Reform of Redundancy

Newsletter - December 2016

The Labour Law, known as the “El Khomri law”, was published in the official journal on 9 August 2016. As its entry into effect has been planned progressively, several articles of the Labour Code will be amended as and when the numerous implementing decrees are published. The 1 December 2016 saw the new version of Article L.1233-3 of the Labour Code on redundancy come into force.

Unchanged provisions

The provisions that remain unchanged are those defining redundancy overall: redundancy still means the lay-off by an employer, for one or more reasons not relating to the individual employee, resulting from the elimination or transformation of the job or from a modification, which the employee has refused, of a material component of the employment contract, particularly due to economic difficulties or technological changes.

New provisions

The new version of the abovementioned Article L.1233-3 of the Labour Code now sets out objective criteria for a more precise definition of economic difficulties. These are either a significant variation in at least one economic indicator such as a reduction in orders or revenues, operating losses or a deterioration in the company’s cash position or EBITDA, or any other element justifying such difficulties.

There is a significant reduction in orders or revenues where the duration of this decline, compared to the same period a year earlier, is at least equal to:

– 1 quarter for a company with fewer than 11 employees,
– 2 consecutive quarters for a company with at least 11 employees and fewer than 50,
– 3 consecutive quarters for a company with at least 50 employees and fewer than 300,
– 4 consecutive quarters for a company with 300 employees and more.

As the provisions are silent, it is the court’s role to define the notion of a “significant reduction” in orders or revenues.

Similarly, no definition is given of the term “significant variation”. This point raises questions as to how it will be interpreted by the courts. Current case law does not require the company to be in a disastrous financial situation. On the other hand, the company’s difficulties must be serious and not merely temporary.

Codification of current legal precedents

In Article L.1233-3 of the Labour Code, the law transposes two reasons resulting from consistent decisions of the Cour de Cassation that may justify redundancy:

– a reorganisation of the company needed to safeguard its competitiveness (Cour de Cassation since 1995),
– discontinuance of the company’s business (Cour de Cassation since 2001).

The perimeter of assessment of the economic cause is also transposed into the new article L.1233-3 of the Labor Code : the materiality of the elimination or transformation of a job or of the modification of a material component of the employment contract is assessed at company level. This principle applies even if the company belongs to a group.

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