Retroactivity of the substitution agreement

Cass. soc. , May 15 2024, n° 22-17.195, Published in the Bulletin

A substitution agreement may be retroactive to a date prior to its signature, but during the period between its coming into effect and its signature, its terms may not deprive employees of the rights they hold under the law or under the principle of equal treatment.

A company transfer takes place on April 1, 2016. Seven months after the transfer, the new employer concluded a substitution agreement with its representative trade union organizations to replace the collective agreements in force with the former employer.

A clause in this substitution agreement stipulates that its terms will apply retroactively to the date of the company transfer, i.e. from April 1, 2016.

An employee brought an action before the industrial tribunal claiming back pay for the period from the date of the transfer of the company to the date of signature of the substitution agreement, arguing that:

The conventional pay scale applicable at his former employer should have been applied to him during this period, in application of the legal principle of temporary survival of collective agreements following a transfer of business;

A collective agreement cannot stipulate that it will apply retroactively to a date prior to its signature.

The appeal judge dismissed the employee’s claim, and the Cour de cassation confirmed the appeal judge’s position:

Firstly, it recalls that:

• In accordance with article L. 2261-14 of the French Labor Code: collective agreements are automatically invalidated by the transfer of a company; the employer is obliged to open negotiations on a substition agreement within 3 months of the transfer; the invalidated collective agreements continue to have effect until a substitution agreement comes into force or, failing that, for 15 months following the transfer.
• In accordance with its constant jurisprudence, (i) a collective agreement may provide for the granting of salary benefits for a period prior to its signature, (ii) but during this period prior to its signature, this agreement may not deprive employees of the rights they hold under the law or under the principle of equal treatment (Soc., January 13, 2021, n° 19-20.736, Published in the Bulletin; Soc., November 28, 2018, n° 17-20.007, 17-20.008 Published in the Bulletin; Soc., January 24, 2007, n° 04-45.585; Soc., July 11, 2000, n° 98-40.696).

Articulating these two rules, the Cour de cassation concludes that:

• The substitution agreement may indeed have retroactive effect to the date of the transfer of the company.
• But during the period from the date of the transfer to the date of signature of the substitution agreement, the agreement cannot deprive employees of the rights they hold under the principle of equal treatment or under the law (and in particular the legal right to benefit from the collective agreements in force with their former employer until the signature of a substitution agreement or, failing that, during the 15 months following the transfer of the company, in accordance with article L. 2261-14 of the French Labour Code).

This means that during the period between the transfer of the company and the signature of the substitution agreement, only the terms of the substitution agreement that are more favorable to employees can be applied retroactively.

In this case, while the substitution agreement did indeed stipulate a new salary scale, it also stipulated a wage supplement for all employees, designed to compensate for the difference between their base salary prior to the transfer and the salary stipulated in the new salary scale, so that for the period between the transfer and the signature of the substitution agreement, the employee had not been deprived of his rights under the agreements in force with his former employer: the appeals judge therefore rightly dismissed the employee’s claims for back pay.

The importance of this ruling is double:

• First, it confirms that the constant jurisprudence on the retroactivity of collective agreements applies under the same conditions to substitution agreements;
• Secondly, it clarifies the notion of “rights that employees hold under the law”, indicating that the principle of temporary survival of collective agreements automatically invalidated by the transfer is indeed a right that employees hold under the law, so that the substitution agreement may be retroactive during the period of temporary survival, but always in a more favorable way than the invalidated agreements.