Determining the Applicable Collective Bargaining Agreement in France When a Company Has Multiple Activities

Identifying the applicable collective bargaining agreement (convention collective) is a central issue in French employment law. It governs the legal regime applicable to employees: salary scales, working time, notice periods, severance pay, group insurance schemes (prévoyance) and job classifications. When a company carries out 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 substantial litigation. DAIRIA Avocats guides you through the applicable rules and case law.

The Principle: The Collective Agreement 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 out by the employer.” This principle is of general application: whether the agreement has been extended (étendue) or not, it is the company’s actual principal activity that determines which collective agreement applies.

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

Criteria for Determining the Principal Activity

The Turnover Criterion for Commercial Businesses

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

This criterion is assessed over a sufficiently significant period to reflect the company’s actual activity. A single financial year cannot alter the applicable agreement if the principal activity is habitually different. The Cour de cassation has held that regard must be had to the actual and habitual activity of the company, and not to a one-off or exceptional situation (Cass. soc., 10 November 2009, no. 08-40.088).

The Headcount Criterion for Industrial Businesses

For businesses that are industrial in nature, the applicable criterion is the largest number of employees assigned to one or another 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 business and an industrial one 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 characters, case law tends to apply the headcount criterion where the production activity is predominant.

The Secondary Role of the APE/NAF Code

The APE code (Activité Principale Exercée, i.e. principal activity carried out), assigned by INSEE (the French national statistics institute) when the company is registered, constitutes a mere 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 out that determines the applicable agreement (Cass. soc., 10 March 2010, no. 08-44.950).

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

Specific Situations

Distinct Establishments Carrying Out Different Activities

Where a company has several distinct establishments carrying out clearly differentiated activities, the question arises whether each establishment may fall under a different collective agreement. Case law allows this possibility, provided that the establishments constitute genuine autonomous centres of activity, with their own activity 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 agreement to one and the restaurant agreement to the other. By contrast, mere internal services do not constitute distinct establishments within the meaning of the collective agreement.

The criteria adopted by case law to characterise a distinct establishment are:

A separate geographical 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;
Dedicated staff assigned to the establishment’s activity.

Business Transfers and Change of Collective Agreement

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 receiving entity may differ from that of the transferred entity. This situation triggers a challenge (mise en cause) to the collective agreement 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 temporary survival regime for their former agreement for a maximum period of 15 months (3 months’ notice + 12 months), unless a substitution agreement (accord de substitution) is concluded within a shorter timeframe. At the end of that period, the receiving company’s agreement applies, subject to maintaining 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 collective agreement evolves accordingly. This change is not conditional on a change to the APE code: it is the reality of the activity that prevails.

A change of collective agreement resulting from a change of principal activity constitutes a challenge (mise en cause) within the meaning of Article L.2261-14 of the French Labour Code. Employees then benefit from the protective regime of temporary survival of the former agreement, and the employer must open negotiations with a view to concluding an adaptation or substitution agreement.

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

Consequences of Applying the Wrong Collective Agreement

For the Employer

Applying the wrong collective agreement exposes the employer to multiple risks:

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

For Employees

An error as to the collective agreement may be favourable or unfavourable to the employee. If the employer has mistakenly applied a more favourable agreement, 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 notice period).

A Practical Method for Determining the Applicable Agreement

Step 1: Identify the Company’s Actual Activity

The activities actually carried out by the company must be analysed concretely, on the basis of objective factors: the statutory corporate purpose, the description of the activity in the trade 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 Where There Are Several

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

Step 3: Check the Scope of the Agreement

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

Step 4: Consult an Expert in Case of Doubt

Where doubt persists, it is strongly recommended to seek the expertise of a lawyer specialising in employment law. DAIRIA Avocats has in-depth expertise in determining applicable collective agreements and can carry out a complete audit of your company’s collective-agreement 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 presumption, which may be rebutted by proof of the activity actually carried out;
Where there are several inseparable activities, the court must identify the activity that best characterises the company’s purpose.

FAQ: Collective 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 businesses, headcount for industrial businesses. 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 outlook.

My APE code does not match my actual activity. Do I need to change agreements?

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

Can a company voluntarily apply a different collective agreement?

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

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

The agreement of the absorbed company is challenged (mise en cause). Transferred employees retain the benefit of their former agreement for a maximum of 15 months (3 months’ notice + 12 months of survival). During that period, the employer must negotiate a substitution agreement. Failing that, the absorbing company’s agreement applies, with a guarantee that the annual remuneration received over the previous 12 months is maintained.

Can each establishment of my company have its own agreement?

Yes, provided that each establishment carries out an autonomous and distinct activity. Case law requires the establishment to 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 agreement applied by their employer?

Yes. The employee may bring proceedings before the labour tribunal (conseil de prud’hommes) to have it established that the agreement that actually applies is different from the one applied by the employer. They may obtain back-pay and collectively agreed benefits over three years, in addition to damages for the loss suffered.