Dismissal due to business reasons in France

AutorFrancis Kessler
Páginas16-29

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Introduction

Employment relationships in France are highly regulated, in particular with regard to termination of employment. The main sources of law that govern employment relationships are essentially the Labor Code, collective bargaining agreements and case law of the French Supreme Court (Cour de Cassation).

Employment at will does not exist in France. However, unless a collective bargaining agreement or the employment contract provides otherwise, an employment contract can be terminated without any restrictions (i.e., without justification or indemnities) during the probationary period or «trial period». The duration of this probationary period is either fixed in the labor contract or in a collective agreement. Law also organizes a subsidiary minimum termination notice must be complied with during the probationary period1.

After the probationary period, an employment contract can only be terminated in certain circumstances, depending upon whether the contract is entered into for a fixed term2or an indefinite term. Resignation (démission) is the ending of the contract by the employee. The resignation is only valid if the employee resigns of his own free will and not, for example, because the employer puts pressure on him to resign. An employee who wishes to resign must respect any period of notice imposed by law, contained in his contract or in a collective agreement, or customarily applied in his particular industry. If the employee does not give the required period of notice, the employer may be entitled to damages and interest for any resulting loss.

Regarding indefinite-term employment contracts, an employer can terminate the contract at any time, but it must be able to justify from a real and serious cause of termination (cause réelle et sérieuse), and it must comply with the applicable dismissal procedure which varies depending on the type of dismissal.

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Real and serious cause means that the dismissal has to be exact, precise, objective and of a sufficiently serious nature to justify the dismissal. This requirement applies to any type of dismissal regardless of the age/position/length of service of the employee and the headcount of the company.

It is up to the employer to prove the reality and the seriousness of the grounds for dismissal on the basis of objective and material evidence. In the event of litigation, if the employer fails to adduce such evidence, the dismissal of the employee will be held to be unfair. If the court considers that there is a doubt in this regard, the issue is resolved in favor of the employee.

There are two major categories of dismissals based on real and serious cause:

- Dismissals based on the employee’s behavior ("dismissals for personal/professional reasons", such as a poor performance, the employee’s negligence or the employee’s inability to work).

- Dismissals based on economic grounds ("dismissals for economic reasons/for business reason"). Dismissals for economic reasons can be either individual or collective, depending on whether one or more positions are to be eliminated or significantly modified.

1. How does the legislation or the judicial bodies define the causes that allow for a dismissal due to business reasons?

According to Article L.1233-3 of the French Labor Code, a redundancy (or dismissal due to business reasons) is «a dismissal decided by the employer for one or more reasons that are not related to the employee, which result from the elimination or transformation of a position, or a modification, refused by the employee, of an essential element of the employment contract, notably due to economic difficulties or technological changes».

Where the employer invokes economic difficulties to support the redundancy, the legitimacy of the redundancy is dependent on the real and serious nature of the economic difficulties at the time of the redundancies.

The French Supreme Court has taken a very restrictive approach in its interpretation of acceptable economic reasons.

Dismissals due to business reasons are often contemplated owing to the financial difficulties encountered by the company (financial losses, non-offsettable loss of

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markets, long-lasting drop in activity, etc.) as well as the company’s shutdown3. Case law has accepted that the general economic situation (product prices, cost of raw materials) be taken into account to justify a restructuring operation4.

The difficulties experienced by the company must however be real and serious and cannot be the result of the employer’s intentional and fraudulent behavior. In general, the loss of a market, a slowdown in sales or lower turnover or profits during the year prior to the redundancy do not qualify as economic difficulties5.

According to legislation, economic difficulties and technological changes are not the only two possible causes for redundancy proceedings6.

If not justified by economic difficulties or technological changes, a restructuring operation must be indispensable to safeguard the company’s competitiveness or that of the group’s line of business to which the company belongs.7The existence of a threat to its competitiveness must be established.8But restructuring with a view to safeguarding competitiveness does not imply the existence of immediate economic difficulties. It implies anticipating risks and where applicable, difficulties to come. Hence, restructuring for the sake of safeguarding competitiveness is seen more as a preventive measure. In other words as the Cour de cassation stated "[t]he employer can anticipate foreseeable economic difficulties and take advantage of a healthy financial situation in order to adapt its organization to market evolution in the best possible way"9. French courts highly scrutinize the need to restructure the company in order to remain competitive as an economic ground, which is more debatable than losses, and verify that there is truly a need to restructure the company in question in order for the company/group/line of business to remain competitive. French courts thus tend to require that the company convince them that had it not implemented the redundancy plan in question, the company/group/line of business would have faced serious economic difficulties. In practice, it is therefore difficult to determine in advance whether or not a French court will uphold this type of economic ground.

Courts are not empowered to restrict the company’s choice of possible solutions to safeguard the competitiveness of the company or of the group’s business sector.

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Better management or the interests of the company invoked by a financially healthy company are not considered valid grounds to demonstrate that the restructuring is necessary to preserve the company’s competitiveness.

2. Do the business reasons that justifying the dismissal must concur in the whole company or can they only concur in workplace where dismissal occurs?

When a company, which does not belong to a group of companies, proceeds to a redundancy, the economic grounds are assessed at the level of said company.

However, when a company is part of a group of companies and proceeds to a redundancy, the economic grounds are in principle assessed at group level, unless it can be established that there are various lines of business within the group, in which latter case the economic grounds are assessed at the level of the group’s line of business to which the company proceeding to the redundancies belongs.

However, where a company is part of a group of companies and proceeds to a redundancy, the economic grounds are in principle assessed at group level, unless it can be established that there are various lines of business within the group, in which latter case the economic grounds are assessed at the level of the group’s line of business to which the company proceeding to the redundancies belongs. There must be valid economic grounds either at group level if the group only operates in only one line of business...

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