TUPE, or not TUPE, that is the question

"TUPE, or not TUPE, that is the question"

French Supreme Court renders an interesting ruling on automatic employment contract transfers.

Under French employment law, employees automatically transfer from one employer to another by operation of law in case of transfer and continuation of a so-called "autonomous economic entity", that is in case of transfer and continuation of an "organized set of persons and tangible or intangible assets allowing the exercise of an economic activity pursuing a specific goal".

As one may expect, this definition opens for (fact-centered) debate.

In the case at hand, the defendant refused to take on fourteen blue-collar employees dedicated to the transferred economic activity, and the Lyon Court of appeal agreed that, because this group of individuals was not supervised by managers specifically dedicated to said activity, it did not qualify as an autonomous economic entity.

The French Supreme Court overruled this reasoning:

• the fact that managers dedicated to the economic activity did not transfer was not sufficient to deny the actuality of the transfer and continuation of an autonomous economic entity;

• because the defendant continued the economic activity to which the fourteen employees were dedicated, in the same premises and using the same equipment, "the transfer of significant tangible and intangible business assets" had occurred.

Although this case did not arise in the framework of an M&A transaction, it should be kept in mind when identifying automatically transferred employees in the context of asset deals.