Parent Company Liability In French Redundancy Cases

Author:Mr Nicolas Peixoto
Profession:Ogletree, Deakins, Nash, Smoak & Stewart

Although the Cour de cassation (France's Supreme Court) still limits the application of the concept of "co-employment" between parent companies and their subsidiaries to exceptional cases, its rulings do not preclude a finding of liability on the part of a parent company when it has placed its subsidiary in increased difficulty.

While this is not a new development, it was confirmed most recently by four decisions rendered by the Supreme Court on May 24, 2018.

Co-Employment and Parent Company Liability

The criteria by which the Supreme Court recognizes an instance of "co-employment" between a parent company and its subsidiaries are limited.

Consequently, in two of its decisions, the Supreme Court dismissed the notion of "co-employment" on the grounds that

the subsidiary's decision-making autonomy in relation to the parent company concerning the social and financial management of the organization, as well as the existence of a separate clientele, would suggest that there was no overlap of management, interests, or commercial activity between the two companies; and a certain level of economic coordination is necessary between two companies belonging to the same group, including the parent company's involvement in the appointment and supervision of senior management and the granting of extraordinary bonuses, as well as in the financial management of the subsidiary through a treasury management and technical support agreement. Nonetheless, the Supreme Court recognizes that a parent company may be liable when it  commits a fault that exacerbates the financial situation of a subsidiary that is already experiencing difficulties. Consequently, this allows for damages to be awarded to employees.

In 2012, the Pétroplus case drew widespread attention when it brought about the adoption of a new law in record time. This law set a new tone: the parent company must take responsibility for the financial consequences of a subsidiary's bankruptcy when the parent company has contributed to bringing this about. The Pétroplus group's holding company had withdrawn the entirety of the funds in its subsidiary's current account (around171 million) in order to establish the refinery at Petit-Couronne. A fault had been committedand so the new law provided the means for liquidators to recover capital from the liable parent company. After a significant decision was rendered on January 16, 2001, the case law followed suit, as was confirmed by the three decisions of...

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