Managing the Implications of a Collective Agreement During a Business Transfer

The transfer of business is a significant event in the economic landscape that has direct consequences for the collective status of employees. When the absorbing company applies a collective agreement different from that of the transferred entity, the collective status of the rehired 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 concerned employee must understand. DAIRIA Avocats explains in detail the steps, timelines, and guarantees of this process.

The Legal Framework of Business Transfer

Article L.1224-1 of the Labour Code: Automatic Transfer of Contracts

Article L.1224-1 of the Labour Code provides that “when a change occurs in the legal situation of the employer, notably through succession, sale, merger, transformation of the assets, incorporation of the business, all employment contracts in force on the date of the change continue between the new employer and the personnel of the business”.

This text, transposing European Directive 2001/23/EC of March 12, 2001, guarantees the automatic maintenance of individual employment contracts. All components of the contract are transferred: seniority, qualifications, contractual remuneration, non-compete clause, etc. The employee retains all of their individual rights.

In contrast, the collective status (collective agreement, company agreements, customary practices) does not enjoy the same regime of automatic transfer. This is where the mechanism of calling into question comes into play.

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

Article L.2261-14 of the Labour Code states that when the application of a collective convention or agreement is called into question in a specific company due to, in particular, a merger, transfer, division, or change of activity, that convention or agreement continues to be effective for a defined period.

The calling into question differs from denunciation: it is automatic and results solely from the transfer, without any of the parties having to express a specific intention. It is an effect of law arising from the change in the legal situation of the employer.

Conditions of Calling into Question

A Transfer Under Article L.1224-1

The calling into question first requires an existence of a business transfer falling under Article L.1224-1. This transfer can result from:

• A merger-acquisition between two companies;
• A sale of business assets or activity branch;
• A division of a company;
• A transfer of an autonomous economic entity maintaining its identity;
• A change in the principal activity leading to attachment to a new collective framework.

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

Application of Different Collective Agreements

The calling into question only occurs if the receiving company (or the company resulting from the operation) applies a different collective agreement from that which governed the transferred employees. If both companies are governed by the same agreement, the transfer has no impact on the collective status.

This condition requires a precise analysis of the scope of application of the collective agreements in question. 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 structure of industry negotiations.

Provisional Survival Regime of the Old Convention

Survival Period: 3 Months Notice + 12 Months

Article L.2261-14 organizes a provisional survival regime of the called into question convention. Concretely, the old convention continues to be effective for:

• A notice period of 3 months, starting from the date of the transfer (and not from the date of the signing of the transfer protocol or merger agreement);
• A survival period of 12 months from the expiration of the notice, amounting to a maximum total of 15 months.

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

Contents of the Provisional Survival

During the survival period, all stipulations of the old convention continue to apply to the transferred employees: classifications, salary scales, conventional bonuses, dismissal indemnities, notice periods, additional leave, and insurance guarantees, etc.

However, the Cour de cassation has clarified that provisional survival does not extend to institutional clauses of the convention, that is to say, those relating to personnel representation, union rights, or the financing of parity, which fall within the framework of the receiving company (Cass. soc., March 16, 1999, No. 96-45.514).

Obligation to Negotiate a Substitution Agreement

Commitment to Negotiate

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 company has no union delegates, the negotiation modalities provided by the Labour Code for companies without a union delegate apply (Articles L.2232-21 and following).

The jurisprudence penalizes the failure to negotiate in good faith. An employer who merely waits for the survival period to expire without engaging in genuine negotiations fails to meet their legal obligation. Employees may then claim damages for the harm resulting from this breach (Cass. soc., March 13, 2013, No. 11-22.285).

Contents of the Substitution Agreement

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

• Adapt certain provisions of the old convention to the new conventional framework;
• Include transitional measures (temporary maintenance of certain advantages, gradual smoothing of compensations);
• Define the reclassification modalities of employees within the new convention’s framework;
• Organize the portability of insurance and supplementary health guarantees.

The substitution agreement is not obliged to replicate all the advantages of the old convention. It may provide for a less favorable regime on certain points, provided that it respects public order provisions and the minimum stipulations of the receiving company’s collective convention.

Adaptation Agreement: An Anticipated Variant

Article L.2261-14 also mentions the possibility of concluding an adaptation agreement. This agreement can be negotiated and concluded before the realization of the transfer, as soon as the operation is anticipated. This anticipation is particularly recommended in the context of planned mergers or transfers of business branches, as it secures the transition and limits uncertainties for employees.

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

The Situation at Expiration of the Survival Period

In the Absence of a Substitution Agreement

If no substitution agreement has been concluded at the expiration of the 15-month period, the old convention ceases to apply definitively. The transferred employees are then subject only to the collective agreement of the receiving company.

However, the law of August 8, 2016 (Labour Law) introduced an important remuneration guarantee. Article L.2261-14, paragraph 4, provides that the employees concerned benefit from a remuneration guarantee whose annual amount, for work duration equivalent to that provided by their employment contract, cannot be less than the remuneration paid during the last 12 months. This guarantee is ensured by the payment of a salary supplement if necessary.

The Cour de cassation has specified the scope of this guarantee. The reference remuneration includes the base salary, recurring mandatory bonuses, and benefits in kind provided by the old convention. However, exceptional or discretionary bonuses are not included in the computation (Cass. soc., January 24, 2024, No. 22-18.419).

In Case of Conclusion of a Substitution Agreement

When a substitution agreement is concluded within the 15-month period, it immediately replaces the provisions of the old convention. 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 a common law collective agreement, subject to the 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 the Transfer

Before any transfer operation, it is essential to conduct a comprehensive social audit regarding the collective status of the affected employees. This audit must identify:

• The applicable collective conventions and agreements in each entity;
• The discrepancies in treatment between the employees of the two companies;
• The unilateral commitments and current practices;
• The transition costs (maintenance of remuneration, harmonization of insurance schemes, reclassification);
• The potential litigation risks.

The Social Calendar of the Operation

Planning the social calendar is crucial:

• Before the transfer: information-consultation of the CSE on the transfer project and its social consequences; if applicable, opening of preliminary negotiations for an adaptation agreement;
• At the time of the transfer: individual information of employees regarding the change of convention; initiation of substitution negotiations;
• During the survival period: active and good faith negotiations; regular communication with employees and personnel representatives;
• At the end of the survival: application of the receiving convention, payment of salary supplements if necessary.

The Role of the Employment Law Attorney

Managing the implications of a collective agreement during a business transfer requires sharp legal expertise. DAIRIA Avocats supports companies at every step: prior audit, drafting protocols, negotiating substitution agreements, securing the transition, and managing any potential disputes.

FAQ: Calling into Question and Business Transfer

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 of 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 contractual advantages?

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 the advantages of both the old and new conventions, 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 imposes an obligation on the employer to engage in good faith negotiations aimed at concluding a substitution agreement. A failure to negotiate may result in damages being awarded to employees.

What happens if no substitution agreement is found?

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

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

Yes, within the limits of respecting public order provisions and the minima of the collective agreement of the receiving company. The substitution agreement is a common law agreement that is not required to replicate previous advantages. It can organize a gradual smoothing.

Can the calling into question be anticipated before the actual transfer?

Yes. It is possible to negotiate an adaptation agreement before the effective transfer. This anticipation is highly recommended as it secures the operation and reduces the uncertainty period for employees. DAIRIA Avocats will assist you in this social planning process.