Overview

Since 2016 the government has modified the law on economic dismissal on several points. Under French labour law, any economic dismissal must be justified by actual and serious grounds (Article L 1233-2 of the Labour Code).

'Economic reasons' are defined as those reasons which are not inherent to the employee and which relate only to economic grounds. The Labour Code defines 'economic grounds' as those which are not inherent to the employee, resulting from the suppression or transformation of employment or a change, which has been refused by the employee, in an essential element of the employment contract – in particular, due to economic difficulties or technological changes (Article L 1233-3 of the Labour Code).

El Khomri Law

The definition of 'economic motivation' has been clarified to take into account the case law of the Court of Cassation, France's highest court.

The law also adds two new reasons to the list of economic grounds under Article L 1233-3 of the Labour Code:

  • the reorganisation of a company in order to preserve its competitiveness; and
  • the cessation of company's activities.

However, this is not particularly innovative, as case law admitted those two grounds long ago.

The completed list is still not exhaustive, since the law provides that "an economic dismissal results in particular from" (emphasis added), implying that other reasons may justify an economic dismissal.

The real innovation of the law is the introduction on the definition of 'economic difficulties'. Economic difficulties are characterised as:

"either significant evolution of at least one economic indicator such as a decrease in orders or turnover, operating losses or a deterioration in cash or gross operating profit or by any other element likely to justify these difficulties."

In addition, the law specifies that a significant reduction in orders or turnover is established when the duration of this decrease is, in comparison with the same period of the previous year, at least equal to:

  • one quarter for a company with fewer than 11 employees;
  • two consecutive quarters for a company employing between 11 and 49 employees;
  • three consecutive quarters for a company employing between 50 and 299 employees; and
  • four consecutive quarters for a company employing 300 or more employees.

To assess any economic difficulties, the judge must consider the date on which employment was terminated.

In relation to the definition of economic reasons, the law has finally incorporated case law, according to which the materiality of a dismissal (suppression, transformation of employment or refusal to modify an essential element of the employment contract) is assessed at the company level.

Ministerial Order 2017-1387

The Macron government has limited the scope of economic grounds. As such, any company that wishes to implement an economic redundancy procedure must determine the economic cause.

If a company does not belong to a group, the economic grounds (ie, economic difficulties, technological changes or the need to safeguard competitiveness) for dismissal will be reviewed at the company level only. Further, the economic difficulties of non-group companies must be assessed at the company level,(1) not lower levels (eg, one site(2) or establishment).(3) In real terms, the order brings nothing new to this area of law, instead introducing into the Labour Code solutions which already exist in case law.

On the other hand, a considerable change has been introduced for companies that belong to an international group. Until now, the reality and seriousness of an economic ground for dismissal was assessed at the level of the group or the business sector of the group to which the company belonged. Further, companies located aboard that belonged to the branch of activity were taken into account.(4)

In this case, the employer had to provide information about all companies – not just those in France – in order to assess the business sector of the group to which is belonged; otherwise, the company's economic difficulties could not be established. The main difficulty was to define the business sector, as the case law in this regard is as plentiful as it is uncertain.(5)

In particular, a group with a successful and financially healthy business would be forced to support its French company indefinitely, regardless of whether its difficulties affected the group as a whole and the chances of the French subsidiary's recovery.

According to the government, this piece of legislation hindered foreign investors. For this reason, the ministerial order provides a scope of assessment limited to France. Further, the order defines 'business sector' and characterises it – in particular, according to the nature of the products, goods or services delivered, the target clientele, the networks and the modes of distribution in relation to the same market.

The economic ground will thus be reviewed in relation to the business sector common to the companies of the same group in France only. Companies from the same group installed at the EU or international level will no longer be considered.

Thus, companies belonging to an international group that are looking to invest in France will likely have more confidence, as there is now a possibility for dismissal within a French subsidiary, even if the financial situation of the group is not in jeopardy.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

For further information on this topic please contact Laurent Guardelli or Chrystelle Deschamps at Coblence & Associés by telephone (+33 1 53 67 24 24) or email (lg@coblence-avocat.com or cd@coblence-avocat.com?). The Coblence & Associés website can be accessed at www.coblence-avocat.com.

Endnotes

(1) Cass soc, October 7 1998, 96-43107.

(2) Cass soc, June 26 2012, 11-13736.

(3) Cass soc, October 26 2005, 03-41972.

(4) Cass soc, June 12 2001, 99-41571; March 4 2009, 07-42381.

(5) Cass soc, April 30 1997, 95-41513; Cass soc, May 9 2006, 05-40554; Cass soc, March 6 2007, 05-40156; Cass soc, June 5 2012, 11-21110.