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Draft El Khomri bill – Clarifying and safeguarding redundancy arrangements by Nicolas Sauvage, Attorney at Law

Published on : 13/04/2016
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Led by the Minister for Employment, Myriam El Khomri, the draft bill is intended to make it possible for companies to make the most of market opportunities to hire employees, whilst being sure that should there be a market downturn, the terms and conditions for making redundancies are clarified and predictable. By introducing four potential scenarios in which redundancy may be used into the French Employment Code, the aim is to give companies a “roadmap” and to improve their competitiveness and flexibility.  (Article 30 bis)

ECONOMIC GROUNDS NOT BASED ON REALITY

Two grounds for redundancy already exist in Article L1233-3 of the Employment Code: economic difficulties and technological changes. The adverb “notably” preceding these two legal causes in the text, the deduction has been made in the resulting case-law that other economic reasons could be called on to support redundancies. As of 1995, the French Supreme Court added that of reorganisation required to safeguard the company where there is real danger to its competitiveness, and in 2001, complete cessation of the company’s business. In the event of a legal challenge, current case-law gives the courts wide discretion to assess whether the grounds argued by the company in fact justify redundancy. Case-law currently allows the use of redundancy to safeguard competitiveness but not to improve it.

THE ABSURDITY OF ANALYSIS AT A GLOBAL LEVEL

Moreover, economic difficulties are assessed at group level, even where they exist at worldwide level, but not at company level. The effects of such case-law are unrealistic. The effect is frequently one of ensuring judicial victory for employees made redundant in France. The statistics prove that the risk of the courts finding against the employer in the event of redundancy is three times higher where the company belongs to an international group, than where it belongs to a French group, and 20% higher where the company belongs to a French group than in the case of an individual French company which is independent of any group. This increases the perception of the overall cost of work in France, and prevents rapid adjustment by the company to its market.  The conclusion drawn by investors is a logical one: the need to withdraw from French entities and reinvest elsewhere, carefully avoiding France.

THIS DRAFT BILL CREATES GREATER CONSISTENCY BETWEEN THE GROUND INVOKED AND BUSINESS REALITY

Thanks to the bill, the cases where the expression “economic difficulties” may be used as grounds for redundancy are to be safeguarded and widened. This point is the major innovation in the bill. Companies may thus invoke “either a fall in orders or in turnover over several consecutive quarters as compared with the same period the previous year, or operating losses over several months, or a considerable deterioration in cash-flow, or any other basis on which such difficulties may be justified”.

THE BILL RE-SITUATES ANALYSIS OF ECONOMIC GROUNDS

Another major change means that a subsidiary of a multi-national may make redundancies “on economic grounds”, where it fulfils the conditions set out in the new bill, even though the business of the group to which it belongs is blooming in other countries. The geographical scope of "economic grounds” is henceforth to be assessed nationally.

THE DRAFT BILL MINIMISES LEGAL UNCERTAINTY WITH REGARD TO REDUNDANCY

The principal idea is to safeguard redundancies by limiting the courts’ discretionary power, which is both inconsistent and always unfavourable to employers. The use made of this discretionary power by the Supreme Court's civil chamber over the last 40 years has contributed to making the law governing redundancy rigid, and discouraging investment in France. It is a well-known fact that the likelihood of players to invest in a given market or industry stands in inverse proportion to the costs involved in withdrawing from said market.

THE DRAFT BILL ENABLES EMPLOYERS TO TAKE THE RISK OF HIRING

No reduction of guarantees arises from these new provisions, contrary to the claims made by politicians and trade unionists, who have misunderstood the substance of the text. The bill is a clarification of economic grounds, the initial effect of which will be to safeguard redundancy on economic grounds, for both employee and employer, and the second will be to boost employment, since employers will know that henceforth – in the event of a market downturn – they can let employees go in circumstances which are predictable, and at limited cost.


Paris, 9 March 2016

By Nicolas SAUVAGE, Attorney at Law

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