Transfer of business – L.1224-1 of the French Labor Code : The absence of a management buyout is not sufficient to rule out the existence of an autonomous economic entity

Cass. Soc. January 31, 2024, n°21-25.273

A cleaning company was operating a contract to provide parcel loading and unloading services on the site of its co-contracting customer, using equipment provided by the latter. The client company finally informed the service provider that the service contract would not be renewed, so that the operation in question would henceforth be entrusted by the client company to a new specialist company.

However, the new company refused to continue the employment contracts of the fourteen employees of the outgoing company assigned to the operation of this activity.

One of the employees brought an action for interim relief against the incoming and outgoing companies.

On appeal, the judges noted that there was no evidence of the existence of dedicated management for the transferred activity. On the basis of this lack of management, the appeal judges concluded that the transferred entity did not have the necessary resources to operate, and was therefore an autonomous economic entity.

However, this was not the analysis of the French Supreme Court, which noted that the incoming company had taken over the logistics services contract awarded to the outgoing company, and had continued, on the same premises and with the same equipment, the same activity to which the employees had previously been assigned the 14 warehouse employees, so that there had indeed been a transfer of “significant tangible and intangible elements necessary for the operation of the business” in question.

Thus, according to the Labour Court, “the fact that two of the employees managing the business had not been taken on by the new contractor was not sufficient to exclude the existence of a transfer of an economic entity maintaining its identity, within the meaning of article L. 1224-1 of the French Labor Code”.

Ultimately, for the Cour de cassation, the presence of managerial staff is neither necessary nor decisive to characterize the existence of an autonomous economic entity (an organized group of people and tangible or intangible assets enabling the exercise of an economic activity pursuing a specific objective), within the meaning of Article L. 1224-1 of the French Labor Code, which exists, in a more global way, each time other significant tangible and intangible elements necessary to the operation of the activity concerned are characterized.