By: Chris Bracebridge, Luciana Griebel, Helena Milner-Smith, and Jenna Wallace

A French law that comes into force on November 1, 2014 will give employees new rights to be informed prior to the sale of a small or medium-sized company, thereby allowing them the opportunity to make an offer to purchase the company.  Companies that meet certain threshold requirements (details below) will be required to inform staff of the owner’s intent to sell either the business or shares or securities giving access to the majority of the company’s capital. Failure to comply with the new law may lead to a substantial fine and could even result in the sale being nullified by a court order.  The implications of this law are important for business owners in France and also for international companies considering acquisitions in France.

The right to be informed in advance of a potential sale was previously available to the company’s works council only (works councils are mandatory in French companies employing 50 or more individuals).    The impact of the new law is that it gives employees the right to receive information directly and applies to smaller companies.  In light of the new law, companies will be concerned about protecting the confidentiality of plans to divest a business (see below).

Which companies are caught by the new law?

The new law applies to small or medium-sized companies. Companies employing less than 50 individuals will have to inform employees of the owner’s intent to sell at least two months in advance of the sale completing.  For companies employing 50 to 249 individuals, the right to be informed will be triggered only if the company’s turnover / business revenue is less than €50 million or the company’s assets are worth less than €43 million.  If either of these two conditions is satisfied, the employees will have to be informed simultaneously with the company’s works council, at the latest (under French law, the timeframe for consultation with the works council generally ranges from one to three months).  The obligation on the owner is simply to inform the employees and does not grant them any pre-emption or veto rights.  For example, the owner does not have to provide an explanation, when refusing a potential offer made by the employees.

How will the information need to be provided?

According to the implementing regulation, the information can be provided to employees by any means that offer the possibility of ascertaining the date of receipt (including email, registered post, delivery in person, or setting up a display, as long as the employee confirms receipt in writing).

Protecting confidential information about a potential sale

Employees will be required to treat the information they receive as confidential, although the new law does not impose criminal sanctions for breaching this obligation.  Employees could instead face claims from their employer for compensatory damages, but these will be subject to a high burden of proof.  Companies may wish to consider mechanisms for protecting the confidentiality of information shared with employees, including tailored confidentiality agreements.

What next?

Organisations considering the sale of a French company within scope of the new law that will take place on or after November 1, 2014 will need to take into account the risk of the sale being nullified for failure to comply with the obligation to inform the employees of the sale within the new time limits. In cases where the owner has entered into exclusive negotiations with a potential buyer for the sale of the business through a contract concluded prior to November 1, 2014, the sale will not be subject to the employees’ right to receive information pursuant to the new law.

Employee issues in international acquisitions

The new French law is just one example of the varying requirements and restrictions that may apply with respect to employees in cross-border mergers and acquisitions, and that may be unexpected by U.S. and U.K.-based companies.  For more information about cross-border employee issues, including in the M&A context, please see a recent Covington Webinar entitled “Navigating Global Redundancy Exercises: Five Key Principles for Implementing Cross-border Restructurings.”