Collective Bargaining Agreements in Business Transfers in France: Managing the “Mise en Cause”

A business transfer is a major economic event with direct consequences for employees’ collective status. Where the acquiring company applies a collective bargaining agreement different from that of the transferred entity, the transferred employees’ collectively-agreed status is called into question (mise en cause – the automatic lapse of the applicable collective agreement). This mechanism, governed by Articles L.1224-1 and L.2261-14 of the French Labour Code, follows precise rules that every employer and every affected employee must understand. DAIRIA Avocats sets out in detail the steps, timeframes and safeguards involved in this process.

The Legal Framework for Business Transfers

Article L.1224-1 of the French Labour Code: Automatic Transfer of Employment Contracts

Article L.1224-1 of the French Labour Code provides that “where a change occurs in the employer’s legal situation, notably through succession, sale, merger, transformation of the business or incorporation of the undertaking, all employment contracts in force on the day of the change subsist between the new employer and the undertaking’s staff.”

This provision, transposing European Directive 2001/23/EC of 12 March 2001, guarantees the automatic continuation of individual employment contracts. All elements of the contract transfer: seniority, job classification, contractual remuneration, non-compete clauses, and so on. The employee retains all their individual rights in full.

By contrast, collective status (collective bargaining agreement, company-level agreements, established practices) does not benefit from the same automatic transfer regime. This is where the mise en cause mechanism comes into play.

Article L.2261-14: The Lapse of the Collectively-Agreed Status

Article L.2261-14 of the French Labour Code provides that where the application of a collective agreement is called into question in a given undertaking, notably as a result of a merger, a sale, a demerger or a change of activity, that agreement continues to have effect for a set period.

The mise en cause must be distinguished from denunciation (dénonciation): it is automatic and arises from the mere fact of the transfer, without either party needing to express any particular intention. It is an effect that occurs by operation of law as a result of the change in the employer’s legal situation.

Conditions for the Mise en Cause

A Transfer Within the Meaning of Article L.1224-1

The mise en cause first requires the existence of a business transfer falling within the scope of Article L.1224-1. Such a transfer may result from:

A merger by absorption between two companies;
A sale of a business (fonds de commerce) or of a business division;
A demerger of an undertaking;
A transfer of an autonomous economic entity that retains its identity;
A change of principal activity resulting in attachment to a new collective bargaining scope.

The case law of the French Supreme Court (Cour de cassation) has clarified the concept of an autonomous economic entity: it means an organised grouping of persons and of tangible or intangible assets enabling the pursuit of an economic activity with its own objective (Cass. soc., 7 July 1998, No. 96-21.451).

Different Collective Bargaining Agreements Being Applied

The mise en cause occurs only if the host company (or the company resulting from the operation) applies a different collective bargaining agreement from the one that governed the transferred employees. If both companies fall under the same agreement, the transfer has no impact on collective status.

This condition requires a precise analysis of the occupational scope of the agreements concerned. Two agreements may bear different names but have overlapping scopes, or conversely two companies in the same sector may fall under distinct agreements owing to the structure of industry-level bargaining.

The Regime of Temporary Survival of the Former Agreement

The Survival Period: 3-Month Notice + 12 Months

Article L.2261-14 organises a regime of temporary survival for the agreement that has lapsed. In practical terms, the former agreement continues to have effect for:

A notice period of 3 months, running from the date the transfer is completed (not from the date the sale protocol or merger deed is signed);
A survival period of 12 months from the expiry of the notice period, giving a maximum total of 15 months.

During this period, transferred employees benefit from the cumulative application of their former agreement and the host company’s new agreement. In practice, the principle of favourability (principe de faveur) applies: for each benefit considered, the provision most favourable to the employee prevails.

It should be noted that this period is a maximum: if a substitution agreement is concluded before the 15 months expire, it immediately replaces the provisions of the former agreement.

Scope of the Temporary Survival

During the survival period, all provisions of the former agreement continue to apply to the transferred employees: job classifications, salary scales, collectively-agreed bonuses, severance pay, notice periods, additional leave, welfare/contingency (prévoyance) cover, and so on.

The Cour de cassation has nevertheless made clear that the temporary survival does not extend to the agreement’s institutional clauses, i.e. those relating to employee representation, trade union rights or the funding of joint industry bodies (paritarisme), which are governed by the framework of the host company.

The Obligation to Negotiate a Substitution Agreement

Opening Negotiations

As soon as the transfer is completed, the employer has an obligation to open negotiations with a view to concluding a substitution agreement (accord de substitution). This obligation flows directly from Article L.2261-14, paragraph 3, of the French Labour Code. It applies regardless of the number of employees transferred.

Negotiations must be conducted with the representative trade unions within the host company. If the host company has no union representatives (délégués syndicaux), the bargaining arrangements set out in the Labour Code for companies without union representatives apply (Articles L.2232-21 et seq.).

Case law penalises the failure to negotiate in good faith. An employer who simply waits for the survival period to expire without engaging in genuine negotiations breaches its statutory obligation. Employees may then obtain damages for the loss resulting from this breach (Cass. soc., 13 March 2013, No. 11-22.285).

Content of the Substitution Agreement

The substitution agreement is intended to organise the transition between collective agreements for the transferred employees. It may:

Adapt certain provisions of the former agreement to the new collective framework;
Provide for transitional measures (temporary retention of certain benefits, gradual harmonisation of pay);
Define the rules for reclassifying employees within the new agreement’s grading structure;
Organise the portability of contingency (prévoyance) and supplementary health cover.

The substitution agreement is not required to reproduce all the benefits of the former agreement. It may provide for a less favourable regime on certain points, provided it complies with mandatory public-policy rules and with the provisions of the host company’s collective agreement.

The Adaptation Agreement: An Anticipated Variant

Article L.2261-14 also refers to the possibility of concluding an adaptation agreement (accord d’adaptation). This may be negotiated and concluded even before the transfer takes place, as soon as the operation is contemplated. Such anticipation is particularly advisable in the context of planned mergers or divestitures of business divisions, as it makes it possible to secure the transition and limit uncertainty for employees.

The adaptation agreement may be concluded between the acquiring employer and the trade unions of the transferring company, or between the management of both companies and the representative trade unions.

The Situation at the End of the Survival Period

Where No Substitution Agreement Has Been Concluded

If no substitution agreement has been concluded by the end of the 15-month period, the former agreement definitively ceases to apply. The transferred employees are then subject solely to the host company’s collective bargaining agreement.

However, the Law of 8 August 2016 (the “Labour Law” / Loi Travail) introduced an important remuneration guarantee. Article L.2261-14, paragraph 4, provides that the affected employees benefit from a remuneration guarantee whereby the annual amount, for working time equivalent to that provided for in their employment contract, may not be lower than the remuneration paid over the last 12 months. This guarantee is secured through the payment of a salary top-up where necessary.

The Cour de cassation has clarified the scope of this guarantee. The reference remuneration includes base salary, recurring mandatory bonuses, and benefits in kind provided for by the former agreement. By contrast, exceptional or discretionary bonuses are not included in the calculation (Cass. soc., 12 December 1995, No. 92-41.349).

Where a Substitution Agreement Is Concluded

Where a substitution agreement is concluded within the 15-month period, it immediately replaces the provisions of the former agreement. The transferred employees are then governed by the combination of the host company’s collective agreement and the substitution agreement, which may include specific transitional provisions.

The substitution agreement is an ordinary collective agreement, subject to the usual validity conditions (signature by trade unions representing at least 50% of votes cast, or 30% without majority opposition). It may be concluded for a fixed or indefinite term.

Anticipation: A Strategic Imperative

Before any transfer operation, it is essential to carry out a comprehensive social audit of the collective status of the employees concerned. This audit should identify:

The collective agreements applicable within each entity;
The disparities in treatment between the employees of the two companies;
The unilateral commitments and established practices in force;
The transition costs (remuneration retention, harmonisation of contingency schemes, reclassification);
The potential litigation risks.

Planning the social timeline is crucial:

Before the transfer: information and consultation of the Social and Economic Committee (CSE) on the transfer project and its social consequences; where appropriate, opening early negotiations for an adaptation agreement;
At the time of the transfer: individual information of employees regarding the change of agreement; opening of substitution negotiations;
During the survival period: active, good-faith negotiations; regular information of employees and employee representatives;
At the end of the survival period: application of the host agreement; payment of the remuneration top-up where necessary.

The Role of an Employment Law Firm

Managing the lapse (mise en cause) of a collective agreement during a business transfer requires specialist legal expertise. DAIRIA Avocats supports companies at every stage: preliminary audit, drafting of protocols, negotiation of substitution agreements, securing the transition and managing any litigation.

FAQ: Mise en Cause and Business Transfers

What is the mise en cause of a collective bargaining agreement?

The mise en cause is the automatic lapse of a collective agreement resulting from an external event, such as a business transfer, a merger or a change of activity. It differs from denunciation, which is a voluntary act. The mise en cause opens a temporary survival period of up to 15 months.

Do transferred employees immediately lose their collectively-agreed benefits?

No. The former agreement continues to apply for a maximum period of 15 months (3 months’ notice + 12 months’ survival). During this period, employees enjoy the benefits of both the former and the new agreement, with the principle of favourability applying benefit by benefit.

Is the employer required to negotiate a substitution agreement?

Yes. Article L.2261-14 of the French Labour Code requires the employer to engage in good-faith negotiations with a view to concluding a substitution agreement. Failure to negotiate may be penalised by an award of damages to employees.

What happens if no substitution agreement is reached?

At the end of the 15-month period, the former agreement ceases to apply. Employees are subject to the host company’s agreement but benefit from a remuneration guarantee: their annual remuneration may not be lower than that received during the 12 months preceding the mise en cause.

Can the substitution agreement provide for less favourable conditions than the former agreement?

Yes, subject to compliance with mandatory public-policy rules and the minimum standards of the host company’s collective agreement. The substitution agreement is an ordinary collective agreement that is not required to reproduce the earlier benefits. It may organise a gradual phase-in.

Can the mise en cause be anticipated before the transfer is completed?

Yes. It is possible to negotiate an adaptation agreement before the transfer actually takes place. Such anticipation is strongly recommended as it secures the operation and reduces the period of uncertainty for employees. DAIRIA Avocats supports you in this social planning process.