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From matrix management… To status as Co-employer

In a decision dated 15 April 2008, the Conseil de Prud’hommes (Employment Tribunal) of AUBENAS acting as a decisional panel, handed down a very interesting decision with respect to determination of status as employer, in an international group.

The facts were as follows :

The French company BSA, wholly-held by the NOVOCERAM company, had planned to close its production facility located in BOURG-SAINT ANDEOL. Since BSA had been placed in judicial liquidation, all of the employees were made redundant.

Those employees then decided to apply for the sentencing, subject to joint and several liability, of NOVOCERAM, holding 100% of BSA, and of GRUPPO Concorde, an Italian company holding NOVOCERAM through the intermediary of a subsidiary, by claiming that NOVOCERAM and GRUPPPO Concorde held status as co-employers.

The Conseil de Prud’hommes ruled that it held material jurisdiction, and it accepted the status as co-employers of the companies GRUPPO CONCORDE and NOVOCERAM, based on the following criteria:

  • Execution of the labour services under the legal subordination of each company,

  • A common accounting, administrative, technical and financial department,

  • Production dedicated wholly to NOVOCERAM.

On this basis, the companies NOVOCERAM and GRUPPO CONCORDE were sentenced, subject to joint and several liability, to indemnify the employees for unjustified dismissal, since they failed to comply with their reassignment obligations.

The said judgment and a consideration of the reasoning adopted should encourage international groups to do some general thinking about this question.

The fact is that the majority of counsel advising international-sized businesses will have taken note of this, and will certainly have asked themselves the following question:

Who is the real employer of those international-sized companies, subsidiaries of parent companies established abroad, and whose senior manager in France actually has no autonomous decision-making power?

The use, by such international groups, of a matrix management that is explained by internationalisation and the increasing complexity of tasks results in an unparalleled economic situation: while the managers are generally attached to several different supervisors, who are employed by various subsidiaries of the group established abroad, the result is most often that the legal representative of the French subsidiary no longer, de facto, exercises the powers that are supposed to be granted to him, in particular as an employer.

Furthermore, very often and in spite of this kind of cross-organisation, one notes a real concentration of final decision-making power within the parent company, which acts as the de facto manager of its subsidiary, without any legal consequences really being drawn from this fact.

The question of simple common sense takes on a very interesting legal dimension when it is submitted to our courts, both as a question of labour law and as a question of company law.

In labour law, the determination of the real holder of decision-making power, in international groups, inevitably leads to the following finding:

Whereas numerous employees, generally senior executives, are hired by the French subsidiary, their employment contract being signed by the said subsidiary’s legal representative (and moreover, sometimes co-signed by a supervisor from another foreign subsidiary, who is not a member of staff of the employer company), the relationship of subordination is actually not exercised in any way by the French management.

Thus in practice, it very frequently happens that the appraisal interviews for the employees employed by the French subsidiary are carried out at the level of the parent company or that the executives of the parent company are directly involved in the orientation and supervision of the work done by the French employees, who do not report to the management of the French business.

Certain international groups even explicitly make validation of the internal management decisions of the French subsidiary (for instance, regarding questions concerning personnel management of the French company) subject to the prior written authorisation of the managers of the parent company.

In the face of this ever more frequent situation, one must wonder whether the courts would not be led, to an ever increasing extent, to draw all of the consequences from these facts, on the occasion of the disputes submitted to them.

How is the real employer to be identified under such circumstances?

Needless to say, the decisive criterion is, in the first place, the analysis of the relationship of subordination.

The employer is the party that holds authority, and which in practice intervenes in the supervision of the work done by its subordinates.

Needless to say, the judges considering such a question are not going to limit themselves to the wording of the employment contract, but will check, in practice, on who exercises, de facto, the relationship of subordination.

In a decision issued by the Cour de Cassation (Supreme Court of Appeals) on 11 July 2000, in the case of Jean Claude Viandier versus BATA EUROPE, the social division of the Cour de Cassation held that “the employee employed as an international executive by a group of companies among which there is a merger of interests, of activity, and of management, has the various companies belonging to the said group of companies as co-employers.”

The Cour de Cassation continued by specifying the following: “By ruling as it did, without seeking to determine whether, among the various companies belonging to BATA group, there was not a merger of interests, activity and management, which, if so, would mean that BATA EUROPE was, in particular with THE ZIMBABWE BATA SHOE COMPANY LTD, a co-employer of Mr. VANDIER, or whether a relationship of subordination of Mr. VIANDIER was demonstrated only vis-à-vis THE ZIMBABWE BATA SHOE COMPANY LTD, the Court of Appeals did not provide any legal basis for its decision.”

In other words, to determine whether an employee hired by an international group may consider that he has, as co-employer, the parent company intervening directly in management of the relationship of subordination, or moreover any other subsidiary of the group that employs the employee, the application of the following criteria must be verified:

  • Existence of a merger of interests, activity and management between the French subsidiary and the parent company, or any other subsidiary of the group,

  • Or the existence of a relationship of subordination with the parent company or another subsidiary of the group.

One may consider, by way of any analysis of these criteria, that those criteria are rather restrictive, and that in practice, so far at least, the cases in which a situation of the existence of co-employers are accepted are rather rare.

But having said this, it is quite possible that such situations will be recognised with ever increasing frequency by the courts, in view of changes in management practices in international groups.

So it would seem useful to do some thinking on this point, so as to reconcile, within groups, the requirements of ever more internationalised management, with the legal principles that determine status as employer – principles that, on their part, are always the same.

Nathalie Cazeau