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Labor and employment law challenges in business transformations

France

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

Workforce restructuring, also referred to as collective redundancies, is governed by Art. L. 1233-1 et seq. of the French Labor Code.

Collective bargaining agreements (CBAs) can modify the rules.

The rules governing the collective redundancy process vary based on the number of impacted employees, the total number of employees of the company and the existence of employee representatives.

Large-scale redundancy is defined as significant modification of employment or redundancy of 10 or more employees in any company of 50 or more employees in 30 days. This triggers the complex process described below.

The complex process has five key features:

  1. Legal justification
  2. Works council consultation
  3. Labor Administration approval
  4. Robust social plan
  5. HR legal costs

A simplified process applies to collective redundancies that fall below these thresholds.

Required legal justification

Workforce restructuring must be justified by the following economic or financial grounds:

  • Economic or financial difficulties
  • Change(s) in technology that would render certain job position(s) obsolete
  • Company reorganization necessary to safeguard its competitiveness
  • Closure of business

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

At the outset, the employer has the option of unilaterally commencing the works council consultation process or negotiating with the unions or the social measures that will be offered to the impacted employees.

Unions: Unions may play a role in the large-scale redundancy process. The employer can choose to meet with unions and negotiate a draft collective bargaining agreement (CBA) at minimum on a social plan, which contains the social measures aiming to reduce the negative impact of the redundancy for employees. The negotiation with unions is optional.

Works council: With or without union negotiations, the works council must be informed and consulted prior to any decision being taken on the project and before any implementation step.

The works council must be informed and consulted on the following matters:

  • Legal and business justification of the contemplated restructuring
  • Actual impact on the business and on employment
  • Selection criteria process
  • Contemplated timing
  • Social plan measures to limit the negative impact of the redundancy
  • The works council must render its opinion on the contemplated project within a legal time frame, which varies from two to four months depending on the number of redundancies contemplated. Failure to render an opinion or a negative opinion does not alter the timing of the project.

    The works council is entitled to request an expert to assist it in the review of the documentation. The expert must render its report 15 days before the deadline for the works council to render an opinion at the latest; failure to do so does not alter the timing of the project.

    In companies with various sites, multiple consultations of different works councils may be required.

Consultation requirements with other employee representatives

Health and safety committee (H&S): The H&S must also be informed and consulted within the same legal time frame as the works council on the impact of the restructuring on the remaining employee’s working conditions.

The H&S is also entitled to request an expert to assist it in the review of the documentation. Failure to render an opinion or a negative opinion does not alter the timing of the project.

Once the information and consultation process is completed, the employer must file a request with the labor administration to authorize the implementation of the redundancy project.

Consultation requirements with employees

There is no obligation to consult the employees themselves before or during the works council consultation process. The employer is free to communicate with employees on the contemplated restructuring provided that the works council has already received the information.

However, after the works council process, the employer must notify each of the impacted employees of alternative positions, social plan measures, and potentially their redundancy, by means of a registered formal letter including mandatory information.

Approval/notification of the labor authorities or other government authorities

After the works council process is completed, the employer must seek the approval of the labor authorities. The project can move to implementation only after approval is granted by the labor administration.

Throughout the information and consultation process of the works council, the employer must simultaneously provide the labor administration with the same documents that were provided to the works council.

If the employer negotiated a collective bargaining agreement with the unions, the labor authorities have 15 days to decide on its approval. If the employer proceeds unilaterally, the labor authorities have 21 days to decide on its approval. If the labor authorities fail to respond within the abovementioned legal time frame, the approval is deemed granted.

The labor authorities will focus their inquiry on the social measures and the works council process.

Employee selection criteria

The French Labor Code mandates objective selection criteria for the impacted employees. Thus, the employer is not free to choose which employees would be made redundant, but must apply the following selection criteria as prescribed by the French Labor Code:

  • Employee’s family situation
  • Years of service
  • Existence of issues increasing difficulty to find a new job (e.g., disability, age)
  • Specific professional skills

The employer may add other criteria to the abovementioned selection criteria after consulting with the works council.

Certain employees are afforded special protection during the redundancy process, particularly works council and union members, pregnant women or ill employees.

Actions required to limit the negative impact and social plan

The employer must do everything possible to limit the negative impact of the collective redundancy on the employees. All such measures are included in a social plan, also called the jobs-saving plan. The social plan must include the following measures depending on the means available to the company or its group:

Internal alternative employment/redeployment
The employer must use all reasonable means to find alternative employment within the company or the group, in France and abroad (if the employee so requests) to avoid the termination of the potentially impacted employee prior to making an employee redundant.

Other measures
The social plan could include other external measures such as financial aid to impacted employees who want to create or buy a new business or for additional training, in particular if the employee wants to start a new career. Further, such external measures could also include financial compensation for employees who are nearing their retirement and might have difficulties finding a new job, or those who need to move for a new job.

Additional measures may be required for a company or group with more than 1,000 employees such as a reclassification leave.

Estimated timeline

The time required to fully implement a large-scale redundancy depends on the number of redundancies contemplated and whether a collective bargaining agreement was concluded or not.

Preparation of the works council process and for the contemplated negotiation with unions may take one to three months depending on the complexity on the project.

The legal time frame for the works council’s process varies from two to four months, and the labor authorities’ approval process is approximately one month.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Notice or an indemnity in lieu of if the employee is released from working during the notice period
  • Termination indemnity
  • Medical and life insurance of redundant employees for a period of 12 months following their effective termination
  • Social plan costs
  • Works council expert (if applicable)
  • Reclassification leave or financial aid to revitalize economically depressed areas (additional cost applicable to a company or group employing more than 1,000 employees)

Customary additional costs

The measures of a social plan may vary depending on the size of the company, the means of the company and its group, previous social plans and the employer’s potential to provide for a large range of measures to reduce the negative impact of the redundancies, including outplacement, which is one of the main customary additional HR costs.

Hiring restrictions post-redundancy

During the six months following the implementation of a collective redundancy, the employer is prohibited from hiring employees on a fixed-term contract or temporary workers on the basis of a temporary increase in activity.

Upon request, employees who were made redundant following a collective redundancy are entitled to benefit from a 12-month rehiring priority on all job positions that become available corresponding to their skills.

Litigation risk

Interested parties

Once the labor authorities’ process is over, and not before, the following interested parties can bring lawsuits related to the redundancy process:

  • Works council/unions/employees: to challenge the labor administration’s approval before the administrative courts within two months from the date of the approval
  • Impacted employees: to challenge notably the legal justification including but not limited to the selection criteria process, the reclassification process before the labor courts within 12 months from the date of the notification of the redundancy

Litigation cannot stop or slow down the collective redundancy process.

Damages and other remedies

Challenges could lead to two types of civil remedies, as well as criminal sanctions.

Damages for unfair dismissal

Damages could be awarded to employees based on notably:

  • Absence of a legal justification
  • Failure to properly apply the selection criteria
  • Failure to properly apply the internal process to seek for alternative employment/redeployment
  • Failure to apply the measures mentioned in the social plan
  • Failure to comply with the rehiring obligation, which entitles the impacted employees to claim damages equal to two months of their last drawn salary

The amount of the damage varies depending on employees’ age and years of service and salary. Employees with at least two years of service are entitled to an amount equal to at least six months of their salary in case of unfair dismissal. Damages usually do not exceed two/three years of salary.

There are no punitive damages in France.

Reinstatement

Employees are entitled to reinstatement within the company — and the employer cannot refuse the reinstatement (except in exceptional cases) — when the redundancies are declared null and void either when:

  • Key parts of the works council process were not complied with
    Or
  • The contents of the social plan were noncompliant with the legal requirements or were insufficient.

The employees could claim damages instead. In that case, employees with at least 2 years of service are entitled to damages equal to at least 12 months of their salary, in addition to other potential indemnities.

Criminal sanctions

Failure to comply with certain legal requirements, in particular those attached to the works council process would also expose the employer to criminal fines of up to EUR7,500 for the legal representative and/or up to EUR37,500 for the legal entity.

Country-specific issues

In case of closure of the business, the employer must search for a potential buyer. The works council, if any, must be informed of the search process as well as its result.

Contact

Primary Contact for France Labor and Employment Law

Roselyn Sands
Ernst & Young Societe Avocats
+33 1 55 61 12 99

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
France
FR

Contacts