French Labour Law

Determining the Applicable Collective Bargaining Agreement in Cases of Multiple Business Activities

DAIRIA Law · Published · 10 min

Determining the Applicable Collective Bargaining Agreement in Cases of Multiple Business Activities

Identifying the applicable convention collective (collective bargaining agreement, or CBA) is a central question of French labour law. It governs the legal regime applicable to employees: salary scales, working time, notice periods, severance pay, supplementary welfare cover (prévoyance) and job classifications. Where a company carries on several activities, the question becomes considerably more complex. Article L.2261-2 of the French Labour Code sets out the principal-activity rule, but its practical application generates extensive litigation. DAIRIA Avocats guides you through the applicable rules and case law.

The Principle: the CBA of the Principal Activity

Article L.2261-2 of the French Labour Code provides that “the applicable collective bargaining agreement is the one covering the principal activity carried on by the employer”. This principle is of general application: whether or not the agreement has been extended (étendue), it is the company’s actual principal activity that determines the applicable collective instrument.

The CBA then applies to all of the company’s employees, whatever their individual role. An accountant employed by a construction company falls under the construction CBA, not under some hypothetical CBA for chartered accountants. It is the company’s activity that prevails, not the employee’s.

Criteria for Determining the Principal Activity

The Turnover Criterion for Commercial Companies

For companies of a commercial nature, the principal activity is determined by the highest turnover. This is the criterion consistently applied by the case law of the Cour de cassation (French Supreme Court). Thus, a company generating 60% of its turnover from the trading of materials and 40% from installation falls under the CBA for the trade in construction materials (Cass. soc., 23 April 2003, No. 01-41.196).

This criterion is assessed over a period long enough to reflect the company’s actual activity. A single isolated financial year cannot change the applicable CBA if the principal activity is usually different. The Cour de cassation has held that the actual and usual activity of the company must be examined, rather than a one-off or exceptional situation (Cass. soc., 10 November 2009, No. 08-40.088).

The Headcount Criterion for Industrial Companies

For companies of an industrial nature, the applicable criterion is the largest number of employees assigned to one or other of the activities. This criterion is justified by the fact that, in industry, turnover does not necessarily reflect the relative importance of the various activities in terms of working conditions.

The distinction between a commercial and an industrial company rests on the nature of the dominant activity. A company that transforms raw materials into finished products is industrial; a company that buys goods to resell them as they are is commercial. Where a company combines both characteristics, case law tends to apply the headcount criterion if the production activity is predominant.

The Secondary Status of the APE/NAF Code

The APE code (Activité Principale Exercée – principal activity carried on) assigned by INSEE (the French national statistics institute) when the company is registered is merely a presumption and has only indicative value. The Cour de cassation regularly reiterates that the APE code binds neither the parties nor the court, and that it is the activity actually carried on that determines the applicable CBA (Cass. soc., 10 March 2010, No. 08-44.950).

An employer whose APE code does not correspond to its actual principal activity cannot rely on that code to apply a different CBA. Conversely, an employee may demonstrate that the employer’s actual activity falls within a different collective scope than the one suggested by the APE code.

Specific Situations

Separate Establishments Carrying on Different Activities

Where a company has several separate establishments carrying on clearly distinct activities, the question arises whether each establishment may fall under a different CBA. Case law allows this possibility provided that the establishments constitute genuine autonomous centres of activity, with their own activity that is distinct from that of the other establishments.

The Cour de cassation has held that a company operating both a hotel and a restaurant in separate premises, with separate management and staff, could apply the hotel-industry CBA to one and the restaurant CBA to the other. By contrast, mere internal departments do not constitute separate establishments within the meaning of the CBA.

The criteria used by case law to characterise a separate establishment are:

  • A separate geographic location (although this is not sufficient in itself);
  • A specific and autonomous activity, distinct from the principal activity of the head office;
  • Its own management, with relative independence in its direction;
  • Staff dedicated to the establishment’s activity.

Business Transfers and Change of CBA

In the event of a business transfer within the meaning of Article L.1224-1 of the French Labour Code (merger, sale, demerger), the principal activity of the acquiring entity may differ from that of the transferred entity. This situation triggers a calling into question (mise en cause) of the CBA previously applicable to the transferred employees, in accordance with Article L.2261-14 of the French Labour Code.

The transferred employees then benefit from a provisional survival regime for their former CBA for a maximum period of 15 months (3 months’ notice + 12 months), unless a replacement agreement (accord de substitution) is concluded within a shorter period. At the end of this period, the CBA of the host company applies, subject to the maintenance of the remuneration received over the previous 12 months.

Voluntary Change of Activity

Where a company gradually changes its activity to the point that its principal activity changes, the applicable CBA changes accordingly. This change is not conditional on a change of APE code: it is the reality of the activity that prevails.

A change of CBA following a change of principal activity constitutes a mise en cause (calling into question) within the meaning of Article L.2261-14 of the French Labour Code. Employees then benefit from the protective regime of provisional survival of the former CBA, and the employer must open negotiations with a view to concluding an adaptation or replacement agreement.

The Cour de cassation reviews whether the change of activity is genuine. A purely artificial change, motivated solely by the desire to reduce collectively bargained benefits, would constitute fraud.

Consequences of Applying the Wrong CBA

For the Employer

Applying the wrong CBA exposes the employer to multiple risks:

  • Back-pay claims: if the CBA actually applicable provides for higher minimum salaries, employees may claim the difference for the last three years (three-year limitation period under Article L.3245-1 of the French Labour Code);
  • URSSAF reassessment: applying the wrong CBA may lead to errors in social security contributions, in particular as regards supplementary welfare cover (prévoyance) and supplementary health insurance;
  • Labour court litigation: employees may bring proceedings before the conseil de prud’hommes (labour court) to obtain the application of the correct CBA and payment of the corresponding benefits;
  • Invalidity of contractual clauses: clauses in the employment contract referring to an inapplicable CBA are unenforceable against the employee.

For Employees

Applying the wrong CBA may be favourable or unfavourable to the employee. If the employer has mistakenly applied a more favourable CBA, the question arises whether it can withdraw that benefit. Case law distinguishes according to whether the application results from a custom (usage), a unilateral undertaking (engagement unilatéral) or a mere error. In the case of a custom, the employer must follow the denunciation procedure (informing employee representatives, individually informing employees, and observing a prior notice period).

Practical Method for Determination

Step 1: Identify the Company’s Actual Activity

The activities actually carried on by the company must be analysed concretely, on the basis of objective factors: the corporate purpose set out in the articles of association, the description of the activity in the commercial register, commercial contracts, invoices, the nature of the services or products, etc. The APE code is only one indicator among others.

Step 2: Quantify the Activities in Cases of Plurality

Where the company carries on several activities, it must be determined which is the principal one by applying the correct criterion: turnover for commercial activities, headcount for industrial activities. The analysis must cover a representative period (generally the last two or three financial years).

Step 3: Verify the Scope of the CBA

Once the principal activity has been identified, it must be verified that the intended CBA does indeed cover that activity within its professional and territorial scope. The scope is defined in the opening clauses of each CBA. Certain activities may fall into a “collective bargaining vacuum” (vide conventionnel) if no agreement specifically covers the sector.

Step 4: Consult an Expert in Case of Doubt

In the event of persistent doubt, it is strongly recommended to seek the expertise of a lawyer specialising in employment law. DAIRIA Avocats has in-depth expertise in determining the applicable CBA and can carry out a full audit of your company’s collective bargaining situation.

Recent Case Law and Developments

The case law of the Cour de cassation continues to refine the criteria for determining the principal activity. Among the significant recent decisions:

  • The Court reiterates that the principal activity is assessed at the level of the company as a whole, and not at the level of a department or a category of staff;
  • Confirmation that the APE code constitutes only a simple (rebuttable) presumption, which may be reversed by proof of the activity actually carried on;
  • In the case of a plurality of inseparable activities, the court must ascertain which activity best characterises the company’s purpose.

FAQ: Collective Bargaining Agreements and Multiple Activities

My company has two activities of comparable size. How is this resolved?

The relevant criterion must be applied according to the nature of the company: turnover for commercial companies, headcount for industrial companies. If the two activities are perfectly equal, case law tends to favour the activity that best characterises the company’s principal purpose, by analysing its history, positioning and prospects.

My APE code does not correspond to my actual activity. Must I change CBA?

Yes. The APE code has only indicative value and does not determine the applicable CBA. It is the actual, principal activity that prevails. If you find a discrepancy, you must apply the CBA corresponding to your actual activity and request that INSEE amend your APE code.

Can a company voluntarily apply a different CBA?

An employer may decide to voluntarily apply a CBA that is more favourable than the one to which it would normally be subject. However, this voluntary application does not exempt the employer from complying with the mandatory provisions of the CBA that is actually applicable. It also creates an undertaking that can only be withdrawn in accordance with the rules for denouncing customs (usages).

What happens in a merger if the two companies have different CBAs?

The CBA of the absorbed company is called into question. The transferred employees retain the benefit of their former CBA for a maximum of 15 months (3 months’ notice + 12 months’ survival). During this period, the employer must negotiate a replacement agreement. Failing that, the CBA of the absorbing company applies, with a guarantee that the annual remuneration received over the previous 12 months will be maintained.

Can each establishment of my company have its own CBA?

Yes, provided that each establishment carries on an autonomous and distinct activity. Case law requires that the establishment constitute a genuine independent centre of activity, with its own management, staff and activity. Mere internal departments are not sufficient.

Can an employee challenge the CBA applied by their employer?

Yes. The employee may bring proceedings before the conseil de prud’hommes (labour court) to have it established that the CBA actually applicable differs from the one applied by the employer. They may obtain back-pay and collectively bargained benefits for three years, in addition to damages for the harm suffered.

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