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Redundancy: 5 mistakes to avoid

The redundancy procedure is a complex one, in which a number of errors can occur.

Some mistakes can have major financial consequences for your company.

avertissement erreurs à éviter licenciement économique

1- Respecting the definition of economic redundancy

The French Labor Code precisely defines economic redundancy.

Economic redundancy is pronounced for one or more reasons not inherent to the person of the employee and resulting from the elimination or transformation of a job, or a modification refused by the employee of an essential element of the employment contract, consecutive to :

  • Economic difficulties: significant drop in orders or sales, operating losses, deterioration in cash flow;
  • Technological change;
  • Company reorganization;
  • Termination of business.

⚠ Warning: the notion of economic difficulty is very precisely defined by law and very strictly assessed in case law.

For example, a significant drop in orders or sales is deemed to have occurred when the duration of the drop, compared with the same period of the previous year, is at least equal to one quarter for companies with fewer than 11 employees, 2 quarters for companies with at least 11 employees and fewer than 50 employees…

The French Supreme Court also clarified the notion of loss of business or deterioration in cash flow in a recent ruling.

To justify a redundancy plan, it stated that business losses must be significant, serious and lasting in the sector concerned, and on a sufficiently large scale.

If you fail to provide proof of the reality of your economic difficulties, or if they do not comply with legal provisions or case law, the dismissal may be deemed to be without real and serious cause, and you may be ordered to compensate the employee for several months’ salary.

We therefore recommend that you take care when considering dismissing an employee for economic reasons.

2- Compliance with the reclassification obligation

The first step in the redundancy procedure is to implement all the measures needed to avoid redundancies, including the search for new jobs.

The employees concerned should be offered every possible redeployment solution, first and foremost to their current position, but also to other types of position, including those requiring short-term training.

As a gesture of good faith in implementing this obligation, employees can also be informed individually, by registered mail, of the possibility of receiving outplacement offers beyond the national territory.

If your company belongs to a group, you will need to look for redeployment opportunities within the group.

☝ We recommend that you formulate all outplacement offers in writing, individually and precisely, and that you be able to give this writing a date certain.

If this obligation has not been properly fulfilled, or if it is impossible to prove that it has been, the dismissal may once again be deemed to lack real and serious cause, and you may be ordered to pay damages.

3- The proposal for a job security contract

If economic redundancy becomes unavoidable, the employee should be offered the possibility of signing a “contrat de sécurisation professionnel” at the time of the preliminary interview, and should be given the relevant documents so that he or she can be properly informed. The employee should also be informed of the possibility of contacting the public employment service to help him or her make a decision.

The employee has 21 calendar days in which to accept or reject the contrat de sécurisation professionnel.

This period must be respected in its entirety, even if the employee accepts or refuses the proposal during this period.

⚠ Warning: if this proposal is not made to the employee, you may be ordered to pay a contribution equal to 2 months’ gross salary, increased to 3 months if the employee finally joins the contrat de sécurisation professionnelle.

4- Consultation with employee representatives

In the case of individual redundancies, the Social and Economic Committee (CSE) must be consulted if the redundancy is linked to a reorganization of the company or concerns an employee representative.

It will also be consulted on the order of redundancies, unless this issue is already covered by a collective agreement.

When at least two employees are involved in a proposed redundancy plan, the CSE must be informed and consulted, and a meeting of the CSE must be held to discuss the matter.

In companies where there is no CSE, an official statement of absence must be drawn up, failing which the redundancy will be considered irregular.

⚠ If this procedure is not followed, or if no notice of default is drawn up, the employees concerned will be entitled to claim, in addition to the compensation due for their dismissal, a specific indemnity to compensate for the prejudice caused by this failure.

5- Meeting deadlines

The redundancy procedure imposes a number of deadlines that must be strictly adhered to.

Thus, the preliminary interview cannot take place less than 5 working days after presentation of the preliminary interview invitation letter.

The letter of dismissal can only be sent to the employee after a period of 7 working days in the case of small-scale collective redundancies, or even 15 days if the employee is an executive.

The DREETS must also be informed within 8 days of the redundancy letter being sent to the employee.

⏰ If the redundancy procedure has not been complied with, the employee concerned may claim compensation equivalent to one month’s salary.

* * *

The redundancy procedure is particularly complex, with many pitfalls that could result in your company being ordered to pay various sums.

Naturally, DESRUMAUX AVOCATS is at your disposal to help you implement this procedure.

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Formalities to be completed following the sale of a business

Once the final deed of sale has been signed, the procedure is far from over, and a number of formalities still need to be completed. These formalities must be completed so that the funds, sequestered in the secure account of one of the lawyers, can be released.

1. Registration of the assignment and payment of registration fees

The transferee must register the deed of transfer with the registration office of the tax department (SIE) in the area where the business is located. This formality must be carried out within one month of the date of the deed of sale, or the date on which the transferee takes possession of the property, whichever is earlier. Failure to meet this deadline will render the advertisement null and void.

Please note: in practice, the registration deadline is reduced to fifteen days, as the sale must be announced in a legal gazette within fifteen days of signing the deed, and registration must precede publication in the legal gazette. As the SIE is not always very reactive, it is important to follow up the file carefully, and even to follow them up with perseverance.

At the time of registration, unless the deed of transfer provides for costs to be shared or borne by the transferor, the transferee must pay transfer duties.

The transfer tax rates are as follows:

  • 3% of the sale price of the business for the portion of the price between 23,000 and 200,000 euros;
  • 5% for the portion of the price exceeding 200,000 euros.

Since January 1, 2016, an additional tax of 0.6% has been applied to transfers for valuable consideration of office, commercial and storage premises located in the Île-de-France region.

2. Publication in a legal gazette

Within 15 days of the sale, the transferee must publish the business sale in a legal gazette in the département where the business is located. The announcement must include the following information:

  • The date of the sale of the business ;
  • The identities and addresses of the previous and new owners of the business;
  • The nature and address of the business
  • The price at which the business was sold, broken down into tangible and intangible elements;
  • Information relating to the registration of the deed with the SIE ;
  • An election of domicile (within the jurisdiction of the commercial court of the transferred establishment);
  • Deadline for creditor objections.
publication journal annonce légales

3. Publication in BODACC

Three days after publication of the announcement in the legal gazette, the transferee must ask the clerk of the Commercial Court where the business is located to publish a notice in the BODACC.

Creditors of the business have 10 days from publication in the BODACC to object to the sale price.

4. Expiry of opposition period

The lawyers responsible for receiving objections must receive and process them.

More often than not, tax (or, more broadly, administrative) objections arise in view of taxes still to be paid (corporate income tax, VAT, CFE, etc.). There may also be objections from finance leasing companies.

Only in the absence of opposition, or after paying off creditors who have lodged opposition, will the transferor receive the transfer price.

If the sale price is not high enough to pay all the creditors who have lodged objections, these creditors can request a public auction of the business.

That’s why it’s important to obtain a statement of liens and pledges from the clerk’s office before finalizing the sale of a business, and to understand the importance of preferential and registered creditors.

5. Transferor’s tax returns

The seller of the business then has several deadlines to file his tax returns:

  • Within 45 days of publication of the sale in a legal gazette, the seller must close its accounts and notify the tax authorities of the sale;
  • Within 60 days of publication of the transfer in a legal gazette, the transferor must file all declarations relating to profits, capital gains, etc., with the relevant authorities.
  • VAT returns are subject to different deadlines, depending on the applicable system. However, the sale of the business is exempt from VAT if the sale concerns the entire business and if the purchaser is himself liable for VAT.

If all these steps are followed to the letter, then the tax solidarity deadline is 30 days after the tax returns have been filed. The funds can then be released to the seller.

If you’ve sold your business, or are considering selling your business or acquiring a business, we’re here to help.

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How to buy a business

Achat acheter fonds de commerce

You want to start your own business without starting from scratch. Buying a business is for you. Here’s how.

  1. Define your purchasing criteria

    Identify the type of business you wish to acquire, its geographical location, the size of the business, etc.

  2. Evaluate your budget

    Analyze your financial capacity and determine the budget you are prepared to allocate to the purchase of the business.

    Meet with lending institutions to secure financial partners.

  3. Searching for goodwill

    Look for opportunities that match your criteria. Use online platforms, specialized ads, or specialist agencies.

  4. Meetings and negotiations

    Meet potential sellers, visit business premises, and enter into negotiations to reach agreement on the price and conditions of sale.

    Perform due diligence to assess the financial health of the business, check current contracts, legal aspects, etc.
    If you haven’t already done so, this might be a good time to contact a lawyer.

  5. Drafting and signing the promise to sell

    The promesse de vente, also known as the compromis de vente, is a legal document that commits the seller and buyer to the sale of a business or other asset (real estate, shares, etc.).

    The promesse de vente formally commits the seller to transferring the property (in this case, the business) to the buyer, and the buyer to acquiring the property under the conditions defined in the document. During the period between the promesse de vente and the definitive purchase, the buyer can carry out in-depth due diligence (checking accounts, contracts, etc.) before the final conclusion of the sale.
    The promesse de vente is most often concluded subject to conditions precedent, such as obtaining financing or administrative authorizations, but also the absence of pre-emption by the town hall, the obtaining of certain building permits, the termination of certain contracts, etc.
    The promesse de vente is as important as the deed of sale itself. Failure to comply with it will have consequences, most of which are set out in the contract itself.

  6. Financing

    Finalize your financing with the lending institutions you contacted when evaluating your budget.

  7. Signature of the deed of sale

    Once all the checks have been successfully completed, and the suspensive conditions lifted, the final deed of sale is signed. This officially transfers ownership of the business to the buyer.
    The day before signing, you must transfer the funds to the secure account of the lawyer acting as escrow (usually the seller’s lawyer). These funds will be remitted to him once the tax solidarity deadlines have expired.

  8. Administrative formalities

    The lawyers will take care of all commercial and tax formalities following the sale. They will also follow up any objections from creditors.

We are available to support you at every stage of your business acquisition, and are particularly well versed in rapid transfer exercises between parties with short, imperative deadlines.

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More flexible rules for companies in formation

jurisprudence juge

If you’re running a business, or planning to launch a new entrepreneurial venture, a recent legal development could be of great interest to you (e.g. to acquire a new real estate lease, a business, or simply to contract with a company not yet registered with the RCS, etc.).

The French Supreme Court has recently relaxed the rules governing actions taken on behalf of companies in formation, simplifying the process of setting up and expanding businesses.

Background: in company law, a company in formation is a business in the process of being set up, but which has not yet been officially incorporated as a legal entity.

Articles 1843 of the French Civil Code and L. 210-6 of the French Commercial Code provide that during this formative period, when the company does not yet have a legal personality, individuals may act on behalf of the company in formation to negotiate contracts and perform other acts on behalf of the future company.

At the time, case law imposed very strict formalities for this type of deed, which had to be concluded “by Mr. X, acting in the name or on behalf of the company in formation Y”. Deeds could therefore be annulled if the wording was not reproduced.

From now on, it is no longer necessary to specify this wording when concluding contracts or other legal acts prior to the official registration of your company. This flexibility means that acts carried out in the name of your company, even if it is not yet formally established, will no longer be automatically considered null and void.

Recent rulings by the French Supreme Court (Cour de cassation) have put an end to this severe rule, since the judge hearing a case involving a deed concluded by a company in formation now has the power to assess, on a case-by-case basis, “whether the common intention of the parties was that the deed should be concluded in the name or on behalf of the company in formation, and that this company could then, after acquiring legal personality, decide to take over the commitments entered into” (Cass. Comm, November 29, 2023, no. 22-12865, no. 22-21623 and no. 22-18295).

This decision marks a welcome step towards simplifying procedures for small and medium-sized businesses, giving them greater latitude during the crucial training period.

This is excellent news for entrepreneurs, who will be able to concentrate more on developing their business without fearing the legal consequences of formal errors.

As we await the first rulings following this reversal, we hope that it will simplify the lives and disputes of contractors who were unaware of these strict rules with sometimes serious consequences.

Practical application: previously, if your company entered into a contract with a company in formation, for example for the sale of a batch of computer equipment, and the company in formation failed to specify its status in the contract, the latter could be annulled.

As a result, not only did you lose a potential customer, but you also had to manage the return of sold equipment, a waste of valuable time and resources.

With the relaxation of case law, such complex and costly situations are now less likely to occur, offering greater legal certainty to VSEs/SMEs in their commercial transactions.

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Liability claims – how far back can I go?

Prescription is the period of time during which a person can take legal action against another person to claim compensation for damage suffered. Once the prescription period has expired, it is no longer possible to take legal action against the person who caused the damage.

It is therefore particularly important to know the limitation period applicable to an action, and to be able to identify its starting point, at the risk of missing the opportunity to obtain damages.

There are several situations in which a liability claim can be made.

Here are a few recent concrete examples:

  • An action against a chartered accountant who had made an error in drafting an employment contract, resulting in a loss of over €40,000 for the company,
  • An action against a real estate agent who had rented out 21 apartments to destitute people, resulting in a loss of several hundred thousand euros,
  • An action against a recruitment firm that had accepted an assignment it knew or should have known was not feasible, resulting in a loss of several thousand euros.
prescription action justice temps sablier

The general limitation period for contractual liability is 5 years(article 2224 of the French Civil Code).

In other words, this is the time limit within which you must take legal action to hold the person who caused you damage liable (and not the time limit within which the action must be completed).

This limitation period begins to run “from the day when the holder of a right knew or should have known the facts enabling him to exercise it”.

In concrete terms, in the case of our liability action against a chartered accountant, the statute of limitations begins to run from the Court of Appeal’s ruling making the company’s conviction final (Cass. Civ. 1ère, June 29, 2022, no. 21-10.720).

So, even though the mistake was made 8 years ago, and the Court of Appeal decision has just been handed down, the action is not time-barred.

ATTENTION: in certain areas, there are shorter limitation periods.

For example, the one-year statute of limitations applicable to transport law.

Also, be aware that a clause in your contract may reduce the limitation period, under certain conditions.

If you believe that you have suffered financial or moral damage as a result of a fault on the part of a third party (partner, customer, supplier, etc.), we can examine together whether it would be appropriate to take legal action to obtain compensation for this damage.

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How to sell a business?

How to sell a business?

Many entrepreneurs and business owners own a successful business, but want to sell it to embark on a new entrepreneurial adventure, or change direction. Here’s how.

  1. Valuation of goodwill

    The valuation of a business is a crucial step in the sale process. It’s what enables you to sell as quickly as possible, and at the best possible price.

    There are several factors to take into account when valuing your business…

  2. Putting bids on sale and receiving offers

    Advertise the sale of the business using the appropriate platforms (internet, specialized newspapers, specialized agencies, etc.) and sort through the offers from potential buyers. These offers can include the proposed price, terms of payment, etc.

  3. Negotiation

    If your lawyer hasn’t helped you identify the components of the business for sale, it’s time to approach him or her to negotiate the terms of sale (price, payment terms, deadlines, etc.) with potential buyers.

  4. Signature of a promise to sell

    The promesse de vente, also known as the compromis de vente, is a legal document that commits the seller and buyer to the sale of a business or other asset (real estate, shares, etc.).

cession fonds de commerce argent transaction réussie

  1. Signature of the deed of sale

    Once all the checks have been successfully completed, and the suspensive conditions lifted, the final deed of sale is signed before a notary. This officially transfers ownership of the business to the buyer.

    On the day of signing, the buyer transfers the funds to the secure account of the lawyer acting as escrow (usually the seller’s lawyer). These funds will be returned to you once the tax solidarity period has expired.

  2. Formalities following the sale

    Your lawyers will take care of all the commercial and tax formalities following the sale. They will also follow up any objections from creditors.

    We are available to support you at every stage of your business transfer, and are particularly experienced in rapid transfer exercises between parties with short, imperative deadlines.

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Sharing value in small businesses

Article abstract:

The law of November 29, 2023 introduced a new mandatory experimental value-sharing scheme for small businesses.

In this article, we will review the conditions under which your company can enable your employees to benefit from this scheme, as well as the procedures for implementing it.

partage de valeur camembert droit social

The conditions for your employees to benefit from this scheme :

    • This experimental scheme concerns companies with at least 11 employees that are not obliged to set up a profit-sharing scheme.
    • This system must be set up when the company has made a net profit for tax purposes equal to at least 1% of sales for three consecutive financial years.

⚠ Net profit for tax purposes corresponds to the profit taken into account in the legal formula for calculating the special profit-sharing reserve, as set out in Article L.3324-1, 1° of the French Labor Code.

When these conditions are met, you must implement one of the following three measures:

  • Setting up a profit-sharing agreement ;
  • Setting up a profit-sharing scheme ;
  • Contributing to an employee savings plan ;
  • Pay a value-sharing bonus.

Important: if your company already implements one of these three schemes, then you will be exempt from this obligation, which you are already implementing in practice.

⏰ This obligation will apply to financial years starting on or after January 1, 2025, and the three previous financial years will therefore be taken into account to determine whether or not you need to set up one of these systems in your company.

We therefore recommend that you check your net taxable income for the years 2022 and 2023 to ensure whether or not you meet the required conditions, since you will be subject to this obligation, if applicable, as early as 2025, depending on the results for the year 2024.

The scheme will run for 5 years from the date of promulgation of the law, i.e. from November 29, 2023 to November 2028.

Cabinet DESRUMAUX AVOCATS will be happy to provide you with further information on this scheme and, if you are concerned, to help you set up your own.

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Increased vigilance when it comes to signing up pregnant employees to the contrat de sécurisation professionnelle (job security contract)

salariée enceinte sécurisation professionnelle

Our previous article on redundancies highlighted the obligation to offer employees a “contrat de sécurisation professionnelle” (CSP). However, where a pregnant employee is concerned, particular attention must be paid to the justification for dismissal.

In the event of redundancy, employees are obliged to be offered a Contrat de Securisation Professionnelle (CSP). However, particular attention is required when a pregnant employee is concerned.

⏰ An important reminder: Dismissal of a pregnant employee is prohibited, except in cases of gross misconduct or if the position cannot be maintained for reasons unrelated to the pregnancy. Otherwise, breach of contract is considered null and void.

The Cour de cassation (French Supreme Court) points out that the employee’s acceptance of the CSP does not alter this rule. Even in this context, the employer must justify the economic dismissal by demonstrating that maintaining the position is impossible for reasons other than pregnancy.

According to established case law, the existence of an economic reason is not sufficient to justify the termination of an employee’s employment contract during pregnancy.

Also: when the employee concerned is pregnant, the letter of dismissal must indicate the economic reason for dismissal (1) and also justify the impossibility of maintaining the employment contract (2), which must necessarily be unrelated to the pregnancy.

If the two grounds are not included, the termination of the employment contract will be null and void. As a result, the employee will be entitled to claim damages representing at least 6 months’ salary.

⚠ Important: This principle applies in the same way to protected employees in the event of an industrial accident. CSP must not be used as a loophole to circumvent legal protections against dismissal.

In other words, as soon as an employee benefits from protection against dismissal, particular attention must be paid to the grounds for dismissal, whatever the terms of the dismissal: in this case, the conclusion of a CSP is not sufficient to justify the dismissal of a sick employee or a pregnant employee.

We strongly advise you to be vigilant if you are planning to dismiss employees who benefit from special protection under legal provisions.

Naturally, DESRUMAUX AVOCATS will be happy to assist you with your dismissal procedures.