We are writing with another update on French labor law that could impact international corporate transactions.  French President Francois Hollande has proposed a change to French legislation that could remove the threat of imprisonment for directors and senior employees who are found to have breached obligations to consult with works councils and other employee representatives.  The implications of this change would be important for businesses in France, and also for international companies involved in mergers, acquisitions and divestitures in France.

In France, the works council (an employee representative body that is mandatory in companies with 50 or more employees) must be informed and consulted before a company takes various decisions impacting the workforce.  For example, in the event of a transfer of a business in France, consultations with the works council (and the health and safety committee) are required before any decision is implemented.  These consultations are subject to a timeline of up to a maximum of three months from the date on which employee representatives are provided with full details of the proposed transfer.  As we reported in a recent post, a French law that came into force on November 1, 2014, expanded the rights of employees to be informed prior to the sale of a small- or medium-sized company.

French legislation currently provides that if an employer fails to comply with mandatory consultation obligations, employee representatives may have a claim before the civil courts.  This could, in the case of a business sale, allow employee representatives to file summary court proceedings and request the suspension of a potential sale until the consultation process is carried out.  Additionally, the employee representatives may bring a claim for hindrance, which is a criminal offence.  If a company is found to have breached its consultation obligations, this could lead to a fine of up to €18,750.  Individual directors and other senior employees found in breach of the legislation can also be held liable for a fine of up to €3,750 or even one year’s imprisonment.

The President has assured international investors that upcoming reforms aimed at reducing the penalty to a fine are being considered.  Despite significant opposition from the trade unions, the reforms are expected to be considered by the French Parliament in early 2015.  The policy aim behind the proposed change is to make France a more appealing jurisdiction for businesses who operate internationally.  In contrast to the recent law expanding the rights of employees in France in the case of a potential sale, this change would be welcome news for international companies involved in mergers, acquisitions and divestitures in France, who may be surprised by the broad scope of employees’ rights — and the potentially severe consequences for companies and individuals who proceed unawares.

Author Note: Luciana Griebel is a trainee solicitor in our London office and she graduated with an LL.M degree from Peterhouse, University of Cambridge.