In a recent decision of November 23, 2022, the French Supreme Court reminded of the risks pertaining to the involvment of a parent company in the management of its French subsidiary.
In this case, an employee was hired by a company which was then integrated to an international group. After being made redundant by the French employer company, the employee decided to sue both their French employer company and the group’s parent company considering that both were liable to the payment of damages for unfair dismissal, given that both should be considered the employee’s joint employers.
The main reason for the employee’s suing the parent company (which remained in bonis) was that the French subsidiary had filed for bankruptcy therefore making it more difficult for the employee to challenge the grounds for redundancy and above all limiting the amounts that would be paid to the employee by the Public Pay Insurance Fund (“AGS”).
The Court of Appeal had upheld the employee’s claims and considered that both the parent company and the French subsidiary were joint employers. The parent company challenged that decision before the French Supreme Court.
The Court of Cassation however confirmed the Court of Appeal’s decision, stressing again the definition of joint employment: “according to article L.1221-1 of the French Labour Code, notwithstanding the existence of a subordinate relationship, a company belonging to a group may be qualified as joint employer if, beyond the necessary coordination of the business between companies belonging to the same group and the control that such membership may entail, there is a permanent interference by this company in the economic and social management of the employing company, leading to the total loss of autonomy by the latter.”
In its decision, the French Supreme Court noted that in the situation that was put to them:
- the French subsidiary company had no longer any client of its own, the only client being the group;
- the parent company had fully replaced the employer company in the HR management;
- the subsidiary company’s financial and accounting management was carried out by the parent company.
Groups should be aware of these criteria which may lead to an increased financial risk if the French subsidiary is deprived of any autonomy in the financial and HR decisions taken.