France: Obligations Towards The Social And Economic Committee (‘Committee') In French Simplified Joint Stock Companies Of More Than 50 Employees For "Corporate" Operations

As a reminder, the Ordinance 2017-1386 of September 22, 2017 created the Social and Economic Committee ("COMMITTEE") for companies with at least 11 employees. The provisions of this ordinance have gradually come into force since January 1, 2018 to allow for the transition.

The purpose of this COMMITTEE shall be to permanently substitute for the existing staff representative institutions that are the Works Council (Comité d'entreprise), the staff delegates Délégués du personnel) and the Committee for health, safety and working conditions (Comité d'hygiène, de sécurité et des conditions de travail/ CHSCT), and this as from January 1, 2020.

Insofar as the election of the members of the COMMITTEE has to take place no later than January 1, 2020, the issue is topical. It seemed therefore appropriate to review the obligations of a simplified joint stock company (Société par actions simplifiée/ SAS), which is the most common form of joint stock companies to date, towards the COMMITTEE in companies with at least 50 employees when dealing with corporate law. Indeed, for those companies, the COMMITTEE's powers are almost identical to those of the Works Council and the later already had to be involved in certain corporate operations.

We therefore hereby do not cover the obligation of information and / or consultation of the COMMITTEE on purely "operational" matters (such as the strategic orientations, the economic and financial situation, the social policy, the working conditions and employment and in particular the use of fixed-term contracts and temporary work, hours of work, holidays, sublease of employees, social protection ...) which do not qualify as "corporate" operations and do not affect its legal structure and/or which are not related to an equity investment by or in the SAS in question.

Similarly, we do not hereby address the COMMITTEE's powers in companies with 11 to 49 employees. The COMMITTEE in those companies takes over the powers which were those of the staff delegates ("Délégués du personnel") and those were not involved in "corporate operations" anyway.

1 - Obligations at the time of shareholders' meetings and collective decisions

In companies with at least 50 employees, COMMITTEE delegates can:

- require the inclusion of draft resolutions on the agenda of any meeting (French Labor Code, Article L. 2323-67, paragraph 2 for the Works Council; Article L 2312-77, paragraph 2 for the COMMITTEE);

- send delegates to attend the shareholders' meetings; they are heard at their request on all the deliberations requiring a unanimous vote of the shareholders (French Labor Code, Article L 2323-67, paragraph 3 for the Works Council; article L 2312-77, paragraph 3 for the COMMITTEE) ;

- petition the court to seek the appointment of a representative in charge of convening the general shareholders' meeting in case of emergency (French Labor Code, Article L 2323-67, paragraph 1 for the Works Council; article L 2312-77, paragraph 1 for the COMMITTEE).

The SAS has therefore an obligation at the time of shareholders' meetings to ensure that:

- the COMMITTEE delegates be given the possibility to submit requests for the registration of draft resolutions and their review;

- the COMMITTEE delegates be informed within a reasonable timeframe of the location, date and time of the shareholders' meeting so that they can present their draft resolutions and attend such meetings if they wish. Formally, there is no legal or regulatory requirement to "summon" the COMMITTEE delegates to the general shareholders' meetings. However, it is necessary to inform them of such meetings for the aforementioned reasons. It is also essential to do so within a time frame which is consistent with the minimum deadline for convening the shareholders to the shareholders' meetings so that the draft resolutions of the COMMITTEE can be communicated to them.

In SASs, the rules for convening the shareholders to the shareholders' meetings are organized in and by the articles of association (recipients, forms, deadlines ...). It is therefore important to ensure that the articles of association have been updated after the enactment of the Ordinance 2017-1386 of September22, 2017 which replaces the Works Council by the Committee and to apply those rules (French Labor Code, article 2323-16 for the Works Council; article R 2312-34 for the COMMITTEE).

As the SASs are not required to set up a "board of directors", the provisions obliging to convene the COMMITTEE delegates to the boards of directors' meetings are not applicable. Nevertheless, the articles of association must designate the corporate body (president or other) towards which the COMMITTEE delegates will exercise the rights they normally have towards the board of directors under the French Labor Code (article L 2323 -62 and seq. for the Works Council; article L 2312-72 and seq. for the COMMITTEE).

For shareholders' decisions taken outside general shareholders' meetings (which is possible in SASs), the articles of association must organize the manner in which the COMMITTEE delegates will be able to exercise the rights they normally exercise vis-à-vis the shareholders' meetings (Article L. 2323-66 for the Works Council; article L. 2312-76 for the COMMITTEE) and, in particular, specify towards which organ they can exercise them.

In SASs with one single shareholder and at least 50 employees, the COMMITTEE must in our opinion be able to exercise the same rights with respect to the sole shareholder's decisions as if they were taken in a shareholders' meeting since the text does not make any exception for SASs with one single shareholder.

2 - Communication obligations towards the COMMITTEE

2.1 Documents related to the approval of accounts

In commercial companies with at least 50 employees, the employer is obliged to make available to the COMMITTEE the documents that must be put at the disposal of the annual shareholder's meetings, i.e., balance sheet, income statement and notes, management report, reports of auditors, reports on employees' options to subscribe or purchase shares or on allocation of free shares etc. (French Labor Code, Article L 2323-13, 2° for the Works Council; article L 2312-25, 2 ° for the COMMITTEE).

2.2 Provisional management documents

Companies of a certain size (at least 300 employees or with a turnover of at least 18 million euros of cash flow (French Labor Code, Article R 232-2, paragraph 1) must establish an asset situation of the available and realizable assets, a cash flow statement and a provisional financing plan (French Labor Code, Article L 232-2, paragraph 1). The companies cease to be subject to this obligation when they do not fulfill any of the conditions referred to above for two successive exercises (French Labor Code, Article R 232-2, paragraph 2).

The above documents, referred to as "forecasting documents", which must be analyzed in a written report by the president of the SAS or the managers designated for this purpose, must be communicated (together with this report) simultaneously to the auditor (if the company in question is endowed) and to the COMMITTEE, within eight days of their establishment (French Labor Code, Article L 232-4, paragraph 1). The auditor's report on these documents, if applicable, is also sent to the COMMITTEE.

2.3 Social report specific to each establishment of at least 300 employees

For SASs with more than 300 employees, and unless otherwise agreed by the company, the social report specific to each establishment of at least 300 employees, which is sent to the shareholders (French Labor Code, Article L. 2323-25 for the Works Council; article L 2312-32 for the COMMITTEE) must also be submitted to the COMMITTEE for advice (Article L 2323-20, paragraph 1 and article L 2323-3, paragraph 1 for the Works Council; art. L 2312-26, I-paragraph 1 for the COMMITTEE).

The COMMITTEE's advice must then be communicated to the shareholders (French Labor Code, Article L. 2323-25 for the Works Council; article L. 2312-32 for the COMMITTEE).

3 - Obligation to inform and consult on specific transactions under company law

The COMMITTEE must be informed and / or consulted on numerous operations either recurrently or on a one time basis.

3.1 Plans for free allocation of shares or options for the subscription or purchase of shares

As a reminder, today the Works Council must be consulted prior to any decision dealing with employees' compensation rules (French Labor Code, Article L. 2323-46). It is therefore advisable that the Works Council be consulted prior to the implementation of certain plans for the issue of free shares or share subscription or purchase options and, in particular, if the plan concerns a large number of employees or leads to a significant increase in the share capital.

The texts governing COMMITTEES in companies with at least 50 employees are less precise: According to article L 2312-8 of the French Labor Code, the COMMITTEE must be consulted on the conditions of employment and work. This text though does not expressly refer to decisions that concerns employees' compensation rules. It is therefore not certain that this obligation applies to the COMMITTEE.

3.2 Changes affecting 'the economic or legal organization'

As for the Works Council, Article L2312-8 of the French Labor Code on the general powers of the COMMITTEE in companies with at least 50 employees, provides that the COMMITTEE is informed and consulted on matters relating to the organization, management and the general running of the company, and in particular the modification of its economic or legal organization (L 2323-33, paragraph 1 for the Works Council; article L 2312-8, paragraph 2 for the COMMITTEE).

The additional clarifications that were contained in Article L2323-33 for the Works Council on the notion of "modification of the economic and legal organization" have however not been reproduced for the COMMITTEE. In our opinion, it is though preferable to follow them. Hence, the COMMITTEE must in particular (and without this list being exhaustive):

- Be informed and consulted in case of mergers, scissions, transfers, significant changes in the company's production structures, acquisition or sale of subsidiaries within the meaning of Article L. 233-1 of the French Commercial Code ;

- Be consulted on the consequences of such project on employment;

- Be consulted in case of acquisition of a stake in another company;

- Be informed in case of acquisition of a stake in the company of which the company is aware.

3.3 Declaration of default of payment and insolvency proceedings

In companies with at least 50 employees, the COMMITTEE must be informed and consulted before any declaration of default of payment (French Labor Code, Article L. 2323-48 for the Works Council; Article L 2312-53 for the COMMITTEE).

Although the following texts have not been updated to take into account the gradual replacement of all staff representative institutions by the COMMITTEE delegates, it seems to us that the same rules also apply to the COMMITTEE delegates.

- The Works Council delegates do not have the power to ask for the company's receivership or judicial liquidation. However, they may communicate to the president of the court or to the public prosecutor's office any fact indicating that the company is in a state of default of payments (French Commercial Code, Article L 631-6);

- When adjudicating on a judicial safeguard, an insolvency proceeding or a judicial liquidation, the court can only adjudicate after having heard (or duly called) the chief executive officer and the Works Council delegates or, as the case may be, the staff representatives (art. L 621-1, paragraph 1, L 631-7, paragraph 1 and L 641-1, I);

- In the event of insolvency proceedings, the court may impose, under certain conditions, the capital increase contemplated in the draft plan by appointing a proxy holder to vote in lieu of the opposing shareholders or by ordering the transfer of the shares held by them (French Commercial Code, Article L 631-19-2). For doing so, the court must first hear the Works Council delegates or, as the case may be, the staff delegates (or failing this, the employee delegate elected in the context of the collective procedure) (French Commercial Code, Article L 631-19-2, paragraph 8).

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Any breach of the foregoing rules is at least potentially constitutive of an obstruction to the COMMITTEE's functioning punishable by a fine of € 7,500 (Articles L 2328-1 and L 2317-1 of the French Labor Code).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.