When a service provider in a market changes, employment contracts may be transferred from the previous to the new owner to avoid dismissing employees who work at the site, however, whatever the legal vehicle by which the transfer is implemented, the new owner’s employees at other sites may no longer call on different treatment than what the taken-over employees receive.
The law of 8 August 2016 relating to Work, Modernization of Social Dialogue, and Securing of Professional Processes has modified some aspects of previous guidelines related to transferred employment contracts.
Reminder of the Principles
After a worksite experiences a provider change because of another company taking over, employees may be transferred in two ways: by applying legal provisions (specifically article L. 1224-1 of the Labor Code) or by applying a collective bargaining agreement.
Legal Transfer and Voluntary Transfer
Article L. 1224-1 states, “When a modification occurs in the employer’s legal situation, notably by estate, sale, merger, transformation of the business assets, [•], all the employment contracts in progress at the time of the modification subsist between the new employer and the firm’s staff”.
Solely a market’s change of provider is not sufficient for applying Article L. 1224-1. However, case law has widened this article’s field of application to a market’s change of provider under certain specific conditions.
To be applicable under the article following European Directive n° 2001-23 of 12 March 2001, it is required that the change of provider must lead to a transfer of an economic entity that retains its autonomy.
The French Supreme Court deems that a transfer of an economic entity occurs when
- the same economic activity is taken up again,
- the activity is distinct and autonomous from the rest of the activities of the assigning, and
- “the necessary and decisive operating assets” to the ongoing activity are made available to the provider by the assigning.
The transferee and the assigning can also voluntarily decide to apply article L. 1224-1. The transfer then requires the affected employees’ explicit agreement because the transfer is similar to a novation.
When Article L. 1224-1 cannot be applied either ex-officio or voluntarily by the employers, the employment contracts’ transfer can be organized by a branch agreement. Continuing the employment contracts through the new service provider in this context is not sufficient to characterize the transfer of an economic entity.
This is therefore a legally distinct scenario from the application of Article L. 1224-1. Case law in relation to this article is not applicable in the context of a conventional transfer.
A new provider that has to take on employees must use a conventional transfer, but the employees have to give their express agreement beforehand. Indeed, the change of employer cannot be due solely to continuing an employment contract.
Difference in Remuneration: The Input of the 8 August Law
In both a legal transfer and a conventional transfer, the transferee remains bound by the transferred employee’s employment contract terms. The previous advantages that the employees of the assigning enjoyed are kept, which can lead to differences in treatment between the taken-over employees and the former employees.
The principle of equal treatment may thus be undermined because for similar work and conditions, some taken-over employees can enjoy higher advantages than those that the transferee’s employees enjoyed.
Before the Law
In the context of applying article L. 1224-1, the French Supreme Court long ago recognized that the difference in treatment was justified by a taken-over employee’s liability and thus the court accepted a difference of situation between taken-over employees and the transferee’s employees.
The transferee’s employees could not ask to enjoy the taken-over employees’ previously acquired advantages during a legal transfer.
On the contrary, if the employment contracts’ continuation fell within the application of a collective bargaining agreement or the voluntary application of the article L. 1224-1, the French Supreme Court did not recognize any justification to the difference in treatment between the taken-over employees and the former employees.
The former employees, including those on other worksites, could ask to enjoy the same advantages as the taken-over employees under the principle of “equal pay for equal work”.
After the New Law
The new article L. 1224-3-2 of the Labor Code goes against the French Supreme Court’s current case law:
When the contracts of employment are, in application of an extended branch agreement, kept up between two supplier enterprises succeeding each other on a same site, the employees of other sites of the new provider and with which the contracts of employment are kept up cannot usefully call upon the differences in payment arising from the acquired advantages before this continuation with the employees whose contracts of employment were taken over.
The employees of other sites may no longer call on a difference in treatment with the contractually taken-over employees, which allows employers to use conventional transfers.
However, this article raises two limits:
- It deals only with the present employees on sites other than the site taken over, meaning that if there were transferee’s employees already present on the site taken over, they could call on a difference in treatment. This assumption, however, seems unlikely in the context of a market’s change of provider, which generally functions by distinct sites.
- The transfer has to be envisaged in a provision that forms part of an extended branch agreement, as it is notably the case for the following branches:Freight handling and related works
- Collective catering
- Cleaning, prevention, and security enterprises
- Handling and cleaning of Parisian airports
- Hotels, coffee shops, and restaurants
- Air travel (on land personnel)
- Road transport
This provision took effect on 10 August 2016.