France: New employee information obligations in advance of share and asset sales (in force from 1 November 2014)

The new obligation:

Businesses in France are currently in a state of confusion in relation to the status and impact of obligations imposed by a law dated 31 July 2014[1], in force for transactions closing on or after 1 November 2014, imposing a new obligation to directly inform employees 2 months in advance of an intention to sell 50% or more of the shares (or 50% of more of the assets) of a business in France, intended to enable the employees to make an offer for these shares/assets. These new obligations are in addition to any existing obligations vis-à-vis the French works council.

(The following operations are excluded from the definition of a sale for the purposes of this employee information obligation: the universal transfer of assets (transmission universalle de patrimoine), and capital increases).

This obligation also applies to intra-group transfers. For example, if a subsidiary within a group proposes to transfer 50%+ of its assets or shares to another group company as part of group restructuring, technically the subsidiary transferring such assets/shares would have to inform its employees of the proposed sale at least 2 months in advance of closing and give them a chance to make an offer for the assets/shares.

There is no obligation to favour any offer received from an employee, or even to seriously consider the offer – i.e. the Seller retains the freedom to choose to whom the shares/assets are transferred.

The law has however been subject to significant criticism from the business community and in the press, such that an amendment has now been proposed by the French Senate to remove the information requirement[2].  

The National Assembly of the French Parliament would however have to approve the Senate's amendment before this new information obligation is removed from Statute – pending such decision the information requirement therefore remains in force.

Background – as a reminder

French companies with a works council already have an obligation under French law to inform and consult with the works council prior to the shareholder entering into an agreement to sell the shares in the company, or prior to any business transfer. These obligations are not impacted by the new law.

As a result of the new Law, certain smaller French companies will now also need to provide information in relation to the proposed sale directly to the employees 2 months prior to the closing of the proposed transaction.

The background to this measure originally was a concern relating to "succession planning" in small family businesses, where the owner was approaching retirement age - to seek to ensure the future of a number of smaller and mid-size businesses in France and avoid redundancies and closures simply because of the retirement of the owner. However, the law clearly as a very significant wider impact and may create an added level of complexity in certain transactions involving French companies, including intra-group reorganisations.

Which companies are impacted by this measure?

The new law only covers:

• companies which are not currently required to put in place a works council (i.e. which have less than 50 employees); and
• those which have a place a works council, but which are categorised as "PME" companies – i.e. smaller and medium sized companies with less than 250 employees and an annual turnover of less than €50M or a balance sheet of less than €43M.

(Companies with 250+ employees, or a higher turnover and balance sheet are therefore excluded.)

In both cases, "companies" includes the following structures, which are the most common structures used for commercial companies in France: SNC, SCS, SARL, SA, SCA, SAS, SE companies.

However societies civiles and societies en participation are excluded (these structures are less common).

Companies in liquidation and other collective proceedings are also excluded.

What information must be provided to the employees?

Under the terms of the new law, the employees must be provided with "information to enable them to make an offer" (the type of information which must be supplied is not further detailed in the law).

However an official Guide, published on 30 October 2014, states that the information must simply include (i) a simple statement of the fact of the Seller's desire to sell and (ii) a statement that the employees may make an offer.  This Guide, whilst an official explanation of the Law, is not however binding on the Courts.

The employees are obliged to keep the information confidential, but can be assisted by a representative of the Regional Chamber of Commerce and Industry, the Regional Artisan Chambers of Commerce and certain other individuals.

The information can be provided to the employees by any means – e.g. email, registered letter, formal notice on a Company notice board etc., provided it is possible to prove receipt of such information by the employees (e.g. read receipts for emails, signed delivery for letters, a signature confirming that they have read the notice displayed etc.).

Interaction with the works council

If a works council is in place (for companies with 50+ employees), the information to the employees must take place at the same time as the information and consultation of the works council (which is of course in advance of signing and final decisions being taken).

Timing

The information must be provided to the employees at least 2 months prior to the closing of the proposed transaction. In the case of companies with less than 50 employees, if all of the employees respond earlier than the 2 month period, to confirm that they are not interested in making an offer, the company is not obliged to wait until the end of the 2 month period before completing the transaction. In the case of companies with 50+ employees, the information period coincides with the period of information and consultation of the works council. It is not year clear if the 2 month period can therefore be shortened if the works council's opinion is obtained earlier than 2 months.

The sale to any third party must take place within no later than 2 years of the notification to the employees – otherwise, in the event of any continuing wish to sell thereafter, the notification to the employees must be repeated.

Sanctions: in the event of a challenge, the transaction could be found to be null and void

A failure to comply with the obligation could render the sale to a third party null and void. Any of the employees of the company whose assets or shares are sold may bring such an action for nullity within 2 months from the date of publication/notification of the sale.

What next?

We need to await the response of the French lower Chamber to the amendment proposed by the Senate to see if this new information obligation will be annulled. In the meantime it remains in force and binding.

[1]        Law n° 2014-856 of 31 July 2014 – Loi relative à l'économie sociale et solidaire

[2]        amendment to the Law on the Simplification of the life of companies - amendment adopted by the Senate on 29 October 2014.

Article written by Emma Röhsler, Partner