Economic dismissal in France: grounds, selection order and employer obligations
Economic dismissal (licenciement économique) is the termination of an employment contract at the employer’s initiative for reasons unrelated to the employee personally. It rests on economic grounds precisely defined by statute and is subject to strict procedural obligations: selection order, job protection plan and prior redeployment duty. Breaches expose the employer to severe sanctions, and litigation in this area is abundant. A thorough understanding of this regime is essential, both for companies planning restructurings and for employees seeking to defend their rights.
1. Economic dismissal: definition and statutory grounds
1.1 – Statutory definition
An economic dismissal is any dismissal carried out by an employer for one or more reasons unrelated to the employee personally, resulting from the elimination or transformation of a job, or from a change, refused by the employee, to an essential term of the employment contract, arising in particular from economic difficulties, technological change, a reorganisation of the company necessary to safeguard its competitiveness, or the cessation of the company’s activity (Art. L. 1233-3 of the Labour Code).
1.2 – Recognised economic grounds
The El Khomri Act of 8 August 2016, codified in Article L. 1233-3, clarified and defined the economic grounds that may found a dismissal. Four grounds are now recognised:
| Economic ground | Details |
|---|---|
| Economic difficulties | Evidenced by a decline in orders or turnover, operating losses, or a deterioration in cash flow or gross operating surplus, over a period varying with headcount (1 to 4 consecutive quarters) |
| Technological change | Technical developments affecting jobs and the skills required to perform them |
| Reorganisation necessary to safeguard competitiveness | A serious threat to the competitiveness of the company or its sector of activity, including where no current difficulties exist |
| Cessation of activity | Definitive closure of the company or an establishment, not attributable to any fault of the employer |
Important note: scope of assessment of economic difficulties within a group
For companies belonging to a group, economic difficulties are assessed at the level of the shared sector of activity within the group, including overseas. An employer cannot rely on difficulties at the level of its subsidiary alone if the sector concerned is performing well across the group as a whole.
1.3 – The two triggering acts
The economic ground must materialise through one of the following two acts:
- The elimination or transformation of a job: the employee’s position disappears or is substantially altered
- The refusal of a proposed modification to an essential contractual term: the employer proposes a change (place of work, remuneration, role) which the employee refuses, that refusal then justifying the dismissal
2. Prior obligations before an economic dismissal
2.1 – The redeployment obligation
Before any economic dismissal, the employer is required to explore all possibilities of internal redeployment of the employee, to a position in the same category or, failing that, to a lower-category position with the employee’s agreement (Art. L. 1233-4 of the Labour Code). This search extends to all companies within the group, including those established abroad, where their activities, organisation or location allow staff transfers.
Redeployment offers must be:
- In writing and precise
- Personalised (tailored to the employee’s profile)
- Made before notification of the dismissal
Important note
An economic dismissal carried out without a genuine search for redeployment is without real and serious cause. Case law is consistent on this point: the employer must demonstrate that it made genuine and loyal efforts to redeploy the employee before initiating dismissal proceedings.
2.2 – Adaptation and training
The employer also has an obligation to ensure the employee’s adaptation to changes in their role, in particular through training. This obligation, distinct from the redeployment duty, may be relied upon in litigation where the dismissal in fact results from a failure to provide adaptation that was the employer’s responsibility.
2.3 – Consultation of employee representatives
Where the proposed dismissal concerns 10 or more employees over 30 days, the employer must consult the Works Council (Comité Social et Économique, CSE) through a procedure comprising at least two meetings (Art. L. 1233-28 of the Labour Code). The CSE must be informed and consulted on the economic reasons, the categories of positions to be eliminated, the timetable and the accompanying social measures.
3. The order of selection for economic dismissal
3.1 – The statutory selection criteria
Where several employees may be dismissed, the employer must determine the order of selection by applying objective criteria (Art. L. 1233-5 of the Labour Code). Statute sets out four criteria which the employer must take into account, without imposing any hierarchy between them:
- Family responsibilities, and in particular the situation of single parents
- Length of service with the company
- The situation of employees with characteristics making their professional reintegration particularly difficult: employees with disabilities, older employees
- Professional qualities, assessed by occupational category
Key point
A collective agreement may modify these criteria or fix their weighting. In the absence of an agreement, the employer is free to weight the statutory criteria, provided all four have been taken into account. Failure to comply with the selection order does not deprive the dismissal of real and serious cause, but gives rise to separate damages.
3.2 – Scope of the selection criteria
The selection criteria apply to all employees belonging to the same occupational category across the company, not merely within the establishment affected by the job elimination. An occupational category comprises employees performing functions of the same nature requiring a common professional background.
3.3 – Disclosure of the selection order
A dismissed employee may ask the employer to disclose the criteria used to determine the selection order. The employer has 10 days from notification of the dismissal to respond. Failure to disclose this information is sanctioned by damages.
4. The job protection plan (plan de sauvegarde de l’emploi, PSE)
4.1 – When is a PSE mandatory?
A job protection plan is mandatory where a company with at least 50 employees plans to dismiss 10 or more employees over 30 days (Art. L. 1233-61 of the Labour Code). Below these thresholds, no PSE is required.
4.2 – Content of the PSE
The PSE must include a set of measures designed to avoid or limit dismissals and to facilitate the redeployment of employees whose dismissal cannot be avoided. It comprises in particular:
- Internal redeployment to positions in the same or a lower category
- Creation of new activities by the company
- Training, recognition of prior learning or retraining measures
- Measures to reduce or reorganise working time
- Measures for skills development
- An external redeployment plan to facilitate re-employment of dismissed employees
4.3 – Validation or approval by the DREETS
The PSE is subject to administrative review by the Regional Directorate for the Economy, Employment, Labour and Solidarity (DREETS):
- Validation where the PSE is defined by a majority collective agreement
- Approval (homologation) where the PSE is defined unilaterally by the employer
The absence of validation or approval results in the nullity of the dismissals pronounced, with reinstatement of the employees or a minimum indemnity of 6 months’ salary (Art. L. 1235-10 of the Labour Code).
5. Procedure and compensation for economic dismissal
5.1 – The individual procedure
For any individual economic dismissal or collective dismissal of fewer than 10 employees, the employer must follow this procedure:
- Invitation to a preliminary meeting (except where a PSE is in place with employee representation)
- Offer of the professional security contract (contrat de sécurisation professionnelle, CSP) in companies with fewer than 1,000 employees, or of the redeployment leave (congé de reclassement) in companies with 1,000 or more employees
- Notification of dismissal by registered letter with acknowledgement of receipt, no earlier than 7 working days after the preliminary meeting (15 days for executives)
- Notification to the DREETS within 8 days of sending the dismissal letters
5.2 – The statutory severance payment
An employee dismissed for economic reasons is entitled to the statutory severance payment on the same basis as for a personal dismissal:
- 1/4 month’s salary per year of service for the first 10 years
- 1/3 month’s salary per year beyond 10 years
The applicable collective bargaining agreement may provide for more favourable payments. The PSE may also stipulate negotiated enhanced severance payments.
5.3 – The priority right to re-employment
An employee dismissed for economic reasons has a priority right to re-employment for 1 year from the date of termination (Art. L. 1233-45 of the Labour Code). To benefit from this right, the employee must request it from the employer within that one-year period. An employer who recruits without respecting this priority is liable to damages.
Key point
The dismissal letter must expressly mention the priority right to re-employment and the conditions for exercising it. Failure to include this information constitutes a procedural irregularity.
6. Challenging an economic dismissal
6.1 – Time limits for bringing a challenge
The employee has 12 months from notification of the dismissal to challenge the termination before the labour tribunal (Conseil de prud’hommes) (Art. L. 1471-1 of the Labour Code).
Challenges to the validity of the PSE, however, fall within the jurisdiction of the administrative courts and must be brought within 2 months of notification of the DREETS validation or approval decision (Art. L. 1235-7-1 of the Labour Code).
6.2 – Sanctions for dismissal without real and serious cause
If the economic dismissal is found to lack real and serious cause, the court applies the Macron scale (Art. L. 1235-3), with minimum and maximum awards in months of salary based on length of service. Where the dismissal is null and void (absence of a PSE, violation of a fundamental freedom), compensation is awarded outside the scale with a floor of 6 months’ salary.
6.3 – Challenging the selection order
Failure to comply with the selection order does not deprive the dismissal of real and serious cause, but gives rise to separate damages, the amount of which is assessed at the discretion of the trial judges according to the loss suffered.
7. Frequently asked questions about economic dismissal
Yes, in certain cases. The economic ground is not limited to financial difficulties. A reorganisation necessary to safeguard competitiveness may justify dismissals even in the absence of losses, if a serious threat to the competitiveness of the company or its sector can be established. The courts do require, however, that this threat be real, current and substantiated, and not merely foreseeable or hypothetical.
An economic dismissal is individual where it concerns a single employee, and collective where it concerns several. The procedure varies according to the number of employees affected over 30 days and the size of the company. A PSE is mandatory only for collective dismissals of at least 10 employees in a company with at least 50 employees. Below these thresholds, simplified procedures apply, but the redeployment obligation and compliance with the selection order remain mandatory in all cases.
Yes. The employee is free to refuse any proposed modification to an essential term of their contract on economic grounds. Such a refusal does not constitute misconduct and cannot be sanctioned. If the employee refuses, the employer may initiate an economic dismissal procedure, but must first have genuinely explored all redeployment possibilities. An employee dismissed following a refusal retains all their entitlements to severance and compensation.
The professional security contract (contrat de sécurisation professionnelle, CSP) is a scheme that must be offered by the employer to every employee dismissed for economic reasons in a company with fewer than 1,000 employees. It entitles the employee to enhanced support in returning to employment, a professional security allowance (allocation de sécurisation professionnelle, ASP) equal to 75% of previous gross salary for 12 months, and training and skills assessment measures. If the employer fails to offer the CSP, it owes a contribution to France Travail (the public employment service) equivalent to 2 months’ gross salary.
The employee has 12 months from notification of the dismissal to bring a claim before the Conseil de prud’hommes. The grounds available include: challenging the reality of the economic cause, breach of the redeployment obligation, the absence or insufficiency of the PSE, and failure to comply with the selection order. Each of these grounds gives rise to distinct rights and may be the subject of an independent claim. A precise analysis of the case by an employment lawyer allows the most relevant arguments to be identified and compensation to be maximised.
Your employment lawyer for economic dismissal matters
Economic dismissal is one of the most complex procedures in French employment law. The economic ground must be real and verifiable, the redeployment obligation loyally performed, the selection order rigorously applied, and the collective procedures conducted in the required form. Every breach is liable to be sanctioned.
As specialists in employment law, Patchwork Avocats guides companies through secure economic dismissal procedures and represents employees in challenging their dismissal, in both advisory work and proceedings before the labour tribunal and administrative courts.