Overview Of A Reduction In Force In France In Companies With More Than 50 Employees

• Published date: 29 June 2022
• Subject Matter: Employment and HR, Contract of Employment, Redundancy/Layoff
• Law Firm: Vivien & Associes
• Author: Marie-Emilie Rousseau-Brunel

In this article we address some of the usual questions we get asked by our clients with respect to the "reductions d'effectifs" (reduction in force (RIF)) in France in companies with more than 50 employees. Our answers and comments apply in the context of a reduction in force of more than 10 employees within a 30 days' time period and aim at providing the reader with an overview rather than a detailed roadmap of obligations and constraints.

1. What justification is required to satisfy the legislation on RIF for economic reasons?

Under French labour law, a "licenciement collectif pour motif économique" (a collective layoff for economic reasons) must be based on one of the several economic reasons listed by the labour code which require existing or foreseeable economic difficulties.

An economic dismissal must result from either the abolition of the position held by the employee or a change to an essential element of the employment agreement which has been refused by the employee. The abolition or change must be based on (i) economic difficulties encountered by the company (ii) technological changes implemented within the company (iii) reorganization required to ensure the company's competitiveness or (iv) the cessation of activity of the company.

Economic difficulties must result from a significant change to an economic indicator such as a reduction of orders/sales or revenue, operating losses, deterioration of the cash flow or EBITDA, or any other indicator of economic difficulties, identified over a specific time period depending on the company's labour force (one quarter for companies with less than 11 employees, two consecutive quarters for companies with between 11 and 49 employees, three consecutive quarters for companies with between 50 and 299 employees and 4 consecutive quarters for companies with 300 or more employees).

The need to safeguard the company's competitiveness will require the company to establish the difficulties being encountered in its sector of activity. This will involve describing the characteristics of the relevant market, the practices of competitors and their policies and strategies, and the necessity for the company to take steps to avoid jeopardizing the company's viability.

Undertaking costs savings to increase profit or to gain operational agility is not a valid economic ground to justify a collective layoff.

When the company concerned is a member of a corporate group the economic grounds are assessed at the group's level in France or, if the group is carrying various activities, at the level of the sector of activity of the group in France corresponding to the activity carried out by the French company.

If the company is unable to demonstrate a valid economic ground for the layoffs, its affected employees will be able to challenge their dismissal before the Conseil de Prud'hommes (Labour Tribunal). If the challenge is successful, the layoffs are deemed to lack "cause réelle et sérieuse" (real and serious grounds) entitling those employees to be paid damages on top of the mandatory severance package to which they were entitled upon termination of their employment contract. The amount of damages awarded by the Labour Tribunal increases according to the length of service of the affected employee with the company.

2. Can the employer select which employees will be included in the RIF plan?

The employer does not select the employees that it intends to dismiss for economic reasons.

Once a decision has been made to effect layoffs for economic reasons, the order in which the layoffs will apply must be established, making it possible to determine which employees will be laid off. This order is based on the application of several factors or criteria taking into account, in particular, the employees' dependents and seniority, their particular personal circumstances which may impact their ability to be re-employed such as a physical handicap, or their age, and their qualifications. In determining the order of the layoffs, certain criteria can be ascribed more importance than others provided all of the criteria have been considered.

The criteria must be negotiated with the Unions. If the workforce is not unionized or agreement on the criteria cannot be reached with the Unions, the criteria are submitted to the opinion of the "Comité social et économique...