Determining the Applicable Collective Agreement in Case of Multiple Activities

Determining the applicable collective agreement is a central issue in labour law. It dictates the legal framework applicable to employees: wage scales, working hours, notice periods, severance pay, insurance, classifications. When a company engages in multiple activities, the question becomes considerably more complex. Article L.2261-2 of the French Labour Code establishes the principle of the principal activity, but its practical application has led to abundant litigation. DAIRIA Avocats guides you through the rules and case law in this area.

The Principle: The Collective Agreement of the Principal Activity

Article L.2261-2 of the Labour Code states that “the applicable collective agreement is that which pertains to the principal activity carried out by the employer”. This principle is of general application: whether it is an extended collective agreement or not, it is the actual principal activity of the company that determines the applicable contractual text.

The collective agreement then applies to all employees of the company, regardless of their individual roles. An accountant employed in a construction company falls under the construction sector’s collective agreement, rather than a hypothetical agreement for chartered accountants. It is the activity of the company that prevails, not that of the employee.

Criteria for Determining the Principal Activity

The Revenue Criterion for Commercial Enterprises

For commercial enterprises, the principal activity is determined by the highest revenue. This criterion has been consistently upheld by the case law of the Court of Cassation. Thus, a company that generates 60% of its revenue from the trade of materials and 40% from installation falls under the collective agreement for the trade of construction materials (Cass. soc., 23 April 2003, n° 01-41.196).

This criterion is assessed over a sufficiently significant period to reflect the actual activity of the company. A single financial year should not alter the applicable agreement if the principal activity is usually different. The Court of Cassation has thus ruled that it is important to examine the real and habitual activity of the company, rather than an isolated or exceptional situation (Cass. soc., 10 November 2009, n° 08-40.088).

The Employee Count Criterion for Industrial Enterprises

For industrial enterprises, the criterion applied is that of the greatest number of employees assigned to one or other of the activities. This criterion is justified by the fact that in industry, revenue does not necessarily reflect the relative importance of the different activities in terms of working conditions.

The distinction between commercial and industrial enterprises is based on the nature of the dominant activity. A company that transforms raw materials into finished products is considered industrial; a company that purchases for resale in an unchanged state is commercial. When a company combines both characteristics, case law tends to apply the employee count criterion if the production activity is predominant (Cass. soc., 26 January 2005, n° 02-46.405).

The Secondary Nature of the APE/NAF Code

The APE code (Activité Principale Exercée) assigned by INSEE upon the company’s registration is a presumption and only has indicative value. The Court of Cassation regularly reminds that the APE code does not bind either the parties or the judge, and it is the activity actually undertaken that determines the applicable agreement (Cass. soc., 10 March 2010, n° 08-44.950).

An employer whose APE code does not correspond to their actual principal activity cannot invoke this code to apply a different agreement. Conversely, an employee can demonstrate that the actual activity of the employer falls within a different contractual field than that suggested by the APE code.

Particular Situations

Distinct Establishments Engaging in Different Activities

When a company has multiple distinct establishments engaging in clearly differentiated activities, the question arises whether each establishment can fall under a different collective agreement. Case law allows this possibility provided that the establishments constitute true autonomous centres of activity, with a distinct and separate activity from that of the other establishments.

The Court of Cassation has ruled that a company operating both a hotel and a restaurant in separate premises, with separate management and personnel, could apply the hotel collective agreement to one and the restaurant agreement to the other (Cass. soc., 18 May 2011, n° 09-72.543). However, simple internal services do not constitute distinct establishments in terms of the collective agreement.

The criteria established by case law for characterising a distinct establishment are:

A separate geographical location (although this is not sufficient on its own);
A specific and autonomous activity, distinct from the principal activity at headquarters;
Independent management, with a degree of autonomy in operations;
Dedicated personnel for the activity of the establishment.

Business Transfer and Change of Agreement

In the case of a business transfer as defined by Article L.1224-1 of the Labour Code (merger, acquisition, split), the principal activity of the absorbing entity may differ from that of the transferred entity. This situation leads to a challenge of the previously applicable collective agreement for the transferred employees, in accordance with Article L.2261-14 of the Labour Code.

Transferred employees then benefit from a provisional survival regime under their former agreement for a maximum duration of 15 months (3 months of notice + 12 months), unless a substitution agreement is reached within a shorter timeframe. At the end of this period, the collective agreement of the receiving company applies, subject to the maintenance of the salary received during the last 12 months.

Voluntary Change of Activity

When a company gradually changes its activity to the point where its principal activity changes, the applicable collective agreement evolves accordingly. This change is not contingent upon a modification of the APE code: it is the reality of the activity that prevails.

The change of collective agreement following a change in principal activity constitutes a challenge under Article L.2261-14 of the Labour Code. Employees then benefit from the protective regime of provisional survival under the old agreement, and the employer must initiate negotiations for the conclusion of an adaptation or substitution agreement.

The Court of Cassation reviews the real nature of the change in activity. A purely artificial change motivated solely by the intention to diminish conventional benefits would constitute fraud (Cass. soc., 19 November 2014, n° 13-21.609).

Consequences of Incorrect Application of the Collective Agreement

For the Employer

The incorrect application of a collective agreement exposes the employer to numerous risks:

Salary adjustments: if the actually applicable agreement lays down higher minimum wages, employees may claim the differences for the last three years (three-year limitation of Article L.3245-1 of the Labour Code);
URSSAF reassessment: the erroneous application of an incorrect agreement may lead to errors in social contributions, particularly regarding insurance and supplementary health care;
Labour tribunal disputes: employees may approach the labour tribunal to enforce the correct agreement and demand the corresponding benefits;
Nullity of contractual clauses: contract clauses referencing an non-applicable agreement are unenforceable against the employee.

For Employees

The error in the collective agreement may be either beneficial or detrimental to the employee. If the employer mistakenly applied a more favourable agreement, a question arises as to whether they can retract that benefit. Case law distinguishes depending on whether the application results from an usage, a unilateral commitment, or a simple error. In the case of usage, the employer must follow the denunciation procedure (informing the employee representatives, individually informing employees, respecting a notice period).

Practical Method for Determination

Step 1: Identify the Actual Activity of the Company

It is necessary to analyse concretely the activities carried out by the company, relying on objective elements: statutory social object, description of activity in the trade register, commercial contracts, invoices, nature of services or products, etc. The APE code is merely an indication among others.

Step 2: Quantify Activities in Cases of Plurality

When the company engages in multiple activities, it is essential to determine which is principal by applying the correct criterion: revenue for commercial activities, employee count for industrial activities. The analysis should focus on a representative period (generally the last two or three financial years).

Step 3: Verify the Scope of Application of the Agreement

Once the principal activity is identified, it is necessary to check that the envisaged agreement covers this activity within its professional and territorial scope. The scope of application is defined in the initial clauses of each collective agreement. Certain activities may fall into a “conventional void” if no agreement specifically covers the sector.

Step 4: Consult an Expert in Case of Doubt

In case of persistent doubt, it is highly recommended to seek the expertise of a social law lawyer. DAIRIA Avocats has extensive expertise in determining applicable collective agreements and can perform a complete audit of your company’s contractual situation.

Recent Case Law and Developments

The case law of the Court of Cassation continues to refine the criteria for determining the principal activity. Among the significant recent decisions:

Cass. soc., 5 April 2023, n° 21-24.671: The Court reiterates that the principal activity is evaluated at the company level as a whole, not at the level of a service or a personnel category;
Cass. soc., 8 March 2023, n° 21-19.475: Confirmation that the APE code is merely a simple presumption, which can be overturned by proof of the activity actually conducted;
Cass. soc., 15 November 2023, n° 22-14.832: In the case of multiple indissociable activities, the judge must determine which activity best characterises the company’s purpose.

FAQ: Collective Agreement and Multiple Activities

My company has two activities of comparable size. How to decide?

The relevant criterion must be applied according to the nature of the business: revenue for commercial enterprises, employee count for industrial enterprises. If both activities are perfectly equal, case law tends to favour the activity that best characterises the company’s main purpose, analysing its history, positioning, and prospects.

My APE code does not correspond to my actual activity. Should I change the agreement?

Yes. The APE code is only indicative and does not determine the applicable agreement. It is the actual and principal activity that prevails. If you identify a discrepancy, you must apply the agreement corresponding to your effective activity and request an APE code modification from INSEE.

Can a different collective agreement be voluntarily applied?

An employer may choose to voluntarily apply a more favourable agreement than that which would normally apply. However, this voluntary application does not exempt them from adhering to the mandatory provisions of the actually applicable agreement. It also creates a commitment that they can only retract according to the denunciation procedures for usages.

What happens during a merger if the two companies have different agreements?

The agreement of the absorbed company is challenged. Transferred employees retain the benefits of their previous agreement for a maximum period of 15 months (3 months of notice + 12 months of survival). During this time, the employer must negotiate a substitution agreement. Failing this, the agreement of the absorbing company applies, with a guarantee of maintaining the annual salary received during the last 12 months.

Can each establishment of my company have its own agreement?

Yes, provided that each establishment engages in an autonomous and distinct activity. Case law requires that the establishment constitutes a true independent centre of activity, with its own management, personnel, and activity. Simple internal departments are insufficient.

Can an employee contest the agreement applied by their employer?

Yes. An employee may approach the labour tribunal to assert that the actually applicable agreement is different from that applied by the employer. They may claim salary adjustments and contractual advantages for the past three years, in addition to damages for the harm suffered.