1. In a difficult economic and health context, with a risk of “chain bankruptcies in the coming months” (the OECD having recently sounded the alarm), should investors fear a multiplication of claims by employees dismissed for economic reasons as a result of shareholder decisions?

Will tort liability actions thrive on the ashes of co-employment?

2. While everyone is having fun predicting, if not the “death,” at least the decline of the recognition of the status of co-employer of the parent company, the grounds of tort liability – theoretically less restrictive – could allow this type of action to prosper.

The decline in the recognition of co-employment

3. Traditionally based on the existence of a relationship of subordination vis-à-vis the employer and the parent company, case law gradually replaced, from 2007 onwards, the notion of a “relationship of subordination” with the search for a confusion of interests, activities and management between co-employer companies (Cass. soc. 19-6-2007 no. 05-42.551 FS-PB: RJS 10/07 no. 1105).

Particularly used in the context of economic dismissals in distressed companies, the concept of co-employment flourished in the early 2010s with the Métaleurop and Jungheinrich cases (Cass. soc. 28-9-2011 no. 10-12.278 F-D: RJS 12/11 no. 929; Cass. soc. 30-11-2011 no. 10-22.964 FS-PBR: RJS 2/12 no. 182).

The Court of Cassation gradually set aside the notion of subordination in favor of a managerial and operational analysis of companies (in particular interference in the management of the subsidiary and/or its personnel).

4. Subsequently, the scope of co-employment has continuously narrowed since 2014, when, in the so-called “Molex” ruling, the Court of Cassation specified:

“apart from the existence of a relationship of subordination, a company belonging to a group may be considered a co-employer with respect to staff employed by another only if there exists between them, beyond the necessary coordination of economic activities between companies belonging to the same group and the state of economic dominance that such membership may generate, a confusion of interests, activities and management manifested by interference in the economic and social management of the latter” (Cass. soc. 2-7-2014 no. 13-15.208 FS-PB: RJS 10/14 no. 662).

More recently, the Court of Cassation abandoned the requirement of triple confusion of interests, activities and management. It now requires permanent interference by the parent company or shareholder in the economic and social management of the employer company, leading to the total loss of autonomy of the latter (Cass. soc. 25-11-2020 no. 18-13.769 FP-BFRI: RJS 2/21 no. 63), which will often be difficult – if not impossible – to demonstrate.

5. While the “death” of co-employment – long predicted by some authors – has not been confirmed, it seems clear that the intention of the Supreme Court is to restrict recognition of co-employment to situations that may be described as “exceptional.”

In this context, seeking the tort liability of the parent company or shareholder could – at least at first glance – prove easier for employees to implement. What is the reality?

The rise of tort liability actions against the parent company or shareholder

6. Based on Article 1240 of the Civil Code, the tort liability of a natural or legal person may be incurred where the existence of damage, fault, and a causal link is established. Establishing these elements allows the victim of the alleged damage to obtain compensation from its author.
7. Since 1990, the Court of Cassation has accepted the possibility for employees to seek to engage the tort liability of the parent company of their employer following their dismissal, even though, in the case at hand, their claim was rejected due to lack of proof of fault on the part of the parent company, the Court holding that the company had not abused its position vis-à-vis its subsidiary and had therefore committed no fault (Cass. soc. 3-4-1990 no. 88-43.378 D; Cass. soc. 28-9-2008 no. 09-41.245 F-D: RJS 12/10 no. 897).

Case law subsequently accepted the possibility of extending such action against the “main” shareholder of the employer company, where that shareholder’s blameworthy negligence led to the downfall of the employer, thus characterizing a fault (Cass. soc. 8-7-2014 no. 15-14.570 FS-PB: RJS 10/14 no. 703; Cass. soc. 24-5-2018 no. 16-22.881 FS-PB: RJS 8-9/18 no. 530).

8. However, the tort liability of the parent company cannot automatically be sought – let alone upheld – when a subsidiary is placed in insolvency proceedings and/or forced to implement economic dismissals.

Proof is required of a fault by the parent or shareholder which, in the established expression, contributed to the downfall of the employer (drying up of the subsidiary’s cash flow, transfer of assets under disadvantageous conditions for the subsidiary, etc.).

Moreover, the situation of a subsidiary is not always attributable to the parent company. The Court of Cassation has specified that the parent is not required to implement, in place of its subsidiary, an industrial strategy, where a human resources management policy is in place, notably through training plans or psychosocial risk prevention, and where the rapid deterioration of the subsidiary’s cash flow justifies the parent company’s refusal to finance a job protection plan when it is itself facing economic difficulties (Cass. soc. 24-5-2018 no. 16-18.621 FS-PB: RJS 8-9/18 no. 530).

It is therefore welcome that the parent’s lack of willingness to contribute to its subsidiary’s needs is not in itself wrongful, subject, of course, to the hypothesis in which a non-economically viable subsidiary would have been kept “on life support” for years before being abruptly abandoned.

9. With regard specifically to the characterization of such fault, the tort liability of the parent or shareholder is not sought in that capacity (which would require proof of a particularly serious personal fault: Cass. com. 10-2-2009 no. 07-20.445 F-PB; Cass. com. 18-4-2014 no. 12-29.752 FS-PB).

On the contrary, this liability is sought as a third party to the employment contract, so that even a slight fault may, for the Social Chamber, potentially be sufficient to engage such liability (Cass. soc. 24-5-2018 cited above).

10. As part of an action for liability brought against Bank of Scotland based on the granting of ruinous loans to their employer, the Court of Cassation held that employees who had already received severance pay and damages for dismissal without real and serious cause in labor court proceedings had already been compensated for the damages related to the “loss, for the future, of the remuneration they could have received [and] the moral prejudice resulting from the loss of their job […] [loss of chance of an optimized or equivalent return to employment]” (Cass. soc. 27-1-2021 no. 18-23.535 FP-PBRI: RJS 4/21 no. 211).

The solution is logical since the same damage cannot be compensated twice. Moreover, if, in 2018 (Cass. soc. 24-5-2018 cited above), the Court of Cassation had ordered the main shareholder of Lee Cooper France (the Sun Capital fund) to compensate employees dismissed following the judicial liquidation of their employer, it was after noting that the latter had only made a claim for damages for dismissal without real and serious cause against Lee Cooper on a subsidiary basis, so that there was no overlap in compensation based on contractual liability (against Lee Cooper France) and tort liability (against Sun Capital).

11. In doing so, the Court of Cassation appears to limit the interest for employees in seeking the tort liability of their employer’s parent company, all the more so as such proceedings must be brought before a judicial court and not before the labor court.

An action for liability before the labor court would only be admissible on a subsidiary basis, provided that the existence of a co-employment situation is primarily asserted.

However, the scope of the Supreme Court’s decision of January 27, 2021 may be relativized in light of rules that have since become applicable.

New issues could revive the interest of this action

12. Since the entry into force of Ordinance No. 2017-1387 of September 22, 2017, Article L 1235-3 of the Labor Code provides – except in cases of nullity of the dismissal – for a cap on compensation for dismissal without real and serious cause depending on the size of the company and the employee’s seniority, commonly referred to as the “Macron scale.”

Some authors and practitioners see in this a breach of the civil law principle of “full compensation for damage.”

Some lower courts sometimes follow this reasoning. Very recently, the Paris Court of Appeal set aside the application of the scale on the grounds that it did not allow “adequate and appropriate compensation for the damage suffered, compatible with the requirements of Article 10 of Convention No. 158 of the ILO” (CA Paris 16-3-2021 no. 19/08721: FRS 8/21 inf. 12 p. 31).

However, the principle remains the application of this scale in labor disputes, and employees therefore know, from the outset, the maximum amount of damages they may claim in the event of dismissal without real and serious cause.

13. For its part, an action in tort liability against the parent company or the shareholder of the employer falls, in principle, within the jurisdiction of the judicial court or, where applicable, the commercial court (Cass. soc. 13-6-2018 no. 16-25.873 FS-PB: RJS 8-9/18 no. 562).

Such an action, in principle, escapes the application of the “Macron scale.” Employees could therefore favor, assuming that their dismissal actually results from a fault of the parent company or shareholder at the origin of the economic difficulties of their employer that led to their dismissal, a tort liability action in order to escape the application of the scale and obtain compensation for the damage resulting from the loss of their job beyond the caps provided for by the Labor Code.

14. Pending a ruling from the Court of Cassation confirming that Article L 1235-3 of the Labor Code allows full compensation for damage (the Paris Court of Appeal ruling of March 26, 2021 is subject to appeal before the Court of Cassation) and is compatible with the provisions of Article 10 of Convention No. 158 of the ILO (the Court of Cassation, sitting in plenary session, has already issued two opinions to that effect on July 17, 2019: Cass. opinion 17-7-2019 nos. 19-70.010 PBRI and 10-70.011 PBRI: RJS 11/19 no. 563), the most audacious litigants could seek damages from the parent company or shareholder on the basis of its extra-contractual liability, in addition to a claim against the employer for dismissal without real and serious cause, for the portion of the damage exceeding the “Macron scale” (this scale was not applicable to the facts of the Court of Cassation ruling of January 27, 2021 cited above).

Indeed, as recalled by the Court of Cassation in its explanatory note relating to the ruling of January 27, 2021, although it is prohibited to award compensation exceeding the damage, the principle of full compensation nevertheless requires that all damage suffered be compensated.

15. Furthermore, the limitation period applicable to challenging a dismissal is twelve months from the notification of the termination (Labor Code, art. L 1471-1), whereas the five-year limitation period under ordinary law, which begins to run “from the day on which the holder of a right knew or should have known the facts enabling them to exercise it” (Civil Code, art. 2224), should apply in the context of a tort liability action.

Accordingly, “late” litigants could take advantage of this opportunity if they did not bring their case before the labor court in time.

16. Finally, echoing the risk of “chain” bankruptcies feared in the coming months, bringing a tort liability action against the parent company or shareholder would allow the parties concerned to escape the cap on the amount of compensation covered by the wage guarantee scheme (AGS) in the context of insolvency proceedings.

This could become all the more financially risky for parent companies and shareholders as the proposed reform of the AGS raises concerns for some about the amounts covered by this mechanism, with the CFDT even fearing “the eventual disappearance of this scheme” (CFDT news of 8-2-2021).

The bell has therefore not yet tolled for tort liability actions brought against the parent company or shareholder…