Managing Collective Bargaining Agreement Issues During Business Transfers in France

The transfer of a business is a major economic event that directly impacts the collective status of employees. When the acquiring company applies a different collective bargaining agreement (CBA) than that of the transferred entity, the collective status of the employees 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, deadlines, and guarantees of this process.

The Legal Framework of 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 there is a modification in the legal situation of the employer, notably by succession, sale, merger, transformation of the business, establishment of a company, all employment contracts in force at the time of the modification remain in effect between the new employer and the employees of the business”.

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

However, the collective status (collective agreements, company agreements, prevalent practices) does not enjoy the same automatic transfer regime. This is where the mechanism of call into question comes into play.

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

Article L.2261-14 of the Labour Code provides that when the application of a collective agreement or accord is called into question in a specific business due, notably, to a merger, sale, split, or change in activity, that agreement or accord continues to take effect for a defined period.

The call into question differs from denunciation: it is automatic and results solely from the transfer, without any need for either party to express a particular will. It is an automatic effect of the change in the employer’s legal situation.

Conditions for Calling Into Question

A Transfer Under Article L.1224-1

Calling into question first requires the existence of a business transfer that falls under Article L.1224-1. This transfer can result from:

• A merger-acquisition between two companies;
• A sale of a business or business segment;
• A spin-off of the company;
• A transfer of an autonomous economic entity retaining its identity;
• A change in main activity leading to association with a new collective framework.

The case law of the Court of Cassation has clarified the notion of an autonomous economic entity: it refers to an organized set of persons and tangible or intangible elements facilitating the conduct of an economic activity that pursues its own objective (Cass. soc., July 7, 1998, No. 96-21.451).

The Application of Different Collective Agreements

The call into question occurs only if the receiving company (or the company resulting from the operation) applies a different collective agreement than that which governed the transferred employees. If both companies are 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 collective agreements involved. It is possible for two agreements to bear different names but have overlapping scopes, or conversely, that two companies in the same sector fall under distinct agreements due to the branch negotiation structure.

The Provisional Survival Regime of the Old Agreement

Survival Period: 3 Months Notice + 12 Months

Article L.2261-14 establishes a provisional survival regime for the called-into-question agreement. In practice, the old agreement continues to produce its effects for:

• A notice period of 3 months, running from the date of the transfer (not from the signing date of the transfer protocol or merger treaty);
• A survival period of 12 months from the expiration of the notice, resulting in a maximum total of 15 months.

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

It is important 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 provisions 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, benefits guarantees, etc.

However, the Court of Cassation clarified that the provisional survival does not extend to institutional clauses of the agreement, meaning those pertaining to personnel representation, union rights, or the financing of parity, which fall under the framework of the receiving company (Cass. soc., March 16, 1999, No. 96-45.514).

The Obligation to Negotiate a Substitution Agreement

Commencing Negotiations

Upon the realization 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 transferred employees.

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

Case law penalizes the failure to negotiate in good faith. An employer that 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 failure (Cass. soc., March 13, 2013, No. 11-22.285).

Content of the Substitution Agreement

The substitution agreement aims to organize the conventional transition for the transferred employees. It may:

• Adapt certain provisions of the old agreement to the new conventional framework;
• Provide for transitional measures (temporary maintenance of certain benefits, progressive smoothing of salaries);
• Define the reclassification modalities of employees in the scale of the new convention;
• Organize the portability of benefits and complementary health guarantees.

The substitution agreement is not required to reproduce the entirety of the advantages of the old agreement. It may set out a less favorable regime on certain points, provided it adheres to public order provisions and the minimum stipulations of the receiving company’s collective agreement.

The Adaptation Agreement: An Anticipated Variant

Article L.2261-14 also mentions the possibility to conclude an adaptation agreement. This can be negotiated and concluded even before the transfer takes place, as soon as the operation is contemplated. This anticipation is particularly recommended in the context of planned mergers or sales of business segments as it helps secure the transition and limit uncertainties for employees.

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

The Situation Upon 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. The transferred employees are then governed solely by the collective agreement of the receiving company.

However, the law of August 8, 2016 (Labour Law) introduced a significant salary guarantee. Article L.2261-14, paragraph 4, stipulates that the affected employees benefit from a salary guarantee whereby their annual compensation, for a work duration equivalent to that provided by their employment contract, cannot be lower than the compensation paid during the last 12 months. This guarantee is ensured by the payment of a salary supplement if necessary.

The Court of Cassation has specified the scope of this guarantee. The reference remuneration includes 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).

In the Event of a Substitution Agreement Conclusion

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 collective agreement of the receiving company and the substitution agreement, which may provide specific transitional provisions.

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

Anticipation: A Strategic Imperative

The Pre-Transfer Social Audit

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

• The applicable collective agreements and accords in each entity;
• The disparities between employees of the two companies;
• The unilateral commitments and practices in effect;
• The transition costs (salary maintenance, harmonization of benefits regimes, reclassification);
• Potential litigation risks.

The Social Schedule of the Operation

Planning the social schedule 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 of pre-negotiations for an adaptation agreement;
• At the time of the transfer: individual information of employees concerning the change in convention; initiation of substitution negotiations;
• During the survival period: active and good-faith negotiations; regular information provided to employees and personnel representatives;
• At the end of the survival period: application of the receiving convention, payment of salary supplements if necessary.

The Role of Social Law Counsel

Managing the calling into question of a collective agreement during a business transfer requires specialized legal expertise. DAIRIA Avocats supports companies at every step: prior audit, drafting protocols, negotiating substitution agreements, securing transitions, and managing potential litigations.

FAQ: Calling Into Question and Business Transfers

What is the calling into question of a collective agreement?

The calling into question is the automatic termination of a collective agreement resulting from an external event, such as a business transfer, merger, or change in activity. It differs 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 collective 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 both the old and new agreements, 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 aimed at concluding a substitution agreement. The failure to negotiate can be sanctioned by awarding damages to employees.

What happens if no substitution agreement is found?

At the expiration of the 15-month period, the old agreement ceases to apply. Employees are subject to the agreement of the receiving company but benefit from a salary guarantee: their annual compensation cannot be less than that received in the 12 months preceding the call into question.

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

Yes, provided that it respects public order provisions and the minima of the receiving company’s collective agreement. The substitution agreement is an ordinary agreement that is not required to replicate previous advantages. It may organize a gradual smoothing.

Can the calling into question be anticipated 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 the uncertainty period for employees. DAIRIA Avocats supports you in this social planning process.