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

The transfer of a business is a significant event in economic life that directly affects the collective status of employees. When the absorbing company applies a different collective bargaining agreement from that of the transferred entity, the collective status of the transferred employees is called into question. This mechanism, governed by Articles L.1224-1 and L.2261-14 of the French Labour Code, follows precise rules that every employer and affected employee must understand. DAIRIA Lawyers explains in detail the steps, deadlines, and guarantees of this process.

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 “in the event of a change in the legal situation of the employer, notably through succession, sale, merger, transformation of assets, incorporation of the business, all employment contracts in force at the time of the change remain valid between the new employer and the business personnel”.

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

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

Article L.2261-14: Calling into Question Collective Status

Article L.2261-14 of the Labour Code provides that when the application of a collective agreement or agreement is called into question in a specific company due to a merger, transfer, split, or change of activity, this agreement continues to have effect for a determined period.

The calling into question differs from denunciation: it is automatic and arises solely from the fact of the transfer, without any of the parties needing to express a particular intention. It is a legal effect stemming from the change in the employer’s legal situation.

Conditions for Calling into Question

A Transfer According to Article L.1224-1

The calling into question first requires the existence of a business transfer falling under Article L.1224-1. This transfer may arise from:

• A merger between two companies;
• A sale of a business or business sector;
• A split of a company;
• A transfer of an autonomous economic entity retaining its identity;
• A change of main activity leading to attachment to a new bargaining framework.

The case law of the Court of Cassation has clarified the notion of an autonomous economic entity: it is an organized set of persons and tangible or intangible assets allowing the exercise of economic activity that pursues a specific objective (Cass. soc., 7 July 1998, n° 96-21.451).

The Application of Different Collective Agreements

The calling into question only occurs 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 are subject to the same agreement, the transfer has no impact on the collective status.

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

Provisional Survival Regime of the Old Agreement

Survival Period: 3 Months’ Notice + 12 Months

Article L.2261-14 organizes a provisional survival regime for the challenged agreement. Concretely, the old agreement remains in effect for:

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

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

It is important to note that this period represents 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 the Provisional Survival

During the survival period, all provisions of the old agreement continue to apply to the transferred employees: classifications, salary scales, contractual bonuses, severance pay, notice periods, additional leave, and insurance guarantees, etc.

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

Obligation to Negotiate a Substitution Agreement

Engaging in Negotiations

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

Negotiations must be conducted with the representative trade unions in the host company. If it lacks union delegates, the negotiation procedures outlined in the Labour Code for companies without union delegates apply (Articles L.2232-21 and onwards).

The case law penalises the failure to negotiate in good faith. An employer who merely waits for the end of the survival period without engaging in genuine negotiations fails to meet their legal obligation. Employees may then obtain damages for the harm resulting from this default (Cass. soc., 13 March 2013, n° 11-22.285).

Content of the Substitution Agreement

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

• Adapt certain provisions of the old agreement to the new collective framework;
• Provide for transitional measures (temporary maintenance of certain benefits, gradual smoothing of remuneration);
• Define the reclassification procedures of employees within the new agreement’s grid;
• Organize the portability of insurance and supplementary health guarantees.

The substitution agreement is not required to replicate all the advantages of the old agreement. It may offer a less favorable regime in certain respects, provided that it respects public policy provisions and the minimum requirements of the host company’s collective agreement.

The Adaptation Agreement: An Anticipated Variant

Article L.2261-14 also mentions the possibility of concluding an adaptation agreement. This can be negotiated and concluded even before the transfer occurs, as soon as the operation is contemplated. This anticipation is particularly recommended in the context of planned mergers or transfers of business sectors, as it allows for securing the transition and reducing uncertainties for employees.

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

Situation at the Expiration of the Survival Period

In the Absence of a Substitution Agreement

If no substitution agreement is reached by the end of the 15-month period, the old agreement ceases to apply definitively. The transferred employees are then subject solely to the collective agreement of the host company.

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

The Court of Cassation has clarified the scope of this guarantee. The reference remuneration includes the basic salary, recurring compulsory bonuses, and non-cash benefits provided by the old agreement. However, exceptional or discretionary bonuses do not count towards this calculation (Cass. soc., 24 January 2024, n° 22-18.419).

In the Event of Concluding a Substitution Agreement

When a substitution agreement is concluded within the 15-month period, it immediately replaces the provisions of the old 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 a common collective agreement, subject to the usual validity conditions (signature by trade unions representing at least 50% of votes, or 30% without majority opposition). It can be established for a fixed or indefinite duration.

Anticipation: A Strategic Imperative

Social Audit Prior to Transfer

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

• The applicable collective agreements within each entity;
• The differences in treatment between employees of the two companies;
• The unilateral commitments and practices in force;
• The transition costs (salary maintenance, harmonization of insurance schemes, reclassification);
• The potential litigation risks.

Social Calendar of the Operation

Planning the social calendar is crucial:

• Before the transfer: information-consultation of the Works Council (CSE) on the transfer project and its social consequences; if necessary, the opening of preliminary negotiations for an adaptation agreement;
• At the time of the transfer: individual notification to employees about the change of agreement; initiation of substitution negotiations;
• During the survival period: active and good faith negotiations; regular information to employees and staff representatives;
• At the end of the survival: application of the host agreement, payment of salary supplement if necessary.

The Role of the Employment Lawyer

Managing the impact of a collective bargaining agreement during a business transfer requires in-depth legal expertise. DAIRIA Lawyers supports companies at every stage: prior audits, drafting of protocols, negotiation of substitution agreements, securing transitions, and managing potential litigations.

FAQ: Calling into Question and Business Transfer

What is calling into question a collective agreement?

Calling into question is the automatic termination of a collective agreement resulting from an external event, such as a business transfer, merger, or change of activity. It differs from denunciation, which is a voluntary act. Calling into question opens a maximum provisional survival period of 15 months.

Do transferred employees immediately lose their collective benefits?

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

Is the employer obliged to negotiate a substitution agreement?

Yes. Article L.2261-14 of the Labour Code imposes on the employer the obligation to engage in good faith negotiations aiming at concluding a substitution agreement. Failure to negotiate can be sanctioned by granting damages to employees.

What happens if no substitution agreement is reached?

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

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

Yes, within the limits of respecting public policy provisions and the minimum requirements of the host company’s collective agreement. The substitution agreement is a common agreement that is not required to replicate previous advantages. It can provide for gradual smoothing.

Can we anticipate the calling into question before the transfer occurs?

Yes. It is possible to negotiate an adaptation agreement before the actual transfer. This anticipation is highly recommended, as it secures the operation and reduces uncertainty for employees. DAIRIA Lawyers can assist you in this social planning approach.