Employment law: transfer of business

In its ruling of 28 March 2019, no. CAL-2018-00558 on the docket, the Court of Appeal strictly defines the principles that must be respected in matters of transfer of undertakings concerning the maintenance of benefits acquired by employees with their former employer whether or not they are contractualised, provided that proof of this is produced.

In this decision, the judges recalled that, as a result of the transfer of a business, old contracts remain in place and are continued with the new employer, so that no new contracts are formed between the employee and the new company, and the old existing contracts must be taken over as they stand, with all the rights and obligations arising therefrom.

Accordingly, all benefits – even those not contractually agreed – enjoyed by the employee prior to the date of the transfer must be maintained by the transferee, failing which the provisions of Article L.127-3 of the Labour Code will be violated.

The Court of Appeal therefore applied the aforementioned article strictly and drew two conclusions from it: firstly, the transferee must not have the transferred employee sign a new contract, since the old one has been taken over in its entirety, and, if it does so, then the new contract may not contain clauses modifying the transferred employee’s working conditions, nor, above all, impose less favourable conditions, failing which the said conditions could be declared null and void before the labour courts.

In this case, an employee had agreed to sign a new contract with the transferee employer and was relying on a long-standing practice regarding the payment of annual bonuses acquired over several years with her former employer. This was not therefore a bonus included in her contract of employment, but the Court ruled that insofar as proof had been provided that she had received this benefit from the transferor, the new employer should continue to pay it regardless of whether the employee signed the new contract, and the less favourable clause should be declared null and void.

This is an important reminder of employees’ rights in relation to transfers of undertakings, since it is common in such cases for the transferee to wish to impose the signing of a new contract and for the employee to accept it.