How to Manage the Implications of a Collective Bargaining Agreement During a Business Transfer?

A business transfer is a significant event in economic life that has direct consequences for the collective status of employees. When the absorbing company applies a different collective bargaining agreement than that of the transferred entity, the collective status of the employees who are taken over is called into question. 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 in detail the steps, timelines, and guarantees of this process.

The Legal Framework for Business Transfers

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

Article L.1224-1 of the Labour Code states that “when a change occurs in the legal situation of the employer, particularly through succession, sale, merger, transformation of the company’s assets, or formation of a company, all employment contracts in effect on the date of the change remain in force between the new employer and the personnel of the company.”

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

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

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

Article L.2261-14 of the Labour Code provides that when the application of a collective agreement or collective arrangement is called into question in a specific company due to, among other things, a merger, transfer, splitting, or a change in activity, this agreement or arrangement continues to take effect for a specified period.

The calling into question is distinct from denunciation: it is automatic and stems solely from the transfer itself, without either party having to express a particular intent. It is an effect of the change in the employer’s legal situation.

Conditions for Calling into Question

A Transfer in the Sense of 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 result from:

• Merger-absorption between two companies;
• Transfer of business assets or business lines;
• A splitting of a company;
• Transfer of an autonomous economic entity retaining its identity;
• A change in primary activity leading to attachment to a new collective framework.

The case law of the Cour de cassation (French Court of Cassation) has clarified the notion of an autonomous economic entity: it is an organized set of people and tangible or intangible elements allowing the exercise of an economic activity aimed at achieving a specific objective (Cass. soc., July 7, 1998, No. 96-21.451).

Application of Different Collective Agreements

The calling into question occurs only if the host company (or the company resulting from the operation) applies a collective agreement different from that which governed the transferred employees. If both companies fall under the same 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 may happen that two agreements have different names but overlapping scopes, or conversely, that two companies in the same sector fall under different 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 questioned agreement. Specifically, the old agreement continues to be effective for:

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

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 favor applies: for each benefit considered, the most favorable provision for the employee prevails.

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

Content of the 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 pay, notice periods, additional leave, ensuring of welfare, etc.

However, the Cour de cassation has specified that the provisional survival does not extend to the institutional clauses of the agreement, i.e., 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, No. 96-45.514).

Obligation to Negotiate a Substitution Agreement

Commitment to Negotiations

Upon completion of the transfer, the employer has the obligation to initiate negotiations for the conclusion of 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 transferred employees.

Negotiations must be conducted with the representative trade unions in the host company. If the host company lacks trade union delegates, the negotiation modalities provided in the Labour Code for companies without a trade union delegate apply (Articles L.2232-21 and following).

Case law penalizes failure to negotiate in good faith. An employer who simply waits for the expiration of the survival period without initiating genuine negotiations fails to meet their legal obligation. Employees may then claim damages for the harm resulting from this failure (Cass. soc., March 13, 2013, No. 11-22.285).

Content of the Substitution Agreement

The substitution agreement aims to organize the collective transition for the transferred employees. It can:

• Adapt certain provisions of the old agreement to the new collective framework;
• Provide for transitional measures (temporary maintenance of certain benefits, gradual adjustments of salaries);
• Define the reclassification modalities for employees within the new agreement’s scale;
• Organize the portability of welfare and complementary health guarantees.

The substitution agreement is not required to reproduce all the benefits of the old agreement. It may provide a less favorable regime on certain points, as long as it respects public order provisions and the stipulations 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 takes place, once the operation is contemplated. Such anticipation is strongly recommended in the context of planned mergers or branch transfers, as it secures the transition and limits uncertainty 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 both companies and the representative trade unions.

The 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 only to the collective agreement of the host company.

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

The Cour de cassation has specified the scope of this guarantee. The reference remuneration includes the base salary, recurring mandatory bonuses, and benefits in kind provided by the old agreement. However, exceptional or discretionary bonuses are not included in the calculation (Cass. soc., January 24, 2024, No. 22-18.419).

If a Substitution Agreement is Reached

When a substitution agreement is reached within the 15-month period, it immediately supplants 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 specific transitional provisions.

The substitution agreement is a regular collective agreement, subject to usual validity conditions (signed by trade unions representing at least 50% of votes, or 30% without major opposition). It can be concluded for a fixed or indefinite duration.

Anticipation: A Strategic Imperative

Social Audit Prior to Transfer

Before any transfer operation, it is essential to conduct a complete social audit concerning the collective status of the affected employees. This audit must identify:

• The collective agreements and arrangements applicable in each entity;
• The disparities between employees of the two companies;
• The unilateral commitments and practices in effect;
• The transition costs (maintaining salaries, harmonizing welfare schemes, reclassification);
• The potential litigation risks.

Timeline for the Operation

Planning the social timeline is crucial:

• Before the transfer: information-consultation of the CSE (Social and Economic Committee) on the transfer project and its social consequences; if necessary, opening early negotiations for an adaptation agreement;
• At the time of the transfer: individual information of employees regarding the change of agreement; initiating substitution negotiations;
• During the survival period: active and fair negotiations; regular information for employees and personnel representatives;
• At the end of the survival period: application of the host company’s agreement, payment of salary complement if necessary.

The Role of the Employment Law Attorney

Managing the implications of a collective agreement during a business transfer requires high-level legal expertise. DAIRIA Avocats supports companies at every step: preliminary audit, drafting of protocols, negotiation of substitution agreements, ensuring secure transitions, and managing potential disputes.

FAQ: Calling into Question and Business Transfer

What is the calling into question of a collective agreement?

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

Do transferred employees immediately lose their contractual benefits?

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

Is the employer obliged to negotiate a substitution agreement?

Yes. Article L.2261-14 of the Labour Code requires the employer to engage in good-faith negotiations to conclude a substitution agreement. Failure to negotiate may result in damages awarded 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 then subject to the host company’s agreement but benefit from a wage guarantee: their annual remuneration cannot be less than that received in the 12 months preceding the calling into question.

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

Yes, provided that public order provisions and the minima of the collective agreement of the host company are respected. The substitution agreement is a regular agreement that is not required to reproduce previous benefits. It can provide for a gradual adjustment.

Is it possible to anticipate the calling into question before the transfer takes place?

Yes. It is possible to negotiate an adaptation agreement before the actual 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 endeavor.