Business sale and the obligation to inform employees (Hamon Law)

The sale of a business is sometimes prepared for months in the strictest confidence, between the seller, the buyer and their advisers. Then, a few weeks before signing, a question arises: have the employees been informed of the sale as the law requires? For a manager selling the business as a going concern (fonds de commerce) or a majority of the share capital, this omission is not trivial. It exposes the transaction to litigation and the seller to a civil fine calculated on the sale price. This guide sets out precisely the scope of the Hamon Law, the headcount thresholds, the well-known two-month period, how to notify employees (with a model letter) and the sanctions incurred in the event of omission.

What the Hamon Law really requires of the seller

Law No. 2014-856 of 31 July 2014 on the social and solidarity economy, known as the Hamon Law, created a right of prior information for employees when their business is sold. The legislature's idea was to give employees the opportunity to submit an offer to take over the business before the deal is concluded with a third party, in particular in the form of an employee buy-out.

This mechanism does not turn employees into priority buyers. It creates no right of pre-emption and no obligation to negotiate with them. The seller remains free to choose its buyer and to set its price. The Hamon Law imposes only one thing on it: to inform the employees, within a certain period, of its intention to sell, so that they can, if they wish, make a proposal.

It is precisely the purely procedural nature of this obligation that makes it a trap. Many managers reason in economic terms (the buyer has been found, the price has been set) and overlook a formality which, if badly carried out or forgotten, can be costly. Informing employees of a sale is not a courtesy option; it is a condition of the legal security of the transaction.

Scope: which sales, which businesses

Before calculating any time limit, the seller must ask itself three questions: is my transaction a sale covered by the law? does my business cross the headcount thresholds? does my case fall within an exclusion?

The transactions concerned

Two types of sale trigger the obligation to inform.

First, the sale of a business as a going concern (fonds de commerce). Articles L. 141-23 et seq. of the French Commercial Code govern this situation. Selling one's business (customer base, trade name, leasehold right, equipment) requires that the employees attached to that business have been informed beforehand. The publicity formalities that then accompany the sale are detailed in our guide on publication in the BODACC of the sale of a business as a going concern.

Second, the sale of a holding representing more than 50% of the shares of a SARL (French limited liability company), or of the shares or securities giving access to the majority of the capital of a company limited by shares. Articles L. 23-10-1 et seq. of the French Commercial Code govern this situation. Selling control of a company follows the same logic as selling the business: the enterprise changes hands.

This distinction between a sale of the business and a sale of shares is structuring, because it determines which set of articles applies. The Hamon Law rules on the sale of a business therefore target the enterprise, whether it is sold through its assets (the business) or through its shares (the majority of the capital). On the buyer's side, the differences between buying shares and buying the business, and the stages of the transaction, are presented in our guide to taking over a business.

The headcount thresholds

The size of the business determines both whether the obligation applies and how it is performed. There are two categories.

Businesses with fewer than 50 employees, which are not required to set up a social and economic committee (CSE), are governed by Articles L. 141-23 (business as a going concern) and L. 23-10-1 (shares). The head of the business must inform each employee directly, at the latest two months before the sale.

Businesses with 50 to 249 employees are governed by Articles L. 141-28 (business as a going concern) and L. 23-10-7 (shares). Here, the information of employees is tied to the procedure for informing and consulting staff representatives. Article L. 23-10-7 provides that, at the latest at the same time as it informs and consults the social and economic committee, the head of the business makes employees aware of their ability to submit an offer to take over the business.

Beyond 249 employees, the business falls outside the scope of the Hamon Law. The threshold is assessed at the close of the last financial year. A business employing 250 or more employees therefore escapes the mechanism entirely, which explains why it concerns first and foremost very small businesses and small and medium-sized businesses (TPE and PME).

Sales excluded from the mechanism

Not all transfers fall within the scope of the law. The obligation to inform applies only to sales for consideration. The following are therefore excluded:

• transfers free of charge, in particular gifts
• transfers on death, on the death of the head of the business
• sales made to the spouse, an ascendant or a descendant (family transfer)
• sales taking place within conciliation, safeguard, reorganisation or liquidation proceedings

A manager who transfers the business to his or her son by a gift with partition (donation-partage) therefore does not have to trigger the procedure. By contrast, a manager who sells the business to a third party, or sells a majority of the shares to an investor, is subject to it as soon as the headcount threshold is crossed. This preliminary check avoids two symmetrical errors: completing an unnecessary formality that slows down a family transfer, or neglecting an obligation that does apply to an ordinary sale.

The two-month period: the central trap in the timetable

The heart of the mechanism, and its main practical difficulty, lies in the two-month Hamon Law time limit. In businesses with fewer than 50 employees, the information must be given at the latest two months before the sale. In concrete terms, a minimum of two months must elapse between notification of the employees and the transfer of ownership.

It is still necessary to know from which date this period runs. Article D. 23-10-1 of the French Commercial Code removes the ambiguity:

The two-month period referred to in the first paragraph of Article L. 23-10-1 of this Code is assessed by reference to the date of sale, understood as the date on which ownership is transferred.

The end point of the period is therefore not the signing of a unilateral promise, a letter of intent or a preliminary agreement (compromis), but the effective date of the transfer of ownership. For a sale of shares, this is in principle the date of signature of the instrument of sale and transfer of the shares. For a business as a going concern, it is the date of the instrument effecting the sale. A seller who has signed a promise to sell can still regularise the information as long as the transfer of ownership has not taken place, provided that the two months are observed before it.

The period is not so rigid as to prohibit a faster sale. If all the employees have told the seller of their decision not to submit an offer, the sale can take place before the two-month period expires. This is even one of the most useful means of acceleration in practice: by organising formal information of all employees with their written waiver collected, the manager can shorten the timetable considerably while securing evidence.

Attention should also be paid to how long the information remains valid. Where the sale has not taken place within two years after the information period has expired, a new notification is required. A sale project that drags on, falls through and then resumes two years later cannot rely on the first information: the procedure must be started again.

The timetable trap often closes in this way: the seller sets its closing date by the availability of the buyer and its financing, without building in the two months of information beforehand. As a result, it must either postpone signing or run the risk of an irregular sale. The rule is simple to state: the Hamon Law countdown is set before fixing the signing date, never after.

How to notify: permitted forms and model letter

Informing employees is not limited to telling them orally that the business is for sale. The law requires information of which proof and date can be shown. It is on this evidential ground that any litigation will be played out.

Methods of notification with a certain date

The information must be given by any means that makes the date of its receipt by the employees certain. The French Commercial Code and its regulatory part allow several channels:

• an information meeting for employees, at which they sign an attendance register
• a notice posted, provided it is accompanied by a means of dating when employees became aware of it
• a registered letter with acknowledgment of receipt, the date of receipt shown on the acknowledgment being conclusive
• hand delivery of a document against a signature or receipt
• an act of a commissaire de justice (bailiff), formerly huissier de justice
• an email, provided that the method used makes it possible to certify the date of receipt

The choice of channel depends on headcount and organisation. In a very small business with a few employees, hand delivery against a signature, or a meeting with a signed attendance sheet, is sufficient and leaves an immediate record. In a larger small or medium-sized business, an individual registered letter or an act of a commissaire de justice gives better security of proof, each employee receiving a dated notification.

The golden rule: never rely on verbal information or on an email without acknowledgment. In a dispute, it is for the seller to show that it informed each employee on a certain date, not for the employee to prove that he or she was not informed.

Model information letter

A model employee information letter should remain sober. It does not have to disclose the price, the identity of the prospective buyer or the terms of the negotiation. Its purpose is single: to inform of the intention to sell and of the possibility of submitting an offer. Here is an adaptable outline.

Subject: information on the possibility of submitting an offer to take over the business (Articles L. 141-23 et seq. / L. 23-10-1 et seq. of the French Commercial Code)

Dear Sir or Madam,

In application of the provisions of the French Commercial Code resulting from the Law of 31 July 2014, we inform you of our intention to proceed with the sale [of the business operated by the company / of the majority of the shares of the company].

You have the possibility of submitting an offer to take over [this business / this holding].

This information is given to you in confidence. You are bound by a duty of discretion with regard to this information, except as regards persons whose assistance is necessary to enable you to submit an offer.

The sale may take place on expiry of a period of two months from receipt of this letter, unless all the employees have previously made known their decision not to submit an offer.

Done at [place], on [date]. [Signature of the head of the business]

This document will be accompanied by the chosen proof (signature sheet, acknowledgment of receipt, record of delivery). It is also prudent to prepare a waiver form that each employee can sign to indicate that he or she will not submit an offer, so as to clear the period more quickly.

The duty of discretion deserves to be emphasised in the letter. Informed employees are bound by confidentiality, under the same conditions as the members of the social and economic committee. This statement protects the seller against premature disclosure liable to disrupt its commercial relationships or the negotiation itself.

Sanctions and litigation in the event of omission

This is where the selling manager measures the real stakes of the mechanism. The question of the sanction has undergone an important development which must be known so as not to reason on an outdated text.

In its original version, the Hamon Law penalised the failure to inform by nullity of the sale. Articles L. 141-28 and L. 23-10-7 thus provided that a sale taking place in breach of the obligation to inform could be annulled at the request of any employee. In other words, a single uninformed employee could call the whole transaction into question, with considerable consequences for the buyer and for the security of transactions.

This radical sanction was struck down. In its decision No. 2015-476 QPC of 17 July 2015, the Constitutional Council (Conseil constitutionnel) held that nullity of the sale was a disproportionate infringement of freedom of enterprise, the action for nullity being open to employees who showed no harm. Law No. 2015-990 of 6 August 2015 for growth, activity and equal economic opportunities, known as the Macron Law, drew the consequences of this decision.

Since then, the sanction is no longer annulment but a civil fine. In the event of breach of the obligation to inform, the seller's liability may be engaged and a civil fine imposed, the amount of which may not exceed 2% of the sale amount. On a transaction of several hundred thousand euros, this ceiling is far from a symbolic sum, and it is borne entirely by the seller.

Two lessons follow for the manager. First, the sale itself is no longer threatened with nullity, which reassures the buyer: the completed transaction remains secure. Second, the seller remains personally exposed to a financial penalty proportionate to the sale price, which shifts the risk onto its shoulders. The temptation to ignore the formality on the ground that the sale will not be annulled is therefore misleading, because the cost of the breach falls directly on the seller.

Litigation generally arises when an employee, learning of the sale after the event, considers that he or she was deprived of the possibility of submitting an offer. The evidential difficulty then falls on the seller: in the absence of a dated record of the information, it cannot show that it complied with its obligation. Hence the importance of building an evidence file from the moment of notification, and of keeping it beyond completion of the sale.

Seller's good practice for securing the transaction

The Hamon Law does not complicate a well-prepared sale; it penalises a badly sequenced one. A few reflexes remove the risk.

Build the two-month period into the timetable from the outset, even before fixing a signing date with the buyer. The information countdown conditions the closing, not the other way round.

Characterise the transaction and check the thresholds at the very start of the project: is it a sale of the business or of majority shares? does the business employ fewer than 50 employees, between 50 and 249, or 250 or more? does it fall within an exclusion (family transfer, collective insolvency proceedings)? This characterisation determines the applicable regime and avoids applying a text that does not concern the situation.

Choose a method of notification with a certain date and systematically keep the proof: acknowledgment of receipt, signature sheet, record of delivery or act of a commissaire de justice. Proof is prepared at the time of notification, never afterwards.

Collect the employees' written waiver where a faster timetable is wanted. Once all the employees have indicated that they do not wish to submit an offer, the sale can be signed without waiting for the two months to expire.

Coordinate the information with the consultation of the CSE in businesses with 50 to 249 employees, since Article L. 23-10-7 requires employees to be made aware of the possibility of a takeover at the latest at the same time as the information and consultation of staff representatives.

In practice, the Hamon Law is less an obstacle than a constraint of method. The real danger is not legal in principle; it lies in the timetable and in proof. A seller who anticipates the two months and documents its notification neutralises the risk of a fine. One who discovers the obligation on the eve of signing is forced to postpone the transaction or to expose itself. Before fixing the date of transfer of ownership with the buyer, have your adviser validate the characterisation of the transaction, the applicable headcount threshold and the notification channel chosen: this is the best way of securing both the sale and your personal liability.

Frequently asked questions

Does the Hamon Law apply to a business with more than 250 employees? No. The mechanism concerns only businesses with fewer than 250 employees, headcount being assessed at the close of the last financial year. A business with 250 or more employees escapes entirely the obligation to inform employees beforehand, whether the sale concerns the business as a going concern or the majority of the capital. The mechanism therefore targets primarily very small businesses and small and medium-sized businesses.

From which date does the two-month period run? Article D. 23-10-1 of the French Commercial Code specifies that the two-month period is assessed by reference to the date of sale, understood as the date of transfer of ownership. It is therefore not the signing of a promise or a preliminary agreement that counts, but the effective transfer of the rights. The information must be given at the latest two months before that transfer.

Can the business be sold before the two months have expired? Yes, on one condition. If all the employees have told the seller of their decision not to submit an offer to take over the business, the sale may take place before the end of the two-month period. In practice, it is recommended to collect a written and signed waiver from each employee in order to clear the period and secure the evidence.

What is the sanction for forgetting to inform the employees? Since the Constitutional Council struck down nullity (decision No. 2015-476 QPC of 17 July 2015) and the Macron Law of 6 August 2015, the sale can no longer be annulled. The breach is now penalised by a civil fine the amount of which may not exceed 2% of the sale amount. This sanction falls on the seller, which makes the omission costly even though the sale survives.

Must employees be informed of a family transfer? No. Sales to the spouse, an ascendant or a descendant are excluded from the mechanism, as are transfers free of charge, successions and sales taking place within safeguard, reorganisation or liquidation proceedings. Only sales for consideration to a third party trigger the obligation to inform.

How can it be proved that the employees were properly informed? The burden of proof lies on the seller. A method of notification with a certain date must therefore be used: registered letter with acknowledgment of receipt, hand delivery against a signature, meeting with a signed attendance sheet, email with acknowledgment of receipt or an act of a commissaire de justice. These items must be kept beyond completion of the sale, because litigation may arise later.

Is a model letter enough to secure the procedure? The model information letter is necessary but not sufficient on its own. It must be accompanied by proof of the date of receipt and, in businesses with 50 to 249 employees, be coordinated with the information and consultation of the CSE provided for in Article L. 23-10-7 of the French Commercial Code. Legal security rests as much on the content of the letter as on its method of delivery and its date-stamping.