Before implementing a redundancy process in France, the employer must determine and explain to the staff representatives, if any, and to the employees eventually made redundant the reasons for which it has no other choice but to reorganize and to make employees redundant.
As a general reminder, to justify a restructuring, the Company must establish that (i.) it is suffering from financial losses, or (ii.) it needs to safeguard its competitiveness or even that (iii.) the activity must be discontinued.
In case of litigation, an unconvincing or insufficient rationale may lead to an unfair dismissal decision. It is therefore necessary that the employer carefully works on setting down a convincing rationale for its restructuring.
The economic rationale must be assessed at the level of the business sector of the group to which the Company belongs, taking only the group companies established in France into account. Pursuant to article L. 1233-3 of the French Labor Code, the business sector that is used to assess the economic justification may be characterised by the nature of the products manufactured or the services supplied, the client targeted and the distribution channels used to address the relevant market.
In a recent decision, the French Supreme Court has confirmed that the specialization of a Company belonging to a Group is not a relevant criterion for the definition of the business sector (FSC, June 26, 2024, n°23-15.503).
In the case at hand, a subsidiary of a group operating in the field of skin care and skin pathologies decided to undergo a restructuring of its activities. Several employees made redundant as a result of this restructuring challenged the rationale of their termination, their main argument being that the business sector determined in the termination letter for the assessment of the economic difficulties was not properly parameterized.
The French Supreme Court upheld the decision of the Court of appeal and determined that while this subsidiary was specialized in the area of R&D, such criteria is not sufficient for determining the business sector, and that the other criteria provided by article L. 1233-3 of the French Labor Code should be taken into account. The judges noted that this subsidiary was working on similar products than other companies of the Group, that it was operating from the same industrial site and that it was providing services to the same clients.
As a result, the French Supreme Court found that the business sector in which the underlying economic rationale is assessed was wrongfully determined so much that the dismissals should automatically be regarded as unfair.
While this decision is not innovative, this is a good opportunity to remind all employers that a properly crafted restructuring project starts necessarily with an acute definition of the business sector which will drive the entirety of the subsequent economic demonstration.
Source : https://www.courdecassation.fr/decision/667baf20eee23a0a3f11d254
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