Employees When Buying or Selling a Business in France: Automatic Transfer, Prior Information, Who Pays What

Employees when you buy or sell a business in France: what the law imposes

Nothing in a French business sale is less negotiable than the staff. The employment contracts in force pass to the buyer automatically, by the sole effect of the law, even if the deed says nothing - or says the opposite (C. trav. Art. L 1224-1). Before that, in companies under 250 employees, the staff must be told the business is for sale early enough to make their own offer, on pain of a civil fine of up to 2% of the price. And after the transfer, the new employer answers for obligations the old one contracted, with a recourse between them that follows precise date-of-birth rules for every debt.

This guide covers the employee side of a French business sale from both chairs - seller and buyer: the prior information of the staff and its sanction, the conditions and mechanics of the automatic transfer, what the parties can and cannot agree about the workforce, dismissals before and after the sale, and the split of wage debts between successive employers.

Informing the employees before the sale

Who is covered. To encourage staff buyouts, companies under 250 employees owe their staff a double information: a general one, every three years, on the conditions of taking over a company; and a specific one when there is an actual project to sell. The duty covers companies with no works council with extended powers (under 50 employees), and companies of 50 to 249 employees whose turnover does not exceed €50m or balance-sheet total €43m (C. com. Art. L 141-23 and L 141-28). Where the fonds is not operated by its owner, the owner notifies the operator, who passes the information to the employees without delay.

Who must be told. Every holder of an employment contract: employees on sick or maternity leave, apprentices, and staff serving out notice after a resignation, dismissal or agreed termination. Temp-agency workers and interns are not covered. And where a company owning several fonds sells one, all the company's employees are informed - not only those working in the fonds sold.

When. The timing depends on the company:

• in companies with a works council with extended powers, the employees are informed at the latest when the council is consulted on the sale project;
• in companies under 50 employees, and in those of 50 to 249 with a formal record that no staff representatives were elected, the employees must be informed at least two months before the sale, the sale date being the transfer of ownership. The two months run from the day the last employee was informed.

The sale can close earlier only if every employee has made known, explicitly and unequivocally, the decision not to present an offer - in practice the information letter often encloses a pre-filled waiver form. And the information has a shelf life: if the sale closes more than two years after the information period expired, the whole procedure must be run again.

How and what. Any method giving a certain date of receipt by every employee works: an information meeting with a signed attendance register, a posting signed off in a register, e-mail with certified receipt, hand delivery against signature, registered letter, or a bailiff's act. The content is minimal by design: the owner's intent to sell and the employees' right to present a takeover offer. No document about the fonds has to be handed over, and nothing more detailed is owed.

The employees' position. The staff owe discretion on what they learn, except towards the people whose help they need to build an offer; an indiscreet employee risks a disciplinary sanction and a damages claim from the seller. They may be assisted - by a representative of the regional chambers of commerce, agriculture or trades, a professional adviser (accountant, lawyer, notary), a cooperative-movement representative or a financial-investment adviser. But the offer itself buys them nothing: the seller is free not to study it, not to answer it and not to accept it - an employee offer has no priority over any other.

The sanction. Since the reform applicable from 1 January 2016, a sale made in breach of the information duty is not void; it exposes the seller or the company head to liability, and the court may, at the public prosecutor's request, impose a civil fine of up to 2% of the sale price. Neither the fine nor its amount is automatic. Breach scenarios include no information at all, late information, information that omits the employees' right to offer, and the company head's failure to pass an employee's offer to the seller.

Companies of 50 and more. Separately from the buyout information, the works council (CSE) must be consulted before decisions modifying the company's economic or legal organisation - a consultation that a fonds sale triggers. The staff-buyout information duty and the CSE consultation run on their own tracks; a seller in the 50-249 band with an elected CSE ties the employee information to that consultation.

The automatic transfer of employees: when it applies

Article L 1224-1, read in line with EU Directive 2001/23 of 12 March 2001, transfers the employment contracts when the sale of the fonds meets two conditions:

• the sale bears on an autonomous economic entity - an organised grouping of people and tangible or intangible assets allowing the pursuit of an economic activity with its own objective;
• the entity's activity is continued or resumed by the new operator keeping its identity.

The autonomous entity. Continuing an activity is not enough; an organised set of means must pass. The activity can belong to any sector, be the seller's main, secondary or ancillary business, and be a branch, a division or a single department - what matters is a real activity, distinct and detachable from the seller's other operations. A partial sale transfers the staff of the part sold, provided that part carries a clientele and the elements needed to run it. The courts have applied the rule to a buyer who took most of a transport company's trucks and its clientele and carried on the same activity - even though the whole fonds was not sold; to a sale that did not include the premises or the lease; and to the sale of the heating branch of a heating-plumbing-boiler business. By contrast, the sale of isolated assets, equipment, premises, transfers no one.

The preserved identity. The entity must keep its identity with the new operator, assessed at the transfer date - later changes do not count. Same activity with the same means is the paradigm: same premises, same equipment. But a change of operating site does not necessarily break identity; nor does a shift in clientele - the buyer of a restaurant who later chased a different clientele and obtained a drinks licence for it still took the staff, because the material means and the restaurant activity had passed. Adjustments to manufacturing or distribution methods do not break identity either, and the entity may lose its legal autonomy so long as it stays autonomous in operation. What breaks the rule is a total change of activity: the tenant-manager who turned a one-employee car-storage business into a branded dealership with a dozen staff had changed the activity too deeply for L 1224-1 to apply. Similar or connected activities keep it in play - replacing a fabrics shop with a clothing shop was enough.

Interruption does not save anyone. A temporary interruption of the activity, whether a few days, two months or five, does not prevent the transfer of the contracts.

Location-gérance. The rule frames the lease-management of a fonds at every step: contracts in force pass to the tenant-manager when the location-gérance begins; they pass again on a change of tenant-manager; and at the end, when the fonds returns to its owner, the owner takes back the contracts then in force - including staff the tenant-manager hired, and even where the location-gérance contract is annulled. The return has one limit: the owner takes the contracts only if the operation can be continued. If the business has been ruined by the tenant's management, clientele kept by the tenant, stock and records gone, premises unusable, the owner is not bound; but an owner who takes the fonds back in working order and simply decides to stop operating it takes the contracts with it.

Outside the rule, only consent. Where the conditions of L 1224-1 are not met, contracts can still move - but only by agreement, and that requires the express consent of each employee concerned.

Will the employees transfer with the business?

Pick the deal on the table - the check tells you where the staff stands.

Which employees transfer, and how it works

Contracts in force at the transfer date. The transfer covers employees whose contract is being performed at the date of the sale, of the start of a location-gérance, of a change of tenant-manager or of the fonds' return to its owner. Its scope is wide:

• a suspended contract transfers, sick leave after an accident, parental leave, and so does an employee seconded to another company;
• every type of contract is covered: permanent and fixed-term, full-time and part-time, apprenticeship, trial-period contracts, home workers, sales representatives;
• staff hired by a tenant-manager during the location-gérance transfer at its end like everyone else - but a contract concluded by a former tenant-manager after the location-gérance was terminated, while it occupied without right or title, does not reach the owner, since it was not in force at the return date.

The employees who do not transfer. An employee moved, without fraud, from the fonds being sold to another fonds of the same owner before the sale stays with the owner. The mirror-image fraud is sanctioned: an owner who parks employees in the transferred fonds for the sole purpose of shedding them stays their employer.

Partial transfers split contracts. On a partial sale or partial location-gérance, employees not exclusively assigned to the transferred activity pass only in part - the contract divides between the employers. The contract passes whole where the employee devoted the essential part of the work to the transferred activity; conversely, an employee whose essential duties were outside the entity sold stays whole with the original employer. Because partial assignment is often hard to measure, the practical route in doubtful cases is the employee's express prior agreement.

Automatic means automatic. In situations governed by L 1224-1 the contracts pass by the sole effect of the law, whether or not the deed mentions them. The change of employer happens at the transfer date, the date the new operator is in a position to direct the entity, and the parties cannot move it. There is no dismissal followed by rehiring: the contract continues, so the employee can claim no termination indemnities from the old employer. Individual notification of each employee is not required, the EU directive's information rule was never transposed, so it creates no obligation for private employers, but in companies of at least 50 employees with a CSE, the council must be consulted beforehand on the change in the company's organisation.

Continuation on the same terms. The contracts continue with the new employer in the conditions in force at the transfer. The employee keeps qualification, contractual pay, and seniority - every right that depends on presence or seniority is computed from the original hire date: paid leave, seniority bonuses, notice periods, dismissal and retirement indemnities. Discretionary bonuses the old employer paid at will cannot be demanded from the new one. Fixed holiday dates must be respected - short of exceptional circumstances they cannot be moved less than a month before departure. Working-time arrangements need care: a day-rate scheme (forfait-jours) survives only if a collective agreement at the buyer provides for it; without one, the buyer must propose another arrangement, which touches the contract itself. Administrative working-time derogations keep benefiting the new employer until withdrawn. And the non-compete clause binding the employee passes too: the new employer owes its financial consideration, can enforce it, and can recover the indemnity from an employee of the seller who violates it - the seller can no longer enforce it at all.

What the parties cannot do about the employees

No contracting out. The legal transfer binds seller and buyer; their agreements cannot defeat it. The seller cannot promise pre-transfer dismissals to make the business easier to sell; the deed cannot exclude particular contracts from the transfer - such a clause is deemed unwritten. What the parties can lawfully do sits one level down:

• they may allocate between themselves the cost of dismissals the new employer decides on - ineffective against the employees, fully effective between the parties;
• the seller may, save fraud, undertake to keep certain employees in its own service, notably on a partial sale.

The buyer cannot refuse the staff. A new employer who refuses to continue a contract faces the employee's choice of weapons: reinstatement in the company, requalification of the refusal as a dismissal without real and serious cause, or judicial termination of the contract at the new employer's fault - with wages until the termination date the court fixes, termination indemnities and damages.

The employees cannot refuse either. The change of employer is not, in itself, a modification of the contract the employee may refuse. The employee cannot demand to stay with the seller, cannot force the seller to dismiss, and can claim no notice or dismissal indemnity - and the employer needs no consent. An employee who does not show up at the new employer commits serious misconduct, and an established refusal to continue produces the effects of a resignation, provided it is clear and unequivocal. The limit is real, though: where the transfer entails a modification other than the change of employer, a workplace moved outside the geographic sector, for example, the employee may refuse it; the new employer must then maintain the old terms, propose new ones, or dismiss, and the dismissal then rests on an economic cause.

Fraud around the transfer. Modifications timed to the transfer draw a presumption of fraud. It was found where a director was replaced the day after a location-gérance began and offered a trainee deputy post with no assurances; where the buyer conditioned taking an employee on signing, the day of the sale, a contract cutting the pay. On the seller's side, the same logic bars pre-transfer modifications designed to defeat the employee's rights or to load the buyer - aligning a salary on the buyer's pay scale in view of the transfer, or granting a raise in fraud of the buyer's rights.

New employer, ordinary powers. After the transfer the buyer holds an employer's normal powers: working-condition adjustments (a move within the same geographic sector) can be imposed; contract modifications need the employee's acceptance, failing which the buyer continues on the old terms or dismisses, justifying the change's legitimacy. A new contract by novation is possible with the employee's agreement, absent fraud - but novation must be express: it is not inferred from simply working on at different conditions.

Dismissals around the sale: employees before and after

Before the transfer. Economic dismissals made on the occasion of the transfer are deprived of effect, the case law is constant. A dismissal for a reason personal to the employee remains possible, unjustified absences, for instance - so long as it is not aimed at defeating the employee's rights under L 1224-1.

The illegally dismissed employee's three options. An employee dismissed in breach of the rule can:

• demand that the buyer continue the contract, deemed never broken - and, if the buyer refuses, the indemnities for dismissal without real and serious cause; the buyer owes them only if it opposed the continuation or contributed to the job loss;
• claim damages from the seller, author of the dismissal - and the seller can call the buyer in warranty where the buyer refused to take the employee back on the same terms, without needing to prove the buyer's fraud;
• sue both employers in solidum. Fraudulent collusion suffices but is not required: it is enough that the seller dismissed and the buyer refused to continue. The employers then sort out their shares between themselves - in one case the buyer bore the entirety of the sums awarded against the seller.

One counterweight: an employee dismissed by the seller who is told by the buyer, before the notice period expires, that the contract will continue unchanged must accept - refusing that offer forfeits the termination indemnities.

After the transfer. L 1224-1 does not freeze the workforce. The buyer may dismiss for personal reasons - including for misconduct committed under the seller's authority, within the two-month prescription that runs from the first employer's knowledge of the facts (or the buyer's, if the seller never knew; the transfer opens no new period). Economic dismissals driven by reorganisation are possible, as are reorganisation-driven contract modifications that may end in termination. The courts strike the sham: dismissals designed to defeat the transfer of the contracts are without real and serious cause. And transactions have edges - absent fraud, the buyer cannot rely on a settlement between the employee and the seller; but an employee dismissed by the buyer in breach of L 1224-1 can sue the buyer even after settling with the seller, as where the buyer took an employee back and imposed a trial period it then terminated.

Wage debts: which employer owes your employees what?

Pick the debt in question - the check gives the rule between old and new employer.

Who pays: the split of employees' debts between old and new employer

The buyer answers first. Towards the employees whose contract continues, the new employer is bound by the obligations that lay on the old one at the transfer date (C. trav. Art. L 1224-2): debts born before the transfer, and debts born after it even where they partly reward work done for the predecessor. The rule follows the fonds - an owner who takes back a fonds it had sold answers not only for its own pre-sale obligations but for those the intermediate buyer contracted. It protects only continuing employees: for contracts definitively ended at the transfer date, the buyer owes nothing on the predecessor's account.

The two exceptions. The new employer is not bound by the predecessor's obligations in insolvency proceedings (sauvegarde, redressement, liquidation judiciaire), nor where employers substitute without any agreement between them - the case of tenant-managers succeeding each other directly, the fonds never returning to the owner. In that chain the incoming tenant-manager owes none of the outgoing one's debts, not even the accrued fraction of paid leave; the EU directive, never transposed into French law, cannot be invoked to fill the gap. The chain closes differently at the end: an owner who takes the fonds back and continues the operation does answer for the former tenant's debts.

The employees' position. Successive employers are liable in solidum: employees may claim their debts from either - including directly from the former employer.

The recourse between employers. The seller reimburses the buyer the sums the buyer paid that were due at the transfer date - unless their agreement already accounted for them in the price. The refund covers pre-transfer debts (accrued paid-leave sums, acquired hour credits) and the pre-transfer fraction of debts born after (the part of a year-end bonus, attendance bonus or 13th month earned before the change). The buyer must prove it paid the employees. Everything turns on when each debt is born:

• bonuses are owed by the employer at the date the entitlement is born - a 13th-month or year-end bonus on 31 December save contrary provisions, a bonus payable with September's salary on 30 September, a bonus for staff present at 1 May at the end of that month whatever its payment date;
• paid-leave and compensating indemnities are born month by month, even though payable later - so the buyer computes them over the whole reference period and recovers the seller's proportion;
• dismissal indemnities are born at notification and burden the employer who dismissed; the indemnity for requalifying a fixed-term contract burdens the employer who concluded it, with the buyer's warranty claim against the seller; work-accident compensation is born at the accident.

Draft the split. Old and new employer may allocate these charges by agreement - the deal-level answer is a wage-debt schedule annexed to the deed: accrued leave, hour credits, bonus fractions, pending disputes, each priced or allocated. The statutory recourse is the default; the annex is the version the parties chose with open eyes.

Frequently Asked Questions

This article is for general information only and states French law as published in the sources available at the date shown above. It does not constitute legal advice. How the rules apply depends on your workforce and your deal. Always seek qualified legal advice before committing.