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The total and definitive cessation of the company’s business constitutes in itself an economic reason for dismissal

The dismissal of an employee for economic reasons can be justified based on the company’s ceasing to operate, according to Article L.1233-3, 4° of the French Labour Code.

In a decision dated September 20, 2023, the French Supreme Court thus specifies that this reason alone is sufficient to justify the redundancy, without it being necessary to investigate the cause of this cessation of activity (provided it is not due to the fault of the employer).

In this case, a company producing pharmaceutical products was bought out by a large group of companies, and a majority, but not all, of its products were sold to this group.

As a result, 23 employees were made redundant and the company’s activities relating to the production and sale of these products not affected by the transfer to the group, had to be gradually wound up.

The Versailles Court of Appeal ruled that the redundancy was unfair, on the grounds that the business had not actually ceased at the time of dismissal, and that another company in the group was continuing a similar business, since the majority of the products from the company were being produced and sold by another company of the group to which it belonged.

The French Supreme Court overruled this decision, stating that:

  • The mere fact that another company in the group had continued an activity of the same nature did not per se prevent the company’s cessation of activity from being considered as total and definitive;
  • The maintenance of a residual activity for a few weeks, necessary for the completion of the exploitation of certain products before their sale to a third party, did not characterise a continuation of activity, since the company was irrevocably committed to going out of business at the time of redundancy.

Through this decision, the French Supreme Court clarifies that the employee’s redundancy is justified by the total and definitive cessation of the company’s activity, in accordance with Article L.1233-3, 4° of the French Labour Code, even if another company of the same group pursues an activity of a similar nature.

French Supreme Court, September 20, 2023, n°22-13.485