What happens to unilateral undertakings in case of merger?
Cass. soc., 22 May 2024, n° 23-10.214
The French Supreme Court has just provided valuable insights into the impact of mergers on unilateral undertakings (engagements unilatéraux).
Key points:
Employer unilateral undertakings (engagement unilatéraux) are an integral source of French employment law (together with statutes, collective bargaining agreements, established company practices (usages), etc.) by which the employers generally provide employees with additional benefits.
In mergers by absorption - be it in the context of an intra-group reorg or an M&A transaction - employees of the absorbed entity transfer into the surviving company by operation of French law (so-called "TUPE" transfers).
So, what happens to unilateral undertakings in case of merger?
any unilateral undertaking entered into by the absorbing entity before the merger remains as is;
unilateral undertakings by the absorbed entity "survive" post-merger and continue to apply to the transferring employees;
but the transferring employees also benefit from the absorbing entity's unilateral undertakings from day one of their transfer (this applies to collective agreements and usages as well).
This is what the French Supreme Court just pointed out: (22 May 2024, n° 23-10.214)
In the context of an intra-group merger, the claimant had transferred from company A to company B on 31 December 2013.
After leaving Company B in 2015, the employee filed a claim to obtain payment of a 12,5% "corporate bonus" for FY 2014, based on a Company B unilateral undertaking implemented pre-merger.
Company B claimed that the employee was only eligible to a 5% bonus, as such lower rate resulted from a unilateral undertaking entered into by Company A pre-merger that had to be maintained post-merger by Company B to the benefit of transferring employees, as opposed to the 12,5% bonus awarded to the legacy employees of Company B. The Paris Court of Appeal agreed and further argued that, because the transferring employees and the legacy employees of company B were not in the same situation, this approach did not breach the "equal pay for equal work" principle.
The French Supreme Court overruled this: although the absorbing entity had to maintain all unilateral undertakings entered into by the absorbed entity, it also had to open its own pre-merger unilateral undertakings to the transferring employees – who thus could not be denied the 12,5% bonus rate for FY2014.
A good reminder to carefully audit the existing benefits in any operations entailing TUPE transfers!