Recent data shows that more than 37,000 jobs in France disappear each year. This is due to a lack of potential buyers in viable firms of less than 50 employees. Nevertheless, France is well-known for its unions and strikes but also its many laws protecting workers’ interests including the Florange Law, Hamon Law or even more recently the El Khomri Law.
So, how difficult is it to sell a business in France today? And how will this environment evolve in years to come?
Today, in order to divest a company in France, the management team needs to comply with several laws. Most recently, the Hamon Law or the Florange Law.
Firstly, the Hamon Law
Applicable since 2016, this law is directed at firms of less than 250 employees. To sell the company, the management team must inform employees at least two months before the transaction, allowing them to make an offer. If they fail to do so, the company risks financial penalties (2% of the amount of the transaction).
Secondly, the Florange Law
Applicable since 2014, this was one of Francois Hollande’s promises to protect viable companies from dismantlement. Businesses with more than 1,000 employees and a potential risk of closing, must actively search for a purchaser. Regardless of whether they find one, they must show that they have endeavoured to do so. Additionally, if the company declines a serious offer from a buyer, according to the works council, they could go to court and risk penalties of €29,000 for each job lost.
These legal obligations and penalties have combined to make France less attractive for potential investments from big companies or investors. Therefore, last year the El Khomri Law was introduced to boost employment and to make it easier to acquire a business in France. Unfortunately, this law proposal was not very well-received by the French Unions, and a wave of strikes ensued. Still, the government was determined to pass it, and after many amendments, the law came into effect in October of this year.
So, what does the El Khomri Law contain?
Article 41 of the El Khomri Law is key for divestment in France. If a business with more than 1,000 employees is contemplating closure and a potential buyer is interested, there is an option to ‘lay-off’ employees. This is extremely important for company divestments. Today, many potential buyers won’t take over a site because of the number of employees as they cannot afford to pay their salaries.
So, even though divestments in France seem highly constrained, not only by the law, but also with strong unions leading to multiple strikes, the storm seems to be clearing. El Khomri Law brings a second wind to divestments in France, making it appealing for both French and ex-French investors.