.

With regard to the franchisor, first, the law requires him to fund the operation of this new dialog forum (which meets regularly) and encumbers the former with information obligations, which will necessarily involve the hiring of additional staff.

For the franchisees, the situation is not any better since, depending on the election of delegates, some shall have to free up time for their employees designated to be present in the forum or to be union delegates,  which would cause them to bear a heavier employee cost for smaller structures and would create an unbalanced situation between franchisees of a same network (some funding delegates, others not).

In addition, by grouping together franchisors and franchisees, the draft bill treats them as a single entrepreneurial unit.

The franchisor would thus be forced to be accountable not just to his own employees but also to the employees of the franchisees over whom he exercises no management authority. He would in addition be forced to intervene directly in the social policy of his franchisees.

This reform is therefore in total contradiction with the very vein of franchising which is and must remain an agreement between independent traders.

The natural evolution if the law passes - even though French case law has always demonstrated restraint and salutary caution - would then be the creation of a joint- employment situation, i.e. a situation in which the franchisor would also be considered as the employer of all the employees of the franchisees.

The notion of joint-employment is currently under discussion and very criticized across the Atlantic, because it conflicts with the very business model that franchising represents.

Conclusion: the Senate, last bulwark?

The draft bill adopted upon its first reading by virtue of article 49-3 of the French Constitution (vote blocked), will be examined by the Senate next June.

As with the Macron law one year ago, concerning an amendment which gave an inappropriate structure to franchising and cooperatives, we dare hope that the Senate will exercise temperance and remove these provisions, which, without offering any real protection to employees, would cause the franchise networks to bear a totally meaningless and useless additional financial burden.The  text  also proceeds in a direction which clearly   ignores the spirit  of franchising   and   the mechanisms that have contributed to its success.