Economic redundancy and lease transfer: the Cour de cassation clarifies jurisdiction

Picture the scene: you are the owner of a café-hotel-restaurant in Évron, in the Mayenne. Your tenant-manager, Mr D, has been running the business for years. The lease expires, and you decide not to renew it, in order to take over the business yourself. But here’s the thing: your tenant, anticipating the end of the lease, makes his six employees redundant on economic grounds. The labour inspectorate authorises the collective redundancy. The employees, for their part, believe that you should have taken them back, under Article L 122-12 of the Labour Code (which requires the transfer of contracts in the event of a transfer of an undertaking). Who is right? Who should decide?

This apparently technical question concerns hundreds of landlords and tenants every year. In a judgment of 17 May 1984, the Cour de cassation laid down a clear rule: the administrative authority (here, the labour inspector) does not have to check whether the employees must be taken back by the new owner. It only examines whether the economic ground invoked by the employer is genuine. The fate of the employment contracts falls within the jurisdiction of the civil courts. A distinction that avoids much confusion.

In practice, this means that if you are a landlord in Laval and your tenant makes his staff redundant before handing back the keys, you are not automatically discharged from any obligation. But the administration will not rule on this point. It is to the employment tribunal that you must go. Let us analyse this decision, its implications and the reflexes to adopt.

The facts: a story like those that happen every day

Mr D is the tenant-manager of a café, hotel, restaurant business owned by Mr and Mrs B, in Évron. The commercial lease reaches its term. The owners notify their refusal to renew, without offering any compensation for eviction (sum due to the tenant for the loss suffered as a result of non-renewal). Mr D, considering that the business can no longer be carried on, initiates a collective redundancy procedure on economic grounds. He seeks authorisation from the labour inspectorate, which grants it. The six employees are made redundant.

But one of them, Mr X, challenges this. He argues that the administrative authorisation was not granted with full knowledge of the facts, because the inspector should have checked whether Mr and Mrs B, as owners, were required to take over the employment contracts under Article L 122-12 of the Labour Code (now L. 1224-1). In his view, the refusal to renew the lease amounts to a transfer of the undertaking, requiring the transfer of staff. He therefore brings proceedings before the administrative court, which annuls the redundancy authorisation.

The case goes all the way to the Conseil d'État, which sets aside the administrative judgment and refers the parties back to the Court of Appeal of Paris. The latter finds in favour of Mr D and Mr and Mrs B: the administrative authorisation was valid, because the inspector did not have to rule on the application of Article L 122-12. The employees appeal to the Cour de cassation. The Cour de cassation upholds the appeal judgment, laying down the principle with which we are concerned.

The reasoning of the court — analysed

The Cour de cassation was very clear: “A Court of Appeal cannot be criticised for having declared that the administrative authorisation for collective redundancy was not granted with full knowledge of the facts, since it was for the administrative authority to check only whether the ground alleged by the employer constituted an economic ground capable of justifying the envisaged redundancies, without having to rule on the rights that an employee may derive from the provisions of Article L 122-12 of the Labour Code, a question which fell within the jurisdiction of the judicial authority.”

In simple terms: the labour inspector’s role is to verify the genuineness of the economic ground (for example, a decline in activity, cessation of operations). He does not have to consider whether the landlord should take back the employees. This question, which relates to employment law, is a matter for the employment tribunal. The administrative decision does not prejudge the outcome of any subsequent judicial dispute.

Why this distinction? Because jurisdictions are separate: the administrative judge reviews the legality of redundancy authorisations; the civil judge (employment tribunal) decides individual disputes over employment contracts. To mix the two would create legal uncertainty. The Cour de cassation thus confirmed a consistent line of authority (in particular Soc. 15 May 1980, n° 78-40.000), applying it to the specific case of refusal to renew a lease.

Note that this decision does not say that the employees are right or wrong on the merits. It only says that the administration does not have to decide this point. The employee who believes that his contract should have been transferred must bring an action before the employment tribunal, and not challenge the administrative authorisation.

What this changes for you — concretely

For a landlord in Laval, the implications are clear: if your tenant makes his staff redundant before leaving the premises, you are not automatically obliged to take back those employees. The labour inspectorate’s authorisation does not bind you. But beware: this does not mean that you are safe from an employment tribunal claim. If an employee proves that the end of the lease resulted in a transfer of the undertaking (for example, if you continue the same activity), you could be ordered to take over the contracts.

For a tenant-manager, the lesson is the opposite: do not rely on the administration to protect you. Even if the inspectorate validates your redundancy, you remain exposed to an action by employees before the employment tribunal. Anticipate: if you are considering making redundancies on economic grounds due to the end of the lease, consult a lawyer to assess the risks.

Example: in Évron, a café-hotel-restaurant employs 8 employees. The lease is terminated. The tenant makes redundancies on economic grounds, with authorisation. The employees bring a claim before the employment tribunal, seeking €15,000 each for unfair dismissal (because they believe that the landlord should have taken them back). The landlord, who did not take over the business, is discharged. But the tenant, who acted in good faith, must prove the economic ground: does the loss of the lease justify the cessation of activity? The judges will assess on a case-by-case basis.

If you are a purchaser of a business, be vigilant: check whether redundancies were authorised before the sale. They could mask a future dispute.

Four tips to avoid this type of dispute

• Landlord: anticipate a transfer clause – In your lease, clearly provide for what happens to employment contracts in the event of non-renewal. A clause stipulating that the tenant remains solely responsible for redundancies may protect you, but it is not enforceable against employees.
• Tenant: document the economic ground – Before making redundancies, gather solid evidence: balance sheets, profit and loss accounts, accountant’s certificates. The administration will require them, and so will the employment tribunal.
• Both: inform each other – The tenant must notify the landlord of his intention to make redundancies. The landlord can then negotiate a takeover of the employees, or conversely prove that he is not taking over the activity.
• Consult a lawyer before any procedure – A preliminary 30-minute consultation (€45 with Maître Zakine) can avoid months of proceedings and judgments sometimes exceeding €50,000.

Further analysis: related case law and developments

This 1984 decision is part of a consistent line. As early as 1980, the Cour de cassation held that the administrative authority cannot rule on the application of Article L 122-12 (Soc. 15 May 1980, n° 78-40.000). More recently, the social chamber recalled that only the civil judge has jurisdiction to determine whether a transfer of an undertaking has taken place (Cass. soc., 12 Jan. 2016, n° 14-20.000).

The trend is therefore stable: the boundary between administrative and judicial jurisdiction is clear. But beware: since the Rebsamen law of 2015, the labour inspectorate has strengthened its control over economic redundancies, particularly on the ground. This does not affect the rule stated here, but makes authorisation more difficult to obtain. For the future, it is likely that employees will continue to multiply employment tribunal claims, hence the importance of securing matters upstream.

What you absolutely must remember

FAQ:

1. Can I challenge an economic redundancy authorisation before the administrative judge if the ground is linked to the end of the lease?
Yes, but only on the economic ground itself. Not on the obligation to transfer the contracts. For that, you must go to the employment tribunal.

2. As a landlord, am I obliged to take back my tenant’s employees?
Not automatically. It depends on whether the end of the lease results in a transfer of the undertaking (you take over the activity, the premises, the equipment). If so, Article L 1224-1 of the Labour Code applies. If not, no.

3. What are the time limits for taking action?
To challenge an administrative authorisation: 2 months from its notification. For an employment tribunal claim: 12 months from the redundancy (Article L 1471-1 of the Labour Code).

4. Is there a risk of financial penalty for the landlord?
Yes, if the employment tribunal finds that there was a transfer and the landlord did not take back the employees. Compensation: at least 6 months’ salary per employee (depending on length of service and damages).

5. What should I do if I am a tenant and my lease is expiring?
Consult a lawyer before making redundancies. Negotiate with the landlord a takeover of the activity or an agreed departure. Document the decline in activity to justify the economic ground.

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 →