France: Companies Don't Need Economic Justification for Layoffs, High Court Rules
By Rick Mitchell
PARIS--French companies do not need “valid” economic reasons for laying off employees, but workers can obtain financial compensation if such justification is lacking, France's highest appeals court ruled May 3 (Viveo France v. Employment Committee of Viveo, Cass. Soc., No. 11-20.741, 5/3/2012).
In a decision welcomed by human resources practitioners and criticized by labor representatives, the labor chamber of the Cour de Cassation (supreme court) said the French labor code does not provide for courts to invalidate companies' layoff plans on solely economic grounds.
According to the court, Article L.1235-10 of France's labor code only allows the judicial invalidation of a layoff plan if it lacks sufficient measures for relocating employees within and outside the group or if such job-saving measures were not submitted to employee representatives.
“The validity of the plan is independent of the reason for the layoffs,” the Cassation decision said.
A ‘Very Simple Principle'
The Cassation decision overruled a controversial Paris Court of Appeals' judgment that invalidated banking software publisher Viveo's layoff plan on grounds the French company belonged to a profit-making Swiss group and thus did not need to shed employees to maintain its competitiveness.
“The Cassation Court based its decision on the very simple principle that there's nothing in French labor law that says a layoff plan is null and void in the case where an economic motive is absent,” Laurence Dumure Lambert, a Paris-based employment law partner at Mayer Brown, told Bloomberg BNA.
Under French labor law, a company's labor or employment committee can appeal to the first instance (civil) court if an employer's layoff plan lacks adequate measures to reassign or retrain employees or if the company does not follow legal procedure for informing employee representatives, in which case the court can invalidate or suspend the plan or order the company to improve it, Dumure Lambert said.
According to the Cassation ruling, the banking software company Viveo in early 2010 submitted a plan to the company's employment committee to lay off 64 employees following its acquisition by Swiss software group Temenos.
After the employees lost their initial case challenging the layoffs on economic grounds, the Paris Appeals court declared the plan null and void after determining that Temenos was in good economic shape.
No Legal Foundation
The Cassation Court overturned the Paris Appeals court decision as having no legal foundation
“What [the Cassation ruling] means is that materially a company can make a layoff plan without having a good economic reason, as long it follows the correct procedure. However, employees can later file a complaint to the Prudhomme Council, and if there is no economic justification, they will get damages and interest,” said Dumure Lambert. “There are sanctions for the procedure and sanctions for lack of economic justification, and they are not the same.”
In similar cases, Nanterre's First Instance Court voided a layoff plan in October 2011 developed by Ethicon, a surgical equipment subsidiary of Johnson & Johnson, and in January 2012, the Reims Appeals Court barred layoffs planned by Sodimédical, a medical supply maker, in both cases on economic grounds.
Dumure Lambert said the Cassation Court is likely to quickly overturn those rulings on the same grounds as Viveo.
“It is not an extremely complicated legal question,” she said.
A Legislative Question?
Employers and management attorneys—who had warned that the ruling of the Paris Appeals court could, if upheld, have disastrous consequences by preventing employers from making important business decisions—greeted the Cassation Court's decision with relief, but noted that the question could now be taken up by Parliament.
“We can only welcome this wise decision,” a Paris-based association of labor law attorneys, Avosial, said in a letter to its members. “Although it doesn't settle the delicate question of considering economic motive [for layoffs], it has the merit of maintaining a certain legal stability.”
For their part, labor unions had argued after the appellate court decision that in the present economic crisis profit-making companies should be forced to justify layoffs on economic grounds.
The French federation of autonomous labor unions, UNSA (Union nationale des syndicats autonomes), regretted the Cassation decision but agreed with Avosial that the legal question remains unanswered.
“The ball is now in the court of legislators,” UNSA said.
(Appeared May 7, 2012)
