Managing Collective Bargaining Agreement Challenges in a Business Transfer in France

A business transfer is a major economic event that has direct consequences on the collective status of employees. Where the acquiring company applies a collective bargaining agreement different from that of the transferred entity, the collective status (“statut conventionnel”) of the transferred employees is called into question (“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 in detail the steps, timeframes, and guarantees of this process.

The Legal Framework of a Business Transfer

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, notably through inheritance, sale, merger, transformation of the business, or incorporation, all employment contracts in force on the day of the change subsist between the new employer and the staff of the company.”

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, the collective status (collective bargaining agreement, company-level agreements, established practices) does not benefit from the same automatic transfer regime. This is where the mise en cause (challenge/calling into question) 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 called into question within a given company, notably as a result of a merger, sale, division, or change of activity, that agreement continues to produce effects for a defined period.

The mise en cause is distinct from a denunciation (“dénonciation”): it is automatic and results solely from the transfer itself, without any party having to express any particular intention. It is an effect that operates by law upon the change in the employer’s legal situation.

Conditions for the Mise en Cause

A Transfer Within the Meaning of Article L.1224-1

The mise en cause 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-absorption between two companies;
• A sale of a business (fonds de commerce) or of a business line;
• A division (scission) of a company;
• A transfer of an autonomous economic entity that retains its identity;
• A change in the principal activity resulting in attachment to a new collective bargaining scope.

The case law of the Cour de cassation (French Supreme Court) has clarified the notion of an autonomous economic entity: this refers to 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 mise en cause 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 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 application of the agreements in question. Two agreements may bear different names yet have overlapping scopes, or conversely two companies in the same sector may fall under distinct agreements due to the structure of the industry-level bargaining.

The Regime of Temporary Survival of the Former Agreement

The Survival Period: 3-Month Notice + 12 Months

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

• A notice period of 3 months, running from the date the transfer is completed (and not from the date the sale protocol or merger deed is signed);
• A survival period of 12 months from the expiry of the notice period, for a total maximum of 15 months.

During this period, the transferred employees benefit from the cumulative application of both their former agreement and the new agreement of the host company. In practice, the “principe de faveur” (most-favourable-provision principle) applies: for each advantage 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 expiry of the 15 months, it immediately replaces the provisions of the former agreement.

The Content of the Temporary Survival

During the survival period, all the provisions of the former agreement continue to apply to the transferred employees: classifications, pay scales, contractual bonuses, severance indemnities, notice periods, additional leave, welfare (prévoyance) guarantees, and so on.

The Cour de cassation has nonetheless specified that the temporary survival does not extend to the institutional clauses of the agreement, namely those relating to staff representation, trade union rights, or the funding of joint industry bodies (paritarisme), which fall within the framework of the host company (Cass. soc., 16 March 1999, no. 96-45.514).

The Obligation to Negotiate a Substitution Agreement

Commencing Negotiations

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

Negotiations must be conducted with the representative trade union organisations in the host company. If the host company has no union delegates, the negotiation procedures provided by the French 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 simply 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 aims 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 maintenance of certain advantages, gradual smoothing of remuneration);
• Define the reclassification procedures for employees within the new agreement’s grid;
• Organise the portability of welfare (prévoyance) and supplementary health insurance guarantees.

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

The Adaptation Agreement: An Anticipated Variant

Article L.2261-14 also mentions the possibility of concluding an adaptation agreement (“accord d’adaptation”). This may be negotiated and concluded even before the transfer is completed, as soon as the operation is contemplated. Such anticipation is particularly recommended in the context of planned mergers or business-line sales, as it secures the transition and limits uncertainty for employees.

The adaptation agreement may be concluded between the acquiring employer and the trade union organisations of the transferring company, or between the managements of both companies and the representative trade union organisations.

The Situation at the Expiry of the Survival Period

In the Absence of a Substitution Agreement

If no substitution agreement has been concluded by the expiry of the 15-month period, the former agreement definitively ceases to apply. The transferred employees are then subject solely to the host company’s collective bargaining agreement.

However, the Law 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 during the last 12 months. This guarantee is ensured through the payment of a salary top-up if necessary.

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

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 host 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 conditions (signature by trade union organisations 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 of the collective status of the employees concerned. This audit should identify:

• The collective agreements applicable in each entity;
• The differences in treatment between the employees of the two companies;
• The unilateral commitments and established practices in force;
• The transition costs (maintenance of remuneration, 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-consultation of the Social and Economic Committee (CSE) on the proposed transfer and its social consequences; where applicable, opening of anticipated negotiations for an adaptation agreement;
• At the time of the transfer: individual information of employees regarding the change of agreement; commencement of substitution negotiations;
• During the survival period: active and good-faith negotiations; regular information of employees and staff representatives;
• At the end of the survival period: application of the host company’s agreement, payment of the remuneration top-up if necessary.

The Role of Employment Law Counsel

Managing the challenge (mise en cause) of a collective bargaining agreement during a business transfer requires sharp legal expertise. DAIRIA Avocats supports companies at every stage: preliminary audit, drafting of protocols, negotiation of substitution agreements, securing of the transition, and management of any litigation.

FAQ: Mise en Cause and Business Transfer

What is the challenge (mise en cause) of a collective bargaining agreement?

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

Do transferred employees immediately lose their collective advantages?

No. The former agreement continues to apply for a maximum period of 15 months (3 months’ notice + 12 months’ survival). During this period, employees cumulate the advantages of both the former and the new agreement, with the most-favourable-provision principle applying advantage by advantage.

Is the employer obliged to negotiate a substitution agreement?

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

What happens if no substitution agreement is reached?

At the expiry of the 15-month period, the former agreement ceases to apply. Employees are subject to the host 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 mise en cause.

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

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

Can the mise en cause be anticipated before the transfer is completed?

Yes. It is possible to negotiate an adaptation agreement before the effective transfer. 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.