Property Transfer and Employment Law: When the Landlord Is Not Required to Take Over Employees

Imagine: you have just acquired a commercial premises in Quetigny, near Dijon. The previous owner operated a business there with three employees. As soon as the sale is signed, these employees show up at your door demanding that their employment be maintained. Your accountant tells you that you might be forced to take them on… Panic on board.

This situation has been experienced by hundreds of owners. Employment law protects employees in the event of a transfer of an undertaking, but does it apply to a simple sale of a building? The answer is no, according to the Court of Cassation.

In a judgment of 14 March 2006 (No. 05-41.610), the Social Chamber ruled: the transfer of a property, without any other element, does not constitute an autonomous economic entity. The new owner is therefore not required to take over the employment contracts. Analysis.

The facts: a story like many others

Mrs Y... was employed by the association that managed a property in Strasbourg. The building was a social housing and reintegration centre. In 2000, the Strasbourg Urban Community (CUS) acquired the building. The association ceased its activity. Mrs Y... was made redundant on economic grounds.

Believing that her employment contract should have been transferred to the CUS, she sued the local authority before the industrial tribunal. She claimed compensation for dismissal without real and serious cause, as well as compliance with the procedure.

The Colmar Court of Appeal ruled in her favour: it considered that the sale of the building was accompanied by a transfer of activity, because the building was the support of a social mission. The CUS appealed to the Court of Cassation.

The reasoning of the court — explained

The Court of Cassation quashed the appeal judgment. It recalled the principle: Article L. 1224-1 of the Labour Code (formerly L. 122-12, paragraph 2) provides for the transfer of employment contracts in the event of a transfer of an autonomous economic entity that retains its identity and continues its activity.

What is an autonomous economic entity? It is an organised set of means (personnel, tangible, intangible) enabling the exercise of an economic activity. Example: a shop with its walls, its stock, its goodwill, its employees.

However, the transfer of a simple building, even if intended for a social activity, is not sufficient. The judges consider that the property itself is not an organised entity. It has no employees, no clientele, no own organisation. The CUS only took over the walls, not the accommodation activity.

The Court specifies that the fact that the building is the seat of an activity does not automatically entail the transfer of contracts. It must be demonstrated that the purchaser took over the activity itself, with its means of operation.

What this means for you — concretely

Landlord owner: if you sell a building leased to a trader or an association, you are not obliged to take over its employees. Nor is the purchaser, unless he also buys the business or continues the same activity.

Purchaser: beware of the clauses in the preliminary contract. If you buy a fitted-out premises (equipment, furniture, patents) and you take over the activity, you could be considered to have acquired an economic entity. Example in Beaune: a client bought a restaurant with all its kitchen equipment and continued to serve the same clientele. The judges considered that there was a transfer of entity, and he had to take over the head chef.

Employee: if your employer sells the walls but ceases his activity, you are made redundant on economic grounds. You can challenge this if the purchaser takes over the activity with the same means. But if only the building changes hands, there is no transfer.

A concrete example: an office building sold for €500,000 in Dijon. The former tenant operated a travel agency with two employees. The purchaser sets up his head office there. The employees cannot demand their transfer, because the purchaser did not take over the travel agency activity.

Four tips to avoid this type of dispute

• Have a clause of non-transfer of activity drafted in the deed of sale: specify that the purchaser only buys the walls and does not continue the seller's activity.
• Check the content of the sale: if you also acquire equipment, customer contracts, a sign, you risk taking over the economic entity. Split the acquisitions into two separate deeds if possible.
• Inform the employees: the seller must notify the situation to the employees before the sale. A registered letter explaining that the purchaser is not taking over their contract can avoid industrial tribunal proceedings.
• Consult a lawyer before signing: a professional will analyse whether the sale concerns a simple property or an economic entity. The cost of a consultation (€45) is negligible compared to a conviction for forced transfer.

Further details: related case law and developments

The Court of Cassation confirms a consistent position. In a judgment of 20 November 1991 (No. 89-44.361), it already ruled that the transfer of an empty building does not transfer employment contracts. More recently, in 2018, the Social Chamber specified that even the sale of a business does not automatically entail a transfer if the purchaser does not continue the activity.

The trend is therefore protective for owners. But be careful: if the building is the support of an inseparable activity (e.g. a hotel with its staff, a cinema), the judges may recharacterise the sale as a transfer of an economic entity. Each case is specific.

Key points to remember

FAQ

• Q: Can I refuse to take over the employees if I buy a building with a business? A: Yes, if you only buy the walls. But if you also buy the business (clientele, sign, equipment), you become the employer.
• Q: What should I do if employees sue me after a sale? A: Contact a lawyer immediately. You can rely on the 2006 judgment to show that the sale only concerned a building.
• Q: Can the seller be sued? A: Yes, by the employees for unfair dismissal. He must follow the redundancy procedure.
• Q: Is there a time limit to act? A: Employees have 12 months from the termination to bring a claim before the industrial tribunal.
• Q: Does this rule apply to associations? A: Yes, as in the Strasbourg case. The status of the operator is irrelevant.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →