Managing a Collective Bargaining Agreement Challenge During a Business Transfer in France

A business transfer is a major economic event with direct consequences for the collective status of employees. Where the acquiring company applies a collective bargaining agreement that differs from the one covering the transferred entity, the transferred employees’ collective status is challenged (“mise en cause”). This mechanism, governed by Articles L.1224-1 and L.2261-14 of the French Labour Code, follows precise rules that every employer and every affected employee must understand. DAIRIA Avocats explains the steps, timeframes and safeguards of this process in detail.

The Legal Framework for Business Transfers

Article L.1224-1 of the French Labour Code: automatic transfer of employment contracts

Article L.1224-1 of the French Labour Code provides that “where a change occurs in the legal situation of the employer, in particular through succession, sale, merger, transformation of the business, or incorporation of the undertaking, all employment contracts in force on the day of the change continue between the new employer and the staff of the undertaking.”

This provision, which transposes European Directive 2001/23/EC of 12 March 2001, guarantees the automatic continuation of individual employment contracts. All elements of the contract are transferred: seniority, job classification, contractual remuneration, non-compete clause, and so on. The employee retains all of their individual rights.

By contrast, collective status (collective bargaining agreement, company-level agreements, customary practices) does not benefit from the same automatic transfer regime. This is where the mise en cause (challenge of collective status) mechanism comes into play.

Article L.2261-14: the challenge to collective status

Article L.2261-14 of the French Labour Code provides that where the application of a collective agreement is challenged within a given undertaking, in particular due to a merger, a transfer, a spin-off or a change of activity, that agreement continues to produce effects for a set period.

The challenge (mise en cause) differs from termination (“dénonciation”): it is automatic and results solely from the transfer itself, without either party having to express any particular intention. It is an effect that arises by operation of law from the change in the employer’s legal situation.

Conditions for the Challenge (Mise en Cause)

A transfer within the meaning of Article L.1224-1

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

• A merger by absorption between two companies;
• A transfer of a business (fonds de commerce) or of a branch of activity;
• A spin-off (scission) of an undertaking;
• A transfer of an autonomous economic entity that retains its identity;
• A change of main activity resulting in reclassification under a new collective bargaining scope.

The case law of the Cour de cassation (French Supreme Court) has clarified the concept of an autonomous economic entity: it is an organised set of persons and tangible or intangible assets enabling the pursuit of an economic activity with its own objective (Cass. soc., 7 July 1998, no. 96-21.451).

The application of different collective bargaining agreements

The challenge only occurs if the receiving 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 fall under the same agreement, the transfer has no impact on collective status.

This condition requires a precise analysis of the occupational scope of the agreements at issue. Two agreements may have different names but overlapping scopes, or conversely, two companies in the same sector may fall under distinct agreements due to the structure of industry-level negotiation.

The Temporary Survival Regime of the Former Agreement

The survival period: 3-month notice + 12 months

Article L.2261-14 establishes a regime of temporary survival for the challenged agreement. In practice, the former agreement continues to produce effects for:

• A 3-month notice period, running from the date the transfer is completed (not from the date the transfer protocol or merger agreement is signed);
• A 12-month survival period running from the end of the notice period, for a maximum total of 15 months.

During this period, the transferred employees benefit from the cumulative application of their former agreement and the receiving company’s new agreement. In practice, the “principle of favour” applies: for each benefit considered, the provision most favourable to the employee prevails.

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

The scope of temporary survival

During the survival period, all the provisions of the former agreement continue to apply to the transferred employees: job classifications, salary scales, contractual bonuses, severance pay, notice periods, additional leave, welfare cover, and so on.

The Cour de cassation has, however, clarified that temporary survival does not extend to the institutional clauses of the agreement, i.e. those relating to employee representation, trade union rights or the funding of joint bodies (“paritarisme”), which fall under the framework of the receiving company.

The Obligation to Negotiate a Substitution Agreement

Opening negotiations

As soon as the transfer is completed, the employer has an obligation to open negotiations with a view to concluding a substitution agreement. This obligation results directly from Article L.2261-14, paragraph 3, of the French Labour Code. It applies regardless of the number of employees transferred.

Negotiations must be conducted with the representative trade unions in the receiving company. If the company has no union delegates, the negotiation arrangements provided by the Labour Code for companies without union delegates apply (Articles L.2232-21 et seq.).

Case law penalises the failure to negotiate in good faith. An employer who merely waits for the survival period to expire without engaging in genuine negotiations breaches its legal obligation. Employees may then obtain damages for the harm resulting from this breach (Cass. soc., 13 March 2013, no. 11-22.285).

The content of the substitution agreement

The substitution agreement is intended to organise the collective transition for the transferred employees. It may:

• Adapt certain provisions of the former agreement to the new collective framework;
• Provide for transitional measures (temporary retention of certain benefits, gradual alignment of remuneration);
• Define the arrangements for reclassifying employees within the new agreement’s salary scale;
• Organise the portability of welfare and supplementary health insurance cover.

The substitution agreement is not required to reproduce all the benefits of the former agreement. It may provide for a less favourable regime on certain points, provided it complies with public policy provisions and the terms of the receiving company’s collective bargaining agreement.

The adaptation agreement: an anticipatory variant

Article L.2261-14 also allows for the conclusion of an adaptation agreement. This can be negotiated and concluded even before the transfer is completed, as soon as the operation is contemplated. This anticipation is particularly recommended in the context of planned mergers or transfers of branches of activity, as it helps secure the transition and limit uncertainty for employees.

The adaptation agreement may 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 End of the Survival Period

Where no substitution agreement is concluded

If no substitution agreement is concluded by the end of the 15-month period, the former agreement ceases to apply permanently. The transferred employees are then subject solely to the receiving company’s collective bargaining agreement.

However, the Act of 8 August 2016 (the “Loi Travail”) introduced an important remuneration guarantee. Article L.2261-14, paragraph 4, provides that the employees concerned benefit from a remuneration guarantee the annual amount of which, for a working time equivalent to that provided in their employment contract, may not be lower than the remuneration paid over the last 12 months. This guarantee is secured through the payment of a salary supplement where necessary.

The Cour de cassation has clarified the scope of this guarantee. The reference remuneration includes base salary, recurring mandatory bonuses, and benefits in kind provided by the former agreement. Exceptional or discretionary bonuses, on the other hand, are not included in the calculation (Cass. soc., 12 December 1995, no. 92-41.349).

Where a substitution agreement is concluded

Where a substitution agreement is concluded within the 15-month period, it immediately replaces the provisions of the former agreement. The transferred employees are then governed by the combination of the receiving company’s collective bargaining agreement and the substitution agreement, which may provide for specific transitional provisions.

The substitution agreement is an ordinary collective agreement, subject to the usual validity requirements (signature by trade unions representing at least 50% of the votes, or 30% without majority opposition). It may be concluded for a fixed or indefinite term.

Anticipation: A Strategic Imperative

The social audit prior to the transfer

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

• The collective agreements applicable within each entity;
• The disparities in treatment between employees of the two companies;
• The unilateral commitments and customary practices in force;
• The transition costs (remuneration maintenance, harmonisation of welfare schemes, reclassification);
• The potential litigation risks.

The social timeline of the operation

Planning the social timeline is crucial:

• Before the transfer: information and consultation of the Social and Economic Committee (CSE) on the transfer project and its social consequences; where appropriate, opening early negotiations for an adaptation agreement;
• At the time of transfer: individual notification of employees regarding the change of agreement; opening of substitution negotiations;
• During the survival period: active and good-faith negotiations; regular information to employees and employee representatives;
• At the end of the survival period: application of the receiving company’s agreement; payment of the remuneration supplement where necessary.

The role of the employment lawyer

Managing the challenge to a collective bargaining agreement during a business transfer requires specialist legal expertise. DAIRIA Avocats supports companies at every stage: preliminary audit, drafting of protocols, negotiation of substitution agreements, securing the transition and handling any litigation.

FAQ: Challenge (Mise en Cause) and Business Transfer

What is the challenge of a collective bargaining agreement?

The challenge (mise en cause) is the automatic termination of a collective bargaining agreement resulting from an external event, such as a business transfer, a merger or a change of activity. It differs from termination by notice (dénonciation), which is a voluntary act. The challenge opens a temporary survival period of up to 15 months.

Do transferred employees immediately lose their collective benefits?

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

Is the employer required to negotiate a substitution agreement?

Yes. Article L.2261-14 of the French Labour Code requires the employer to open good-faith negotiations with a view to concluding a substitution agreement. Failure to negotiate may be penalised by the award of damages to employees.

What happens if no substitution agreement is reached?

At the end of the 15-month period, the former agreement ceases to apply. Employees become subject to the receiving company’s agreement but benefit from a remuneration guarantee: their annual remuneration may not be lower than that received during the 12 months preceding the challenge.

Can the substitution agreement provide for less favourable terms than the former agreement?

Yes, provided it complies with public policy provisions and the minimum standards of the receiving company’s collective bargaining agreement. The substitution agreement is an ordinary collective agreement that is not required to reproduce prior benefits. It may organise a gradual alignment.

Can the challenge be anticipated before the transfer is completed?

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