The Supreme Court (Cour de Cassation) has confirmed that compensation may be awarded to employees made redundant after their employment contract had been transferred to another employer for the "loss of opportunity to retain employment".

Loss of opportunity is a notion enshrined in the Civil Code, which states that "damages due to the creditor are in general for the loss he has sustained and the profit of which he has been deprived".

To date, the application of this concept within an employment law context has been rather limited: i.e. an employee could be compensated for the loss of opportunity (as a result of their redundancy) to exercise stock options granted by their employer, if the redundancy was deemed to have been unfair.

In a recent decision, the Supreme Court has widened the scope of this concept by requiring an employer to provide compensation to employees who have been transferred to a new employer and were then made redundant.  Prior to the transfer of its employees, the transferor had signed an agreement with trade union delegates to safeguard their employment within its group.  The transferred employees were then subsequently made redundant by the transferee. The employees in question pursued the matter before the employment tribunal in order to have sanctions imposed on the transferor on the basis of the non-fulfillment of its agreement to maintain their employment.

The Supreme Court accepted these demands, and held that the breach by the transferor of its contractual obligations had deprived the transferred employees of the chance to retain their employment, thus giving them the right to claim compensation.

It should be noted that damages related to loss of opportunity to retain employment can be added to possible damages associated with the termination of employment contracts made by the transferee.

Following this decision, employees can therefore initiate action not just against their current employer but also against their previous employer.

(Cass. Civ. June 18, 2014 n° 12-18589).

Economic control of a subsidiary by its parent company does not constitute co-employment

Within a corporate group, the parent company can only be bound by employer obligations towards the employees of its subsidiary under certain conditions as strictly defined by the Supreme Court (Cour de Cassation). The parent company can in fact only be recognised as co-employer of the employees of its subsidiary under the following circumstances:

  • where there are conflicts of interests and, activities and/or management arrangements exceeding that of the ordinary level of coordination required between companies within a group; and
  • where there is any resulting economic dependency of the subsidiary on the parent company.  

In a recent case, following the closure of a factory, the employees made redundant by Molex Automotive were awarded damages against the American parent company for redundancy without real and serious cause. Here, the American parent company was held to be the co-employer of the employees of its French subsidiary.

In a decision dated 2 July 2014 the Supreme Court condemned this approach.

According to the Supreme Court, a parent company and subsidiary can only be considered as co-employers where there is a conflict of interest, activities and management exceeding that of the ordinary level required between group companies, the key characteristic being heavy interference in the economic running and management of the staff of the subsidiary by the parent, effectively depriving the subsidiary of all autonomy.

What this means is that the conflict of interests, activities and management arrangements must go above and beyond the required coordination of economic action and economic control between companies belonging to the same group.

The Supreme Court found that the following circumstances are not sufficient to fulfil the criteria for co-employment:

  • the subsidiary’s management is provided from elsewhere within the group (external to the subsidiary itself); or
  • the parent company, within the context of group policy, makes decisions affecting the future of the subsidiary.

In the absence of co-employment, the employees of the subsidiary cannot bring a claim for damages against the parent company.

(Cass. soc. 2 juillet 2014 n° 13-15.208, Sté Molex incorporated c/ A).