Managing the Impact of Collective Agreements During Business Transfers

Transferring a business is a major event in the economic landscape, resulting in direct consequences for the collective status of employees. When the acquiring company applies a different collective agreement than that of the transferred entity, the collective status of the employees taken on is challenged. This mechanism, governed by Articles L.1224-1 and L.2261-14 of the French Labour Code, follows specific rules that every employer and concerned 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 Continuation of Contracts

Article L.1224-1 of the Labour Code stipulates that “when there is a change in the legal status of the employer, particularly through succession, sale, merger, transformation of the business assets, or the establishment of the company, all employment contracts in force on the date of the change persist between the new employer and the company’s personnel.”

This provision transposes 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 clause, etc. The employee retains all individual rights.

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

Article L.2261-14: Challenging the Collective Status

Article L.2261-14 of the Labour Code states that when the application of a collective agreement or company agreement is challenged in a specific company due to a merger, sale, split, or change in activity, that convention continues to be effective for a defined period.

The challenge differs from denunciation: it is automatic and arises solely from the fact of the transfer, without the need for either party to express a particular intention. It is an effect of law stemming from the change in the employer’s legal situation.

Conditions for Challenging

A Transfer According to Article L.1224-1

The challenge first requires the existence of a business transfer within the scope of Article L.1224-1. This transfer can arise from:

• A merger between two companies;
• A sale of business assets or a branch of activity;
• A spin-off of a company;
• A transfer of an autonomous economic entity that retains its identity;
• A change in primary activity resulting in association with a new collective agreement.

The case law of the Court of Cassation has clarified the notion of an autonomous economic entity: it is an organized set of persons and physical or intangible elements enabling the exercise of an economic activity with its own objective (Cass. soc., July 7, 1998, No. 96-21.451).

The Application of Different Collective Agreements

The challenge occurs only if the host company (or the company resulting from the operation) applies a different collective agreement from that governing the transferred employees. If both companies adhere to 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 involved. It is possible for two agreements to have different names but overlapping scopes, or conversely, for two companies within the same sector to fall under different agreements due to the structure of branch negotiations.

The Provisional Survival Regime of the Former Agreement

Survival Period: 3-Month Notice + 12 Months

Article L.2261-14 outlines a provisional survival regime for the challenged agreement. Specifically, the old agreement continues to apply for:

• A notice period of 3 months, starting from the date of the transfer (and not from the date of signing the sale protocol or merger treaty);
• A survival period of 12 months from the end of the notice, totaling a maximum 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 considered benefit, the most favorable provision for the employee prevails.

It is important to note that this period represents a maximum: if a substitute agreement is reached before the expiration of the 15 months, it immediately replaces the provisions of the old agreement.

Content of Provisional Survival

During the survival period, all provisions of the old agreement continue to apply to transferred employees: classifications, salary scales, contractual bonuses, severance pay, notice periods, additional leave, benefits guarantees, etc.

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

Obligation to Negotiate a Substitute Agreement

Commitment to Negotiate

Upon completion of the transfer, the employer has the obligation to initiate negotiations aimed at concluding a substitute agreement. This obligation arises directly from Article L.2261-14, paragraph 3, of the Labour Code. It applies regardless of the number of employees transferred.

Negotiations must be conducted with representative trade unions in the host company. If there are no union delegates, the negotiation methods defined 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 survival period to end without engaging in genuine negotiations fails to meet its legal obligation. Employees may then be entitled to damages for the resulting harm (Cass. soc., March 13, 2013, No. 11-22.285).

Content of the Substitute Agreement

The substitute agreement aims to organize the collective transition for transferred employees. It may:

• Adapt certain provisions of the old agreement to the new collective framework;
• Establish transitional measures (temporary maintenance of certain benefits, gradual smoothing of salaries);
• Define the reclassification modalities of employees within the new agreement’s framework;
• Organize the portability of benefits guarantees and supplementary health insurance.

The substitute agreement is not required to replicate all advantages of the old agreement. It may provide a less favorable regime on certain points, provided it observes public policy provisions and the minimum 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 may be negotiated and concluded even before the transfer takes place, once the operation is being considered. This anticipation is particularly recommended in the context of planned mergers or sales of business branches, as it secures the transition and reduces uncertainties for employees.

The adaptation agreement can be made between the acquiring employer and the trade unions of the selling company, or between the managements of both companies and representative trade unions.

Situation Post Surviving Period Expiry

In the Absence of a Substitute Agreement

If no substitute agreement has been concluded by the end of the 15-month period, the old agreement ceases permanently to apply. Transferred employees are then governed only by the collective agreement of the host company.

However, the law of August 8, 2016 (Labour Law) introduced an important remuneration guarantee. Article L.2261-14, paragraph 4, stipulates that affected employees benefit from a remuneration guarantee which, on an annual basis and for work equivalents to that stipulated in their employment contracts, cannot be less than the remuneration paid during the last 12 months. This guarantee is ensured by payment of a salary supplement if necessary.

The Court of Cassation has clarified the scope of this guarantee. The reference remuneration includes base salary, recurring mandatory bonuses, and in-kind benefits provided by the old agreement. However, exceptional or discretionary bonuses do not count in the calculation (Cass. soc., January 24, 2024, No. 22-18.419).

In the Event of a Substitute Agreement Conclusion

When a substitute agreement is concluded within the 15-month period, it immediately replaces the provisions of the old agreement. Transferred employees are then subject to a combination of the collective agreement of the host company and the substitute agreement, which may include specific transitional provisions.

The substitute agreement is a common collective agreement, subject to usual validity conditions (signed by trade unions representing at least 50% of votes, or 30% without majority 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 comprehensive social audit concerning the collective status of the employees involved. This audit should identify:

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

Social Calendar of the Operation

Planning the social calendar is crucial:

• Before the transfer: information and consultation of the CSE (Social and Economic Committee) about the transfer project and its social consequences; if necessary, opening early negotiations for an adaptation agreement;
• At the time of transfer: individual information of employees regarding the change of collective agreement; initiation of substitute negotiations;
• During the survival period: active and fair negotiations; regular information for employees and employee representatives;
• At the end of the survival: application of the host agreement and payment of salary supplements if necessary.

The Role of the Employment Law Attorney

Managing the challenge of a collective agreement during a business transfer requires precise legal expertise. DAIRIA Avocats supports companies at each step: prior audit, drafting protocols, negotiating substitute agreements, securing the transition, and managing potential litigation.

FAQ: Challenging and Business Transfer

What is the challenge of a collective agreement?

The challenge 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 challenge opens a provisional survival period of a maximum of 15 months.

Do transferred employees immediately lose their collective benefits?

No. The old convention continues to apply for a maximum period of 15 months (3 months notice + 12 months survival). During this period, employees accumulate benefits from both the old and new agreements, with the principle of favor applying to each benefit.

Is the employer obliged to negotiate a substitute agreement?

Yes. Article L.2261-14 of the Labour Code requires the employer to engage in good faith negotiations aimed at concluding a substitute agreement. Failure to negotiate may result in damages being awarded to employees.

What happens if no substitute agreement is reached?

At the expiration of the 15-month period, the old agreement ceases to apply. Employees are governed by the host company’s collective agreement but benefit from a remuneration guarantee: their annual remuneration cannot be less than that received during the last 12 months preceding the challenge.

Can a substitute agreement provide less favorable conditions than the old convention?

Yes, within the limits of respecting public policy provisions and the minima of the host company’s collective agreement. The substitute agreement is a general law agreement that does not have to replicate previous benefits. It can organize a gradual smoothing.

Can the challenge be anticipated prior to the transfer taking place?

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 period of uncertainty for employees. DAIRIA Avocats can assist you in this social planning process.