France: Transfer of employees between group companies - an update

1.    Previous practice

Previously, transferring French employees to another group company (whether in France or overseas) with their consent was a fairly simple process, involving a simple tri-partite agreement between the employee, the existing group company in France and the new group employer (whether in France or elsewhere). This mechanism enabled a clear termination of the employee's original contract of employment (to ensure no future claims against the first employer) and removed the risk of any future claims by the employee in relation to the transfer.

2.    2008: introduction of the "Agreed termination" procedure

In 2008[1], a new procedure permitting termination of employment contracts by "mutual consent" was introduced. This is used where the employee and employer genuinely both want to terminate the employment contract.

For the "agreed termination" to be valid and effective, the employer and employee must agree the terms of the departure (with a "cooling-off" period during the discussions during which time either party can change their mind) and the employee must be paid an indemnity sum equivalent to at least the termination payment under the applicable collective bargaining agreement (or if no collective bargaining agreement applies, the minimum termination payment required under French law). The agreement reached between the parties also has to be sent to the French Authorities for validation (homologation) and the procedure takes approximately 45 days.

Up until recently, there was no Supreme Court finding that this mandatory agreed termination procedure should apply to the transfer of employees between group companies, notwithstanding that their contract of employment with the original employer was, in practice, ending by consent.

3.    2014: Supreme Court decision calls into question previous practice

However, the French Supreme Court[2] has recently held that – save for limited cases specifically identified by law – all terminations by "mutual agreement" (including therefore arguably intra-group transfers of employees) must follow the specific procedure set out in section 2 above – requiring a period of at least approximately 45 days and validation by the French authorities.

4.    Risks incurred for non-compliance

The Supreme Court's decision therefore now means that the simplified procedure for intra-group transfers could be subject to a challenge by the employee who is transferred. The risks could be as follows:

• The termination of the initial employment contract may be held to be a dismissal without real and serious cause – thus resulting in a claim from the employee for termination payments and damages; or
• The initial contract may be considered to be still in force. This could mean that if there is ever a dispute with the employee in the future, they may seek to bring claims not only against the new employer, but also potentially against the former employer (notwithstanding the fact of the intra-group transfer).

5.    Practical advice

Pending clarification by the Courts of the correct approach to take for intra-group transfers, one means of seeking to reduce the risks may be to avoid referring to the termination of the initial employment. Possible alternatives may be to novate the contract to the new group employer (again of course with the employee's consent). However pending further clarification from the French Courts, this approach may not be entirely free of the potential risk of the claims we mention in section 4 above.

[1]               Law No. 2008-596 dated 25 June 2008 – article L.1237-11 of the French Labour Code

[2]               Cour de cassation, Employment Chamber, 15 October 2014, No. 11-22.251.