Managing Shop Committee Consultation in French Business Transfers

Excerpt from EuroWatch
published by WorldTrade Executive, Inc.

By Eric Cafritz, Frédérique Jaïs and Olivier Genicot (Fried, Frank, Harris, Shriver & Jacobson LLP)

French law requires employers to share information and consult with the shop committee in cases of M&A, and there are EU requirements as well.

There is controversy as to the appropriate time for management to disclose a transaction with potentially exposive labor consequences if the timing is wrong. It can also be surprising as to when the shop committee rules apply such as in cases where the transction is negotiated and managed entirely outside of France.

General Scope of Obligation to Consult with Shop
Committees with Respect to Business Combinations
Companies on both ends of acquisition transactions are required to inform and consult with their shop committees. Under Article L. 2323-19 of the Labor Code, an employer must inform and consult with the shop committee “regarding any modification in the economic or legal organization of the company, notably in the event of a merger, sale, (...), or acquisition or sale of a subsidiary within the meaning of Article L. 233-1 of the French Commercial Code.” The employer must consult with committee members regarding the effects that the contemplated transaction may have on employees.

Furthermore, where there are “exceptional circumstances affecting the employees’ interests to a considerable extent, particularly in the event of relocations, the closure of establishments or undertakings or collective redundancies,” the European shop committee (or, if applicable, the select committee),8 has the right to request a meeting with the employer so as to be informed and consulted regarding the contemplated transaction. It has the right to meet, at its request, the central management, or any other more appropriate level of management within the EU-wide company or group of companies having its own powers of decision, so as to be informed and consulted on measures significantly affecting employees’ interests.

Direct Changes of Control
The nature of the information and consultation duty differs as between the acquirer, the seller, and the target company.

With respect to the acquiring company, its shop committee must be informed and consulted prior to acquiring a stake in another entity. Although the acquisition of a stake is separately defined by Article L. 233-2 of the French Commercial Code as the acquisition of 10% to 50% of the share capital of another entity, the French Supreme Court has held that in the absence of a specific cross-reference to the Commercial Code in Article L. 2323-19 of the Labor Code, the acquisition of less than 10% of the equity of a target company triggers the obligation to inform and consult with the shop committee.

With respect to the seller, its shop committee must also be informed and consulted if it sells a subsidiary in which it holds more than 50% of the equity. According to case law, the seller’s shop committee must be informed and consulted no matter how insignificant the subsidiary may be to the seller.

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EC Recommends Limiting Auditors’ Liability

Excerpt from EuroWatch
published by WorldTrade Executive, Inc.

by Andrea Hamilton
McDermott Will & Emery

The European Commission has issued a Recommendation to limit auditors’ civil liability with the objective of promoting the market entry of auditing firms that would otherwise be deterred by the threat of unlimited liability.

By encouraging new market entries, the Commission hopes that its Recommendation will protect European capital markets by ensuring that sufficient auditing capacity exists to perform statutory audits of EU-listed companies. This Recommendation is based on a mandate contained in the 2006 Directive on Statutory Audit, and reportedly also on an increasing trend of litigation and issues concerning insurance coverage in the auditing sector.

Member States are free to decide on the appropriate method for limiting liability and set caps for liability if they wish.

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Working Time Directive Agreement Reached

From EuroWatch.
published by WorldTrade Executive, Inc.
By Daniel Kelly
McDermott Will & Emery

The Employment and Social Affairs Council, following a meeting in Luxembourg on 10 June 2008, has adopted a Common Position on both the Working Time Directive and the Temporary Agency Workers Directive.

The agreement on the Working Time Directive only became possible after Spain and other countries overcame objections to an opt-out that allows an increase in the weekly cap to 60 working hours. A distinction was also drawn between “active” and “inactive” on-call time, allowing greater flexibility for doctors struggling to keep average weekly working hours below the agreed limit. Agreement on the Temporary Agency Workers Directive was reached after, Member States were given the option of derogating from the requirement of equal treatment as of day one for temporary agency workers in terms of pay, maternity leave and annual leave.

The Council Common Positions will now be sent to the European Parliament for a second opinion. If they are passed, they will return to the Council of Ministers for a second round of approvals, at which stage they will become EU Law.

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Is Comparative Advertising Going to Become Easier in Europe?

Excerpt from EuroWatch
published by WorldTrade Executive, Inc.

By Sahira Khwaja (Lovells LLP)

In answer to a reference to the European Court of Justice (ECJ) from the English Court of Appeal, Advocate General Mengozzi has issued an opinion which may make it more difficult for brand owners to stop comparative advertising by competitors.

The questions arose in a dispute in the mobile phone market between O2 and Hutchison 3G. In 2004 Hutchison ran a TV advertising campaign comparing its new pay-as-you-go service with that of O2 and other operators, implying it was cheaper.

If the ECJ agrees with the Advocate General’s reasoning that use of a competitor’s trademark in a comparative advertisement should be controlled under the Advertising Directive and not the TradeMark Directive, this will affect brand owners’ ability to enforce their rights, in some countries at least. A brand owner will not be able to sue for trademark infringement but will have to take whatever action it can under the national law implementing the Advertising Directive.

In the UK, for example, this would have a major impact as enforcement of those implementing regulations is by public bodies (the Office of Fair Trading and local authority Trading Standard Services). These have limited resources and objections of this type would be low priority (unless there was likely to be serious damage to consumers). There is no private right of action under the regulations, and complaints must be made to the public bodies. These usually only act if the complainant has first followed the complaints procedure run by the Advertising Standards Authority (the voluntary industry body), which may take two or three months.

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Europe Breach Notification Law Coming?

By Thomas Smedinghoff (Wildman, Harrold LLP)
Excerpt from Global Intellectual Property
Asset Management Report
published by WorldTrade Executive, Inc.

The European Union, along with
several other countries, appears to be moving toward
a security breach notification requirement.

The European Commission recently published a
proposal to amend the Privacy and Electronic
Communications Directive to require providers
of “publicly available electronic communications
services” that suffer a data breach to notify subscribers
whose personal information has been
compromised.

Proposals for breach notification
laws have also recently been made in Canada,
the UK, Australia, and New Zealand. See Proposed
Directive at http://ec.europa.eu/
information_society/policy/ecomm/doc/library/
proposals/dir_citizens_rights_en.pdf.

More Information on International Information & IP Law

European Patent System: Significant Changes Introduced

By Sebastian Moore (Herbert Smith LLP)
in 1/15/2008 Issue of EuroWatch published by
WorldTrade Executive, Inc.

The European Patent Convention (“EPC 2000”) came
into force on 13th December 2007, introducing significant
changes to the European patent system and the text of the
original EPC 1973.

Stakeholders should be aware of how the changes to
the European patent system may affect the granting and
enforcement of European patents. Many of the changes
are complex and technical and, given the importance of
value attaching to patents, it is inevitable that some of the
questions arising out of the scope of these amendments
will need to be clarified by the EPO and the national
courts.

The EPC has been updated for a number of reasons.
In particular, account had to be taken of developments
in international law, including the TRIPS agreement and
the Patent Law Treaty 2000. For example, the EPC 2000
clarifies the fact that, in accordance with the requirements
of TRIPS, patents can now be granted for any inventions
in all fields of technology provided they are new and
comprise an inventive step.

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