Restructuring French Subsidiaries may Lead to Financial Liability for Larger Group
In a string of recent decisions, the French Supreme Court has asserted that a parent company can be regarded as the co-employer of its subsidiary's employees and shares any liabilities that may arise from a restructuring process.
- (1888PressRelease) November 16, 2012 - Sunnyvale, CA - Here are some highlights of the issue for companies doing business in France.
Restructuring French Subsidiaries May Lead To Financial Liability For Larger Group
In a recent case, employees were transferred between two subsidiaries of a French parent company after the parent moved the activities of the first subsidiary to the second one.
Employees of the French subsidiary who refused the transfer were terminated and some of them subsequently went to a French labor court claiming damages from the subsidiary (their original employer) and the parent company that ordered the restructuring.
The court took the view that there was "intermingling of interests, activity and management" between the subsidiary and the parent company and hence both companies were co-employers and co-liable.
France Subsidiary/Company Restructuring: The Theory of "Intermingling of Interests, Activity and Management"
The court ruled that the "intermingling of interests, activity and management" was demonstrated because:
* The parent company owned majority of the shares and the subsidiary was clearly economically reliant on the parent.
* The parent company took strategic decisions (For e.g. decision for the transfer of activities between the two subsidiaries leading to consequences like the termination of employees).
* There was joint management of staff of all the three companies.
* The fact that the subsidiaries were not truly autonomous bodies; their operations were managed by the parent company.
France Subsidiary/Company Restructuring: The Implications
The latest verdict is critical to note for companies doing business in France and especially those setting up or operating subsidiaries in France as it reaffirms numerous earlier decisions by French labor courts extending liability to the larger group. In the context of restructuring, the "intermingling of interests, activity and management" test will be used to access the liabilities of the companies involved.
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