The French Cour de Cassation has held that a French subsidiary’s works council has a right to be informed and consulted regarding a takeover bid for its EU-based parent company in certain circumstances. This article sets out the detail of the decision and raises some concerns its potentially wide-reaching implications.
Does the works council of a French subsidiary of a European group have a right to be informed and consulted on a takeover bid targeting the group's parent company in another member state of the European Union? The question was raised for the first time before the Court of Cassation (French supreme court of appeal) in 2018, on the occasion of the takeover bid launched by Thales on Gemalto NV, a company incorporated under Dutch law with its registered office in the Netherlands.
At the time of the bid, the French company Gemalto SA, a 99.9% subsidiary of Gemalto NV, was consulting its works council on a reorganisation project and social plan specific to France. The works council asked to be consulted on the consequences of the takeover bid (‘OPA’), and to receive information on the operation. The management of Gemalto SA refused to organise this consultation and to provide the documents requested, as the OPA concerned a foreign company, which was not subject to French law. The works council won the case before the court of first instance, which ordered the French company to organise consultation and to communicate a lot of information about the OPA to the works council. This included, for example, information on the offeror’s strategic plans and the repercussions of their implementation, in particular on employment, as well as the list of other potential buyers and the reasons for choosing Thales.
The Court of Cassation was then asked to consider the question of the right to consultation in this situation. Its decision on principle in this case is important for the social management of M&A operations when the European group targeted has French affiliates.
In a nutshell, the Court of Cassation held for the first time that in the absence of a European Works Council agreement in the targeted group specifying the arrangements for consultation involving European and national employee representatives, the works council of a French subsidiary must be informed and consulted on a public takeover bid targeting its foreign parent company, if this operation will obviously have consequences for employment in this French subsidiary.
Clearly, since the French subsidiary is not the target company of the takeover bid, French or Community legislation on takeover bids (especially Article 9, paragraph 5 of Directive 2004/25/EC of 21 April 2004 which provides for an obligation to inform employee representatives on the implications of an offer) cannot apply in this case. As a result, the court concludes that these texts cannot form the basis for any obligation to consult on the bid.
However, it goes on to say that the EU texts governing takeover bids do not exclude the application of the other two Directives that relate to informing and consulting employee representatives of an undertaking affected by an acquisition. This means that the general obligations resulting from Directive 2009/38/EC of 6 May 2009 on the European Works Council and the Directive 2002/14/EC of 11 March 2002 establishing a general framework for the information and consultation of workers remain applicable regardless of the operation in question.
The court deduces from these Directives and from the French texts transposing them that employee representatives of the French subsidiary of a foreign company that is targeted by a takeover bid must be consulted on the transaction, subject to two conditions:
- There is no European works council set up by an agreement specifying the organisation of consultation procedures; and
- The operation has an impact in terms of employment.
The legal argument based on the absence of a European works council agreement specifying the arrangements for consultations between the national level and the European level is questionable, including as regards the interpretation of the French texts transposing the Directive.
Similarly, the court opens the door very widely to the duty to consult, without requiring in this case that the threat to employment or employees or the working conditions of the French subsidiary be precisely identified. In the Gemalto SA case, the works council was concerned about the significant impact of the takeover bid by Thales for Gemalto NV but did not identify this impact at all. The fact that a collective redundancy procedure was in progress at the same time undoubtedly influenced the first instance judges in their decision, but it is unfortunate that, in recognising the existence of an obligation to consult, the Court of Cassation was not more demanding on this point.
In summary, in any transaction of this nature today, where French companies are concerned even indirectly, it is necessary to determine whether there is an obligation to inform and consult employee representatives of these companies in France. If the transaction, whatever its nature and legal regime, including a takeover bid, targets a European group to which the French companies belong, the parties must take into account the consequences that the operation may have on employment and working conditions of employees of these companies. An operation targeting the parent company that indirectly affects a French subsidiary and is likely to have an impact on its employees’ jobs will trigger an obligation to consult the subsidiary’s works council.
This being said, another decision is anticipated in the same case, specifically on what is meant by impact on employment and how it should be evaluated. It will perhaps clarify the conditions on which this obligation to consult should apply.