• Joint employment and Franchising in France
  • The victim of an abrupt termination of an established business relationship may apply for enforced continuation of the agreement
  • Performance obligation and liability
  • Mediation in consumer disputes: Decree No. 2015- 1033 of 20 August 2015 relating to alternative dispute resolution for consumer disputes

Franchise et co-emploi en France

Cass. Soc., June 9, 2015, no.13-26558 to 13-26566

The risk for a Franchisor of being held liable as joint employer of its Franchisees’ employees is a sensitive issue in the United States since the National Labor Relations Board (NLRB) decided at the end of 2014 that McDonald’s should be considered as joint employer of its Franchisees’ employees, due notably to the numerous standards it lays down and the tight regulations it imposes on the way in which employees have to work.

There is a great deal at stake here since it is the franchise business model itself which is likely to be challenged if the Franchisors are to bear responsibility for the risks associated with the employees hired by their Franchisees.

As far as France is concerned, the Cour de Cassation has just recalled its case law in this regard, which should reassure French and foreign Franchisors on the subject (Cass. Soc, June 9, 2015, no.13-26.558 to 13-26.566

In the present case, as part of the restructuring of a license network under brand “Veti” having ITM Entreprises as licensor, most of the licensees of this network had decided to join the rival franchise network “Kiabi” while three licensees had become subsidiaries of ITM Entreprises, in order to be closed and liquidated. In this context, the three companies concerned had proceeded with the redundancy of their staff.

Challenging their dismissal, the employees brought legal action against their employers as well as against the new parent company (ITM Entreprises), qualifying the latter as joint employer, on the grounds that it had dictated the strategic choices made by the companies, notably the decision affecting the future of its subsidiaries’ employees.

The Court of Appeal of Paris upheld this argument, noting that ITM Entreprises had implemented the same leadership team in the three subsidiaries and had dictated its strategic choices, particularly in terms of staff management consisting essentially of the initiation of redundancy proceedings.

The French Cour de Cassation quashed the decision of the Appeal Court, considering  that “the  fact that an  identical leadership team had been established and that the parent company had, on the one hand, in the context of group policy, taken decisions affecting the future of these subsidiaries, and on the other hand, provided the means necessary for the implementation of the cessation of the companies’ activity, is insufficient to qualify the situation as one of joint employment”.

This decision is in concordance with the decision rendered in the Molex case a year earlier (Cass. Soc, 2 July. 2014, No. 13- 15208 to 13-21153) in which the French Cour of Cassation had already adopted the same analysis.

The situation of joint employment thus only exists if a subordination link can be demonstrated between the employee and the third company (parent company, franchisor etc.) or in cases of “confusion of interests, activities and management manifested by an interference by one of the companies in the economic and social management of the other”, such interference by the third company being evidenced by actual acts.

In light of this case law, the risk is very low for a Franchisor to be qualified as a joint employer of its franchisees’ employees on the sole grounds that it determines the strategic guidelines of the network or that it oversees the operational processes of the Franchisees (in the operating handbook).

The victim of an abrupt termination of an established business relationship may apply for enforced continuation of the agreement

Cass. Com., June 23, 2015, no.14-14687

The decision rendered by the French Cour de Cassation on June 23, 2015 once again confirms that the party which is victim of the abrupt termination of an established business relationship may petition the interim relief judge to order the party responsible for the abrupt termination to continue the contractual relationship.

In this case, a company had been entrusted since 2008 with the operation of several businesses by the conclusion of one-year fixed-term mandates that expressly excluded tacit renewal.

After several renewals of the contract, the Principal suddenly informed his managing agent that their business relationship would expire at the end of the then-current agreement, one month later.

The managing agent then challenged this termination and requested enforced continuation of the agreement from the interim relief judge for a reasonable period of time within the meaning of article L. 442-6, I 5° of the French Commercial Code, in this case 6 months.

After noting that “a new contract was entered into between the parties upon expiry of the previous one, with no problems for six years, and that, in view of their past practices, and the significant and exclusive turnover generated by the relationship, the company could legitimately expect to sign a new contract upon expiry of the previous one”, the interim relief judge upheld the existence of an evidently unlawful disorder and granted the request.

The French Cour de Cassation approved this decision, aligning itself with existing case law, according to which the interim relief judge has the power, in case of abrupt termination of an established business relationship, to order the enforced continuation of the agreement for a reasonable period of time (e.g. Cass. Com., May 3, 2012, no. 14-28366).

The victim of abrupt termination thus has the choice between either (i) forcing its business partner to continue the commercial relationship - when this is possible - in order to have the necessary time to reorganize and redirect its activity or (ii) claiming compensation for the harm suffered.

This case law is a reminder of the importance, in the event of termination of a business relationship, of questioning whether the notice period is of a reasonable duration and to bear in mind that on this issue, that courts are not bound by contractual arrangements.

Performance obligation and liability

Cass. Com., June 23, 2015, no. 14-10133

Under French law, in contractual matters, performance obligations (obligations de résultat) are traditionally distinguished from best endeavor obligations (obligations de moyens).

In the case of performance obligations, the party which commits itself must reach the agreed result, otherwise its liability may be sought. Only force majeure allows it to be totally exempt of liability. The debtor of the obligation may, however, initiate a recourse action against a third party which may be responsible for non-attainment of the result, or engage the joint-liability of the creditor of the obligation.

In the case of best endeavor obligations, the party which commits itself must deploy all efforts that can reasonably be expected of it in order to achieve the goal set. If the goal is not reached, it is up to the creditor of the obligation to provide evidence that the debtor has not taken the necessary steps.

In a recent case, the parties had entered into an exclusive distribution agreement which imposed a series of obligations on the distributor, including featuring the product in its catalogue (paper and online).

The distributor did not include the product in its catalogue pursuant to its commitment, so the supplier took legal action against it for termination of the contract and payment of damages.

Although noting the absence of the product on the website and in the paper catalogue of the distributor, the Court of Appeal dismissed the claim, considering that the distributor had indeed made its best endeavor to promote the product (through mailings, presentation in trade shows etc.) and that he had not included it in the catalogue because the product in question had sparked no enthusiasm from the customers.

Without surprise, the French Cour de Cassation quashed this decision, considering that the Court of Appeal had not drawn the right legal consequences from its findings. The party which undertakes to achieve a result, cannot - except in cases of force majeure - evade its liability if it does not attain said result.

Mediation in  consumer  disputes:  Decree No. 2015-1033 of 20 August 2015 relating to alternative dispute resolution for consumer disputes 

Ordonnance nº 2015-1033 du 20 août 2015

Decree No. 2015-1033, published in the Official Journal of 21 August 2015, implements into French law (articles L. 151-1 and following of the French Consumer Code) European Directive 2013/11/EU on alternative dispute resolution for consumer disputes.

The result is that the disputes between professionals and consumers related to the execution or the breach of contracts for the sale of goods or the supply of services may be the subject of a mediation procedure if the consumer so requests, without cost to the latter, if three conditions are met:

  • the consumer has first sought to resolve the dispute directly with the professional,
  • its request is expressed within a period of one year from the date of the written complaint to the professional, and
  • the request is not patently groundless or abusive.

Of course, the dispute must not have already been examined or be in the process of examination, nor should it fall outside of the jurisdiction of the mediator

Only requests submitted by a consumer may be the subject of mediation, the professional cannot impose a mediation on the former.

The professional may, as he decides, (i) implement his own mediation procedure (which cannot be limited to a simple customer service) or (ii) use the services of third party mediators, being specified, however, that when there is a mediator for the consumer sector whose jurisdiction extends to the entirety of the businesses of a field of economic activity it comes under, the professional should always allow the consumer to have recourse thereto.

Professionals will have to propose (and finance) the mediation procedure for consumers by providing them with the contact details of the competent mediator(s) and, if the professional exercises an online activity, provide information on the arrangements made for the online resolution of consumer disputes (EU regulation No. 524/2013 of 21 May 2013).

An enforcement decree will soon be issued to specify the conditions for implementation of the mediation process.

Once the enforcement decree has been issued, professionals will have a period of two months in which to comply with the new rules, failure of which will result in a fine of up to 15,000 euros for legal entities.