Defending Employers Against Corporate Veil Piercing and Assisting Employers to Tiptoe Out of France

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U.S. employers with French operations must focus carefully on their investments or divestment operations. Through the "joint employer theory," employees of a French company can now pierce its corporate veil to hold the ultimate parent, even one based in the United States, liable for restructuring costs, including severance packages and damages for unfair dismissal.

The French Supreme Court has set forth three cumulative criteria for a foreign company to be judged a joint employer (Jungheinrich 18 January 2011), and as a result sentenced to pay French personnel liabilities:

- A common management (e.g., someone from the U.S. parent company board catapulted into the chairman position of the French subsidiary)

- A direct or indirect majority stake in the French subsidiary

- A common business carried out by the parent and the subsidiary (obvious notion in an industrial group, but that has been extended to portfolio management for holdings or private equity funds)

It creates a great concern for private equity funds where "top-down" and hands-on control on companies in portfolio is embedded in the business model. So it is for international group holdings. Alas, this is the new battlefield for French employees of U.S. companies.

"Better be a living rat than a dead lion" is the moral of the second breathtaking case (Dunlop Goodyear 1st February 2011): Shutting down a business in France will not be a legitimate reason for massive layoffs.

Please see full Alert below for further information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Reed Smith | Attorney Advertising

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