Managing Collective Bargaining Agreement Displacement in a Business Transfer in France

A business transfer is a major economic event with direct consequences for the collective status of employees. When the acquiring company applies a collective bargaining agreement different from that of the transferred entity, the collective status of the transferred employees is displaced (“mise en cause”, the automatic challenging of a collective agreement). 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 sets out in detail the steps, time limits and guarantees of this process.

The Legal Framework of the Business Transfer

Article L.1224-1 of the French Labour Code: automatic transfer of 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 subsist 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 maintenance 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, established practices) does not benefit from the same automatic transfer regime. This is where the displacement (“mise en cause”) mechanism comes into play.

Article L.2261-14: displacement of the collectively bargained status

Article L.2261-14 of the French Labour Code provides that where the application of a collective agreement is displaced within a given undertaking, in particular as a result of a merger, a transfer, a demerger or a change of activity, that agreement continues to have effect for a specified period.

Displacement is distinct from denunciation (“dénonciation”, the unilateral termination of an agreement): it is automatic and arises solely from the transfer, without any party needing to express any particular intention. It is an effect that operates by law as a result of the change in the employer’s legal situation.

The Conditions for Displacement

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

Displacement 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 business unit;
• A demerger of an undertaking;
• A transfer of an autonomous economic entity that retains its identity;
• A change of 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 concept of an autonomous economic entity: it is an organised set of persons and of tangible or intangible assets enabling the exercise of an economic activity pursuing its own objective (Cass. soc., 7 July 1998, no. 96-21.451).

The application of different collective bargaining agreements

Displacement only occurs if the host company (or the company resulting from the operation) applies a different collective bargaining agreement from the one governing 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 application of the agreements concerned. Two agreements may bear different names yet have overlapping scopes, or conversely, two companies in the same sector may fall under distinct agreements owing to the structure of industry-level bargaining.

The Regime of Provisional Survival of the Former Agreement

The survival period: 3-month notice + 12 months

Article L.2261-14 organises a regime of provisional survival of the displaced agreement. In practice, the former agreement continues to have effect for:

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

During this period, the transferred employees benefit from the cumulative application of their former agreement and the new agreement of the host company. In practice, the principle of favourability (“principe de faveur”) 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 expiry of the 15 months, it immediately replaces the provisions of the former agreement.

The content of the provisional survival

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

The Cour de cassation has, however, clarified that provisional survival does not extend to the institutional clauses of the agreement, namely those relating to employee representation, trade union rights or the funding of joint industry bodies, 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

Opening the 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 transferred employees.

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

Case law penalises a failure to negotiate in good faith. An employer who simply waits for the expiry of the survival period without engaging in genuine negotiations breaches its legal obligation. Employees may then obtain damages for the loss resulting from that 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 bargaining transition for the transferred employees. It may:

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

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 (“ordre public”) provisions and the terms of the host company’s collective bargaining agreement.

The adaptation agreement: an anticipated variant

Article L.2261-14 also refers to 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 transfers of business units, as it allows the transition to be secured and uncertainty for employees to be limited.

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

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 collective bargaining agreement of the host company.

However, the Act of 8 August 2016 (the “Labour Act”) 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 ensured by the payment of a salary top-up where 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. By contrast, exceptional or discretionary bonuses 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 unions representing at least 50% of the votes cast, or 30% without majority opposition). It may be concluded for a fixed or indefinite term.

Anticipation: a Strategic Imperative

The pre-transfer social audit

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

• The collective agreements applicable in each of the entities;
• 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 timetable of the operation

Planning the social timetable is crucial:

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

The role of the employment lawyer

Managing the displacement of a collective bargaining agreement in a business transfer requires sharp 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: Displacement and Business Transfer

What is the displacement of a collective bargaining agreement?

Displacement is the automatic extinction 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 denunciation, which is a voluntary act. Displacement opens a provisional survival period of no more than 15 months.

Do transferred employees immediately lose their collectively bargained 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 agreement, with the favourability principle 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. A failure to negotiate may be penalised by the 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 then 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 displacement.

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

Yes, subject to compliance with public policy 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 benefits. It may organise a gradual smoothing.

Can displacement be anticipated before the transfer is completed?

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