The law of July 31, 2014 (ESS law) imposes a right of prior information for employees in the event of the sale of a business or company rights.

Law n°2014-856 of July 31, 2014 on the social and solidarity economy, known as the ESS law, was promulgated on July 31, 2014, then published in the Journal Officiel on 1^st August.

It introduces a totally new mechanism that goes far beyond the social economy, since it enables employees of companies with fewer than 250 employees to submit an offer both in the event of the sale of a business, and in the event of the sale of shares (stocks or securities) giving access to the majority of the share capital of the company employing them, in order to deal with "the phenomenon of healthy companies which, every year, disappear for lack of buyers, thus destroying jobs", as underlined by the parliamentary work.

This innovative mechanism can be broken down into 4 key points.

1. Scope of the law:

The scope of application of this new legal framework is broad, since in principle it applies to all companies:

• i) which are not required to set up a works council under Article L. 2322-1 of the French Labor Code;

• ii) which are required to set up a works council under article L. 2322-1 of the French Labor Code, and which, at the close of the last financial year, fell into the category of SMEs as defined in article 51 of the French law no. 2008-776 of August 4, 2008 on the modernization of the economy (the category of small and medium-sized enterprises (SMEs) is made up of companies employing fewer than 250 people, and with annual sales of less than €50 million or total assets not exceeding €43 million).

Within these companies, the scheme does not apply to sales of business assets and/or corporate rights arising from inheritance or the liquidation of a matrimonial estate, sales of business assets to a spouse, ascendant or descendant, or sales of business assets belonging to a company undergoing conciliation, safeguard, receivership or liquidation proceedings.

2. Content of employees' right to prior information:

The law breaks new ground with the introduction of a two-part system: the first concerns the transfer of businesses (ESS Law, art. 19), the second concerns the transfer of corporate rights (ESS Law, art. 20).

a) Article 19 of the ESS law introduces a binding mechanism for business transfers to enable one or more of the company's employees to submit an offer to acquire the business (article 19 of the ESS law adds sections 3 and 4 to Chapter I of Title IV of Book I of the French Commercial Code). For all these companies falling within the scope of the law (see our point 1°), employees must be informed as soon as the owner of the business plans to sell it; employees then have two months to respond, it being specified that :

• when the business is operated by its owner, the latter notifies the employees of his intention to sell directly, informing them that they may submit a purchase offer, and the two-month period runs from the date of this notification;

• when the owner of the business is not the operator, this information is notified to the operator of the business, and the two-month period runs from the date of notification.

Employees may be informed by any means, specified by regulation, which ensures that the date of receipt by them is certain. At their request, employees may be assisted by a representative of the regional chamber of commerce and industry, the regional chamber of agriculture, the regional chamber of trades and crafts, in conjunction with the regional chambers of the social economy, and by any person designated by the employees, under conditions defined by decree (the implementing decree has not yet been published).

The sale may take place before expiry of the two-month period, provided that each employee has informed the seller of his or her decision not to submit an offer.

b) Article 20 of the ESS law also introduces a binding mechanism in the case of transfers of company rights to enable one or more employees of the company to submit an offer for the acquisition of the company rights (Article 20 of the ESS law adds a new Chapter X to Title III of Book II of the French Commercial Code). For all these companies falling within the scope of the law (see our point 1°), when the owner of a holding representing more than 50% of the shares in a limited liability company, or of shares or securities giving access to the majority of the capital in a joint stock company, wishes to sell them, he or she must give employees the opportunity to make a buyout offer. Thus, in companies not required to set up a works council under article L. 2322-1 of the French Labor Code, employees are informed of the planned sale no later than two months before the sale takes place, to enable one or more employees to make an offer to purchase the holding. In companies subject to the obligation to set up a works council under article L. 2322-1 of the French Labor Code, and which, at the close of the last financial year, fell into the category of SMEs within the meaning of article 51 of law no. 2008-776 of August 4, 2008 on the modernization of the economy, the company, the works council and the employees are informed of the forthcoming sale; the head of the company informs the employees that they may submit a purchase offer to the seller.

As in the case of the sale of a business, employees may be informed by any means, specified by regulation, which ensures that the date of receipt by them is certain. For their part, employees are bound by an obligation of discretion, but may be assisted by different persons.

Similarly, the transfer of corporate rights may take place before expiry of the two-month period, provided that each employee has informed the transferor of his or her decision not to submit an offer.

3. Penalty :

If the transfer takes place without the information being provided in accordance with the conditions required by law, an action for annulment is open to "any employee"; the action for annulment is time-barred after two months from :

• the date of publication of the business transfer notice (for business transfers);

• the date of publication of the transfer of the shareholding or the date on which all employees were informed (in the case of transfers of corporate rights).

4. Effective date :

While the ESS Act comes into force on August 2, the day after its publication in the JO, the same cannot be said for the right to inform employees. As far as articles 19 and 20 of the law are concerned, the provisions apply to transfers concluded (of goodwill or company rights) at least three months after the date of publication of the law (ESS Law, art. 98), i.e. to transfers (of goodwill or company rights) concluded on or after November^1, 2014.