Background

The courts strictly control the grounds stated by the Company to justify a redundancy. Employees may be granted damages if the grounds to justify their termination are found not to be valid. On the basis of the Labour code, these grounds must be based on financial difficulties or technological changes, although this limited scope for grounds has been extended to the reorganisation of the company, where such reorganisation is needed to “save its competitiveness.”

Since a Cour de Cassation case dating back to 1995, the assessment of economic grounds for redundancy have been assessed at group level, limited to the business unit or sector of the group that the company belongs to. This also includes group companies that are based outside France (Cass. Soc. 20 February 1991, 5 April 1995 Vidéo Color, 30 March 1999). Redundancies have therefore been held unfair where company results were poor in France but excellent worldwide (C.A Orléans 21 January 1999).

This principle has always been considered as favourable to employees, as it resulted in redundancies by loss-making companies belonging to profitable groups being considered to be unfair. This led to a presumption that profitable groups were required to financially support their loss-making French entities, in some cases creating a significant burden on the group.

The instant case

The Cour de Cassation decision, dated 22 November 2007, authorised redundancies within the French company on the basis of the group's serious economic difficulties, despite the fact that the French company's results demonstrated the company itself to be performing very satisfactorily.

The French company made 20 employees redundant on the basis of serious economic difficulties within the Belgian company of the same group. The Court of Appeal held that the redundancies were valid on the basis of the group's business unit, but the employees filed an appeal on this decision given the very good results that had been achieved by their actual employer (i.e. the French company itself). This appeal would appear to be logical, in that a generally speaking French law prevents profitable companies from making employees redundant.

The Cour de Cassation in fact held that as precedent has defined economic difficulties as being assessed at group level on the basis of the business unit that the company belongs to, the Court of Appeal's decision was correct, and it was not necessary to establish whether or not the French company itself was profitable. What must be established are the results of the group's business unit, not those of the company that makes redundancies.

Effect on employers

Due to this recent case law, provided that the group to which the company belongs is loss-making, it is no longer necessary for the company itself to demonstrate financial difficulties. This broadens the possibilities for redundancy in France, as it is possible to implement group-wide redundancies provided that the group itself is suffering economic difficulties. Redundancies could therefore potentially be implemented in France even if the French entity itself is performing well.