How to Manage the Impact of a Collective Agreement during a Business Transfer?

The transfer of a business is a major event in the economic lifecycle that has direct consequences on the collective status of employees. When the acquiring company applies a different collective agreement from that of the entity being transferred, the collective status of the retained employees is challenged. This mechanism, governed by Articles L.1224-1 and L.2261-14 of the French Labour Code, follows specific rules that every employer and affected employee must understand. DAIRIA Avocats explains the steps, timelines, and guarantees of this process in detail.

The Legal Framework of Business Transfer

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

Article L.1224-1 of the Labour Code states that “when there is a change in the legal situation of the employer, notably by succession, sale, merger, transformation of the asset, or incorporation of the business, all employment contracts in effect on the day of the change remain in force between the new employer and the employees of the business.”

This text, transposing European Directive 2001/23/CE of March 12, 2001, guarantees the automatic maintenance of individual employment contracts. All elements of the contract are transferred: seniority, qualifications, contractual pay, non-competition clauses, etc. The employee retains all of their individual rights.

However, the collective status (collective agreement, company agreements, practices) does not benefit from the same automatic transfer regime. This is where the mechanism of challenge comes into play.

Article L.2261-14: Challenge of Collective Status

Article L.2261-14 of the Labour Code provides that when the application of a collective agreement is challenged in a specific company due to a merger, sale, division, or change of activity, the agreement continues to be effective for a predetermined duration.

The challenge is different from a denunciation: it is automatic and results solely from the transfer, without either party needing to express a particular intention. It is a legal effect of the change in the legal situation of the employer.

Conditions for the Challenge

A Transfer in the Sense of Article L.1224-1

The challenge first requires the existence of a business transfer falling within the scope of Article L.1224-1. This transfer can result from:

• A merger between two companies;
• A sale of business assets or branch of activity;
• A division of a business;
• A transfer of an autonomous economic entity retaining its identity;
• A change in main activity leading to connection with a new collective framework.

The caselaw of the Court of Cassation has clarified the notion of an autonomous economic entity: it is an organized set of persons and physical or intangible elements enabling the pursuit of an economic activity with its own objective (Cass. soc., July 7, 1998, n° 96-21.451).

Application of Different Collective Agreements

The challenge occurs only if the host company (or the company resulting from the transaction) applies a different collective agreement from that which governed the transferred employees. If both companies fall under the same collective agreement, the transfer has no impact on the collective status.

This condition requires a precise analysis of the professional scope of the agreements in question. It is possible that two agreements have different names but overlapping scopes, or conversely, that two companies in the same sector fall under distinct agreements due to the negotiation structure of the branch.

Provisional Survival Regime of the Old Agreement

Survival Period: 3-Month Notice + 12 Months

Article L.2261-14 organizes a provisional survival regime of the challenged agreement. Concretely, the old agreement continues to have effect for:

• A 3-month notice period, starting from the date of the transfer (not the date of signing the sale protocol or the merger agreement);
• A survival period of 12 months from the expiration of the notice, for a total maximum of 15 months.

During this period, the transferred employees benefit from the cumulative application of both their old agreement and the new agreement of the host company. In practice, the principle of favor applies: for each perceived advantage, the most favorable provision to the employee prevails.

It is important to note that this period is a maximum: if a substitution agreement is concluded before the expiration of the 15 months, it immediately replaces the provisions of the old agreement.

Content of Provisional Survival

During the survival period, all stipulations of the old agreement continue to apply to the transferred employees: classifications, salary scales, contractual bonuses, severance benefits, notice periods, additional leave, guaranteed protections, etc.

However, the Court of Cassation has clarified that provisional survival does not extend to institutional clauses of the agreement, meaning those relating to employee representation, union rights, or the financing of parity, which fall under the framework of the host company (Cass. soc., March 16, 1999, n° 96-45.514).

Obligation to Negotiate a Substitution Agreement

Commitment to Engage in Negotiations

Upon the completion of the transfer, the employer has the obligation to engage in negotiations for the conclusion of a substitution agreement. This obligation directly arises from Article L.2261-14, paragraph 3, of the Labour Code. It applies regardless of the number of transferred employees.

Negotiations must be conducted with the representative union organizations in the host company. If the host company lacks union delegates, the negotiation procedures provided by the Labour Code for companies without union delegates apply (Articles L.2232-21 et seq.).

The caselaw penalizes the lack of fair negotiation. An employer who merely waits for the expiration of the survival period without engaging in genuine negotiations fails to meet their legal obligation. Employees may then seek damages for the harm resulting from this failure (Cass. soc., March 13, 2013, n° 11-22.285).

Content of the Substitution Agreement

The substitution agreement aims to organize the transitional framework for the transferred employees. It may:

• Adapt certain provisions of the old agreement to the new contractual framework;
• Provide for transitional measures (temporary maintenance of certain benefits, gradual smoothing of pay);
• Define the reclassification modalities of employees within the new agreement’s scale;
• Organize the portability of guaranteed benefits and complementary health protections.

The substitution agreement is not required to reproduce the entirety of the advantages from the old agreement. It may establish a less favorable regime on certain points, provided that it respects public order provisions and the minimum stipulations of the host company’s collective agreement.

Adaptation Agreement: A Preemptive Variant

Article L.2261-14 also mentions the possibility of concluding an adaptation agreement. This can be negotiated and concluded even before the transfer takes place, as soon as the operation is contemplated. This preemptive approach is particularly recommended in the context of planned mergers or branch sales, as it allows for securing the transition and limiting uncertainties for employees.

The adaptation agreement may be concluded between the acquiring employer and the union organizations of the selling company, or between the management of both companies and the representative union organizations.

Situation at the Expiration of the Survival Period

In the Absence of a Substitution Agreement

If no substitution agreement has been concluded by the expiration of the 15-month period, the old agreement ceases to apply definitively. Transferred employees are then subject solely to the collective agreement of the host company.

However, the law of August 8, 2016 (Labour Law) introduced an important remuneration guarantee. Article L.2261-14, paragraph 4, provides that affected employees benefit from a remuneration guarantee, which ensures that their annual salary for a work duration equivalent to that stipulated in their employment contract cannot be lower than the salary received during the last 12 months. This guarantee is supported by the payment of a salary supplement if necessary.

The Court of Cassation has specified the scope of this guarantee. The reference remuneration includes the basic salary, mandatory recurrent bonuses, and benefits in kind stipulated in the old agreement. However, exceptional or discretionary bonuses are not included in the calculation (Cass. soc., January 24, 2024, n° 22-18.419).

In the Case of a Substitution Agreement Conclusion

When a substitution agreement is concluded within the 15-month period, it immediately replaces the provisions of the old agreement. Transferred employees are then governed by the combination of the collective agreement of the host company and the substitution agreement, which may provide for specific transitional provisions.

The substitution agreement is a common law collective agreement, subject to the usual validity conditions (signed by union organizations representing at least 50% of votes, or 30% without majority opposition). It can be concluded for a determined or indeterminate duration.

Anticipation: A Strategic Imperative

Social Audit Prior to Transfer

Before any transfer operation, it is essential to conduct a comprehensive social audit regarding the collective status of the employees involved. This audit must identify:

• The collective agreements and applicable agreements in each entity;
• The treatment discrepancies between the employees of the two companies;
• The unilateral commitments and current practices;
• The transition costs (salary maintenance, harmonization of protection systems, reclassification);
• Potential litigation risks.

The Social Calendar of the Operation

Planning the social calendar is crucial:

• Before the transfer: information-consultation of the CSE (Social and Economic Committee) on the transfer project and its social consequences; if applicable, initiating preemptive negotiations for an adaptation agreement;
• At the time of the transfer: individual information to employees about the change in the agreement; initiation of substitution negotiations;
• During the survival period: active and fair negotiations; regular information to employees and representatives;
• At the end of the survival period: application of the host agreement, payment of the salary supplement if necessary.

The Role of the Employment Law Attorney

Managing the challenge of a collective agreement during a business transfer requires sharp legal expertise. DAIRIA Avocats supports companies at every stage: prior audit, drafting protocols, negotiating substitution agreements, securing the transition, and managing potential disputes.

FAQ: Challenge and Business Transfer

What is the challenge of a collective agreement?

The challenge refers to the automatic extinction of a collective agreement resulting from an external event such as a business transfer, merger, or change in activity. It differs from denunciation, which is a voluntary act. The challenge opens a provisional survival period of up to 15 months.

Do transferred employees immediately lose their collective advantages?

No. The old agreement continues to apply for a maximum period of 15 months (3 months of notice + 12 months of survival). During this period, employees accumulate the advantages of both the old and new agreements, with the principle of favor applying benefit by benefit.

Is the employer obliged to negotiate a substitution agreement?

Yes. Article L.2261-14 of the Labour Code requires employers to engage in fair negotiations aimed at concluding a substitution agreement. Failure to negotiate may be sanctioned by awarding damages to the employees.

What happens if no substitution agreement is found?

At the end of the 15-month period, the old agreement ceases to apply. Employees are subject to the host company’s collective agreement but benefit from a remuneration guarantee: their annual salary cannot be lower than that received in the 12 months preceding the challenge.

Can the substitution agreement provide for less favorable conditions than the old agreement?

Yes, to the extent that public order provisions and minimum requirements of the host company’s collective agreement are respected. The substitution agreement is a common law agreement that does not have to reproduce prior benefits. It may organize gradual smoothing.

Can the challenge be anticipated before the transfer occurs?

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