The “Labour law” has been adopted by Parliament… and immediately referred to the Constitutional Court

As we indicated in our previous alerts, the French National Assembly had adopted upon first reading of the draft El Khomri law an amendment providing for the creation of a dialog forum between the franchisor, franchisees and employees, within franchise networks.

The Senate to whom the text had been referred had removed these provisions which were reintroduced by the National Assembly upon second reading (with limited scope).

The text which was finally adopted on 20 July 2016 by Parliament creates a lighter version of the dialog forum whose very existence though remains highly controversial.

Very criticized, this section of the law (now Article 64) was referred to the Constitutional Court on 21 July 2016 by various Senators.

The dialog forum

The dialog forum provided for by the text is a committee chaired by the franchisor, and consists of representatives of franchisees and employees. 

The committee is set up by the franchisor upon demand of a representative trade union organization within the industry or in one of the industries comprising the network businesses or having formed a trade union branch within a company of the network. 

The parties have to agree on functioning. The agreement which implements the dialog forum must provide for (i) its composition; (ii) the method of appointment of its members; (iii) the duration of their term of office; (iv) the frequency of meetings; (v) the hours of delegation allocated to participation in this forum and the conditions of their use as well as (vi) the payment of operating expenditure of the forum and organization of the meetings as well as accommodation and travel expenses. 

In the absence of agreement, the law provides for the following by default provisions which will shortly be complemented by an order from the State Council (Conseil d’Etat): the forum shall meet twice a year and the franchisor shall bear the entirety of the operating expenditure of the forum and the organization of meetings as well as accommodation and travel expenses related thereto.

What are the powers and responsibilities of the dialog forum?

The dialog forum must be informed of the following:

  • decisions by the franchisor likely to affect the number or the structure of the workforce, working time or the conditions of hiring, work and professional training of the franchisees’ employees;
  • companies that enter and leave the network.

It formulates on its initiative, and examines, upon the request of the franchisor or the representative of the franchisees, any proposal likely to improve conditions of work, employment and professional training of employees in the whole network as well as the conditions under which they benefit from complementary collective guarantees (accidental death, invalidity, unemployment, and benefits such as pensions and severance payments…).

It should be noted that the obligation to redeploy dismissed employees within the network contained in the first version of the bill was ultimately rejected (being specified nonetheless that case law has already established this very questionable obligation).

Who is concerned by these provisions? 

Those concerned are the “networks of operators of at least 300 employees in France, linked by a franchise contract mentioned under Article L.330-3 of the French Commercial Code which contains clauses having an effect on the organization of work and working conditions in franchised companies.”

The threshold of 300 employees in France, which includes in theory the employees of the franchisor and the franchisees, is significantly higher than the initial threshold of 50 employees, which will enable emerging networks to dodge the text.

This threshold does however seem particularly low – upon second reading it had shortly been fixed at 1,000 employees by the National Assembly – so that many networks established on the French territory will be concerned.

Criticism of the law

On the merits, we have already written that this text raises a serious issue of understanding of the franchise model, by creating a risk of interference by the Franchisor in the management of franchisees (which are and must remain independent businesses) and a direct link between the franchisor and the employees of franchisees which is totally inappropriate.

Franchisors will therefore have to exercise a high degree of caution as to their positioning within this dialog forum they will chair, in order to avoid interference in the social management of their franchisees and excessive links with the employees of the franchisees.

On the form, the text is very poorly drafted. Firstly, while referring to article L.330-3 of the French Commercial Code (Doubin law) which has a general scope and includes inter alia co-operative, license, and dealership networks, article 64 of the bill only deals with “franchise networks”, which creates both uncertainty and a risk of litigation relating to the scope of application of this obligation. Furthermore, if it is applied to the letter, it will create a distortion of competition between franchise networks on the one hand, and other forms of networks the other hand.
Finally, with regard to franchisors operating under various trademarks with different positioning on the market (low cost, upmarket, luxury…), the law does not indicate whether we should be thinking trademark by trademark or globally.

Appeal to the Constitutional Court and entry into force

The text has been referred to the Constitutional Court by Senators declaring it unconstitutional due to its:

  • Infringement of entrepreneurial freedom The Senators indeed argue that the text will limit the freedom of management of franchisees, independent traders, who will have to accept their employees participating in this dialog forum and bear – at least partially – the costs. In addition the franchisees risk suffering, in practice, if the franchisor does not take care, an interference in their human resources management;
  • An infringement of the constitutional principle of equality because the text only targets franchise networks and thus creates a difference in treatment with other forms of business organized in networks: cooperatives, dealerships, trademark licenses, etc.;
  • An infringement of the preamble of the Constitution of 1946, which allows any worker to participate, by employee representation, in the collective determination of his working conditions and the management of the company. According to the Senators, the text would violate these provisions by creating a dialog institution and representative institutions outside of any business and working community with the franchisor.

The Constitutional Court shall render its decision within a period of one month, i.e. not later than 21 August 2016, date upon which the text will enter into force if it is not declared unconstitutional.

We shall then need to wait for the publication of an Decree from the State Council establishing the conditions of implementation of the text when no agreement is found. n our last Franchise & Networks Alert in May 2016, we alerted our readers to the introduction, in the draft El Khomri bill (known as the “Labour law”), of an amendment for the creation of a dialog forum enabling dialog with employees within franchise networks.

These provisions aimed at rendering it mandatory for franchisors to create a committee, consisting of elected representatives of employees of the franchisor and the franchisees, which the franchisors should keep informed on all matters relating to management of the network and its prospects, particularly in terms of jobs available and to discuss work conditions.

As we urged and indeed anticipated for in our previous alert, the Social Affairs Committee of the Senate has just decided, on June 1st, to delete this amendment, deeming quite logically that it “ran counter to the very principle of franchising.”

Caution remains however, as the draft law still has to be examined in second reading by the National Assembly. However, the legitimate outcry that ensued from the introduction of this amendment in the law gives hope that the Government will not let it happen a second time.