Background

In February 2012, following the highly political closing of the Florange site, a steel production plant, President François Hollande vowed that going forward any company wanting to close down its operations in France would have an obligation to first look for a purchaser.

This promise materialised by creation of three laws - first in June 2013, then March 2014 and last on July 31, 2014. The last introduced further sanctions for companies failing to look for a purchaser when closing a site. This same law imposes an additional obligation on employers in case of sale which is applicable from November 1, 2014.

Impacted companies - wide ambit

All companies that are already subject to redeployment (Congé de reclassement) in case of collective redundancy are caught by the obligation, i.e.:

  • Any company employing more than 1,000 employees in France; or
  • Any company which belongs to a group employing at least 1,000 employees and whose holding company is in France; or
  • Any company which belongs to a group employing 1,000 employees or more in Europe and which has at least one establishment of more than 150 employees in at least two EU Member States.

Extensive involvement of the Works Council

Once the consultation process with the Works Council regarding the redundancy begins, the employer must simultaneously inform the Works Council on the proposed closure of the establishment. Information to the Works Council includes providing the economic justification of the planned closure, the measures to be implemented to look for a purchaser, the possibility for the employees to make an offer, and the right of the Works Council to be assisted by an expert.

The employer is also subject to an obligation to inform the authorities (the Labour Administration, as well as the local authority).

Searching for a purchaser will involve the following steps:

  • Informing any potential purchaser of a potential sale;
  • Providing a written notice on the establishment to be closed;
  • Conducting an environmental audit (i.e. a legal obligation in case of sale);
  • Sharing the required information with potential purchasers, excluding information which may harm the interests of the company, such as trade secrets or confidential information;
  • Prospective purchasers are subject to a confidentiality obligation, though there are question marks as to how such obligations will in practice be enforceable.

In case a purchase offer is made, the employer must consider its terms and respond accordingly. The Works Council should be informed of any offer received and may request the assistance of an expert to oversee the employer’s position.

Should the employer wish to accept a purchase offer, it must first obtain the Works Council’s opinion. When turning down an offer, the employer must likewise explain the reasons why before the Works Council.

Should the employer not comply with its obligations, the Labour authority may impose (i) a direct penalty in the form of reimbursement of state subsidies and tax credits and (ii) an indirect but significant sanction by suspending all redundancies until the purchase offer formalities have been satisfied.

Another hurdle: obligation to inform employees about the contemplated sale of the company

Companies employing less than 50 employees are not exempt from the reform. As of November 1, 2014, company owners, or those holding more than 50% of the company’s shares, must formally inform their employees of their intention to sell the company/the shares at least two months prior to the sales date. This 2-month time period is aimed at enabling employees to make an offer should they wish to take ownership. The sale may be concluded prior to the expiry of this 2-month period if the employees have all informed the seller they turn down the opportunity.

Companies employing between 50 and 249 employees are subject to a similar obligation: the company/share owner must inform the employees of the contemplated sale no later than the first day of the Works Council’s consultation process about the sale.

Non-compliance with the above obligation will make the sale of the company/shares null and void. French employers’ federations have unsuccessfully written to the Ministry of Economy to request the suspension of the application of this law. They fear that the disclosure of the confidential proposed sale of the company to a large number of individuals may stall negotiations and may have serious consequences on the company’s activity. The law imposes on the employees theoretical confidentiality obligation with respect to information received, but enforcing such obligation will be a challenge.

Key takeaways - the reform adds Red Tape and is poorly thought through

This reform, though intended to protect employment in France, leads to increasing the burden on employers wanting to rationalise the number of sites or selling part of their business. The series of complex measures effectively add Red Tape to delay redundancies.

It could also lead to some absurd situations. As an illustration, if a large company with several sites in France wishes to close down a single site with a handful of employees, unless all employees are willing to relocate, their termination will trigger collective redundancy procedures (from two employees) and will force the employer to look for a purchaser. The Works Council would also have to be informed and may even be able to appoint an expert, which could delay the planned closure by several months.