Wednesday, March 27, 2013

France - New Risk in French Law: “Co-employer”

By Roselyn S. Sands*
Ernst & Young Société d’Avocats

In France’s current economic and political climate, the French Courts search to protect France’s workforce, due notably to restructuring operations of groups or bankruptcy proceedings undergone by French companies. The notion of co-employment is one legal vehicle used by the courts as a means to reach this aim, as it obliges French or foreign parent companies to bear the costs and responsibilities for certain acts of their subsidiaries towards French employees.
According to a now consistent case-law of the French Supreme Court, when there exists a “confusion of interests, activities and management” between two companies, most often a parent and subsidiary, one company, most often the parent company, may be deemed to be the co-employer of the employees of the other company, most often the subsidiary.
In one of the main cases on this matter (case-law dated November 30, 2011), which was developed in a former ABA issue, the French company MIC, which was indirectly owned by the German company Jungheinrich AG, closed down its activities in France and made all its employees redundant. The employees challenged the redundancies and sued both MIC and Jungheinrich AG for the payment of damages.
The French Supreme Courts decided that given that there existed a “confusion of interests, activities and management” between both companies, Jungheinrich AG was deemed co-employer of all the employees and that hence, Jungheinrich AG was liable for the damages caused by MIC, the formal employer, in terminating its employees.
1. The elements that constitute co-employment as defined by the French Courts
Of particular interest is the fact that we are not dealing here with cases where the parent company exercised a subordination link with the employees. Indeed, the Courts largely ignore this element which is the classic legal standard for the definition of an employment relationship and therefore the status of “employer”.
The decisions decided since Jungheinrich AG were based on the existence of a “confusion of interests, activities and management”. An analysis of several recent cases may help clarify what this means.
In a case dated September 12, 2012 a French company, Metaleurop Nord, was a 99% owned subsidiary of another French company, Metaleurop SA; in the context of a restructuring operation, Metaleurop Nord was closed and 470 employees were made redundant. The redundant employees sued both companies under the theory of “co-employment” in order to obtain payment of their redundancy indemnities; the Courts deemed that Metaleurop SA had acted as co-employer of the employees since:
·         Both companies belonged to the same group
·         The decision to set into motion the restructuring operation came from the parent company’s management
·         That both companies shared part of its management team and the subsidiary’s finances were managed by the parent company
·         That the parent company had spoken in its subsidiary’s name during certain negotiations with trade unions
·         That the parent company had hired its subsidiary’s managers, had direct hierarchical control over them and were to sole deciders regarding their bonuses; said managers also had to report directly and regularly, even regarding daily matters, to the parent company
In another case, dated August 22, 2012, the First Instance Court of Lons-Le-Saunier sentenced a parent company to pay 8 million euros worth of damages to the employees of its subsidiary, given that it had acted as their co-employer. In this case, the Manzoni-Bouchot Group (MBF) was taken over by the Arche Group, led by a company called Arche Industries. Following poor results, MBF aimed to reduce its workforce by 199 employees; a bankruptcy procedure was launched and the employees sued both MBF and Arch Industries in order to obtain the payment of sums necessary for a social plan. The Court considered that Arche Industries had acted as co-employer given that:
·         MBF’s budged were prepared at group level, and that the group had total control over their orders, their production process and their stock;
·         The accounting department and the whole of the IT platform had been centralized at group level;
·         The group had control over numerous key HR issues, such as working hours or redundancies;
·         Arche Industries interfered in the definition of the strategy to be followed regarding MBF’s financial difficulties;
·         There existed common managers between both companies;
·         MBF had no financial independence and could not survive without the help of Arche Industries
These two decisions perfectly reveal and illustrate the French Court’s actual trend regarding co-employment: the courts do not precisely define each element which constitutes co-employment; instead the Courts identify a body of consistent evidence and from a “totality of the circumstances” approach determine the existence of such “confusion of interests, activities and management”.
However, even if the Courts do not specifically point out one element as being a “confusion of interests” or a “confusion of activities”, it seems possible to outline the general definition of the three required elements.
The “confusion of management” seems to be in practice the key element required by the Courts. Such confusion is clearly identifiable in case of a confusion of the “decision makers” between several companies and the lack of decision-making autonomy by one company. It can be identified by the fact that one company has no independence regarding the management of its assets, its finance and accounts, or its human resources, or if its management either consisted partially of the management of another company, or dependent of another company’s management. In practice the Courts seems identify two cases of “confusion of management”:
·         A confusion which lies in the interference of one company’s management with the other’s
·         A confusion which lies in the capitalistic dependence of one company towards another
The “confusion of activities” should be identifiable whenever two companies are clearly united or clearly share the same activity; the key issue seems to be whether or not one company can be removed without profoundly impacting the other. For instance in the above mentioned case regarding MBF and Arche Industries, the “confusion of activities” lies in the fact that that MBF had no financial independence and dependent solely on loans and sums carried out by its parent company.
The “confusion of interests” seems to be the least important of the criteria yet the hardest to precisely define. Indeed it is difficult to understand how two companies which share the same management and the same activities could not share the same interests. This criteria could however, to some extent, allow the Courts to exclude co-employment in certain cases, for instance whenever two companies within a group are actually competitors on the market…
2. The expanding “co-employment” concept beyond redundancy claims.
The initial decisions on the subject of co-employment concerned companies undergoing financial difficulties and redundancies, yet this theory is also expanding to situations where no jobs were threatened, but where the parent company truly acted in the name of its subsidiary. Such is the case in a decision taken by the First instance Court of Paris dated December 11, 2012, against the company Alcatel Lucent France and its parent company Alcatel Lucent.
In this decision, during the Mandatory Annual Negotiations (MAN) with trade unions, the French subsidiary announced to its employees that the parent company had decided to freeze all salaries for 2012. The trade unions sued both the French subsidiary and its parent company and claimed that they had not respected the principle of good faith and fair dealings in salary negotiations. The parent company was sentenced to pay damages to the trade unions, together with its subsidiary, given that it had acted as co-employer of the French employees by announcing that all salaries were to be frozen.
Even if in this particular case the damages were relatively low (about 9.000 € overall) this decision is noteworthy. Indeed, the reasoning behind this decision could be extended to every negotiations between a company and its trade unions, meaning that parent companies need to be all the more cautious when communicating and discussing certain key employee related elements, both on an internal and external level.
Furthermore, the decisions taken regarding co-employment in France seem to expand the jurisdictional reach of the French Courts. Indeed, given that the French Courts have jurisdiction over issues arising during the execution of a work contract in France, through co-employment, the Courts now have a means to order any foreign company to pay damages to French employees. Indeed, in a decision taken on February 7, 2013, the Appellate Court of Toulouse declared that it had jurisdiction in a case against the American company Molex, Inc.; Molex, Inc. moved to dismiss the case for lack of jurisdiction. However, the Court deemed that Molex had acted as co-employer of the French employees and hence, was subject to the jurisdiction of the courts and liable to pay the damages pronounced by the First Instance Court.
This extended jurisdiction is all the more powerful for decisions taken against companies based in the European Union, given the mechanism of mutual recognition of legal decisions in the European Union. Indeed, obtaining payment of the damages owed will be all the more simpler if the co-employer is based in a member State. Indeed, actually obtaining payment of the sums owed by Molex, Inc. may be all but an easy task for the French employees.
The French Courts have thus confirmed their recent decisions on the subject of co-employment and have even begun to extend its application to domains other than restructuring and redundancies. This foray is likely to continue for several reasons. First of all, once again, given France’s current situation, co-employment is a powerful tool for the Courts, both politically and economically. Secondly, the benefits it grants to the Courts are threefold: the Courts have a means to protect vulnerable French employees, a means to encourage a French business’s independence from its parent company, as well as a means to extend their jurisdiction to companies based in foreign countries. In view of all these elements, case-law concerning co-employment is bound to proliferate.

* The author wishes to thank the precious help of Corinne Bourdelot and Nicolas Etcheparre