Category: Legal news

The aim of social and environmental performance confronted with economic performance

Far from being an oxymoron, this title exposes two aims, one of which has tended to take place at the expense of the other or, at best, one before the other.

Even if it is true that a company with more wealth will always be in a better position to share it with its employees than the reverse, it is still true that it would hardly be rational to require a CEO to take care of the environmental impact of his company’s activities before its economic performance.

Back to the past

Once we look past this cliché, the fact remains that this has always been emphasised when adopting major international standards in labor law.

The International Labor Organization was built around a double postulate:

• Social progress should be subject to state action in order to adopt specific labor law standards (international conventions, recommendations, etc.);
• But taking into account the fact that this action in favor of social progress should be left to the voluntary intervention of States through the ratification of conventions by each country benefiting from sufficient economic progress to have the means to achieve it.

To date, no economic integration or free trade treaty has provided common social standards; the objective has only been to seek a convergence of standards.

At European level, the harmonization of social standards is carried out according to two processes:

• either by the European regulation which is integrated directly into the legal framework of each Member State and is the subject of an exclusive interpretation by the Court of Justice of the EU;
• or by the directive which, to be applicable, must be transposed into domestic law, under the control of the Court which verifies the quality of the transposition.

This harmonization process is carried out through the adoption of common minimum standards contributing to the creation of a common basis for the protection of employees.

The objective is also to fight against social dumping based on the reduction of costs linked to weak protection of the health and safety of employees within the Union and thus avoid distortions of competition.

Back to the future

The exponential development of CSR for the last fifteen years is intended to respond to this challenge: faced with the inability of States to establish new coercive social standards, companies have designed their own self-regulation standards considered as ‘soft law’.

Whatever one’s opinion of these debatable standards, their transnational application, for example via codes of conduct or other ethical charters, has made it possible to introduce new guarantees in countries where social protection rules are not provided by local legislation.

The normative value of CSR commitments as a real issue

The central question remains the binding value of the commitment made in terms of CSR by the company and its responsibility in this regard.

• The prerequisite of integration and compliance with domestic legislation

To be both socially and legally relevant, these commitments must first and foremost integrate local regulations as a fundamental starting point; the voluntary standards that the company imposes on itself must be integrated into the national or international legal order and therefore respect the local  legal order in.

• The need for transparency

To date, no certification appears to have the legitimate authority to declare a particular company globally, socially and environmentally responsible.

Thus, the very nature of the standard to which the company agrees to submit via a charter, a label or a specific certification resulted from a selective choice, which relativized its scope as a global standard.

However, only the implementation of a global assessment and reporting process allows effective control of the sustainable commitments made on a qualitative and quantitative level.

Also, the very title of the new European Directive of December 16, 2022 (Corporate Sustainability Reporting Directive) is far from insignificant: such a commitment made according to the selective goodwill of the company will no longer be enough to become virtuous; a real impact analysis of the company’s activities will have to be carried out, which will be accompanied by reporting whose nature is no longer only declarative but will lead to concrete achievements.

In conclusion, if many agree to maintain that the commitments made by companies in terms of sustainability are vectors of growth, employers will still have to learn to manage these new constraints inducing the implementation of evaluation processes and reporting allowing the effective qualitative and quantitative control of their commitments with their economic performance objectives.

Jacques Perotto, Partner and Maxime Hermes, Associate

CORPORATE SUSTAINABILITY REPORTING DIRECTIVE

The climate emergency, and the raising of awareness by the authorities on the paramount necessity for strong corrective actions at the State and corporate levels, have contributed to a political consensus at the EU level, which resulted in this European Directive, December 16, 2022.

It came into force on 5 January 2023; members have until July 6, 2024 to transpose it into national law.

We have taken this occasion to launch the publication of our chronicles on the topic of CSR in companies confronted with sustainability issues.

Why this new Directive?

The EU ultimately wishes to bring the level of information on sustainability, to the same level as financial information, to contribute to its objective of climate neutrality in 2050.

In this regard, the CSRD extends the ambitions of the previous NFRD directive of 2014: with more companies falling into its scope, and more detailed reporting obligations.

Who is impacted?

CSRD applies to the following companies:

• All big companies, including companies outside the EU listed on the European market, and not-listed companies, meeting two out of the three following criteria:

i.    250 employees

ii.   40M€ net of net turnover

iii.  20M€ total balance sheet

All parent companies of a big group fall within the scope of CSRD.

• Small and medium size companies listed on the European market and meeting two out of the three following criteria:

i.    Between 10 and 250 employees

ii.   Net turnover between 700K€ and 40M€

iii.  Total balance sheet between 350K€ and 20M€

• Non-EU companies generating at least 150M€ of net turnover within the EU with a branch or subsidiary (big companies or small and medium size listed companies).

Not-listed companies and listed small and medium size companies (including subsidiaries of non-EU groups) are exempt from  publishing a sustainability report at their level if they belong to a group publishing a consolidated report compliant with CSRD.

Which information to report?

In a nutshell, the report shall mention information which allows a clear understanding of the interactions between the activity and sustainability:

• How the company’s activities impact sustainability matters;

• How the sustainability may impact the growth of the company, its performance, and its position compared to its competitors.

The company will support its report by:

• Identifying the main negative impacts – current or potential – generated by the company’s activities and its value chain;
• Providing a reminder of the commitments taken and the actions performed on sustainability;
• Describing the main risks for the company in relation to sustainability matters and the way these risks are managed.

This is not so different from the process applicable under French law to fight occupational risks in the workplace: the construction of the health and safety risk assessment leads to identifying the risks for employees generated by the company’s activities, as well as actions to be taken to eliminate the risks, or mitigate their occurrence and the consequences.

To be followed…

Jacques Perotto, Partner and Maxime Hermes, Associate

Cass. 1^st Civil Chamber, 28 September 2022, No. 20-20.260, Kabab-Ji v. Kout Food Group

Ten years after the Dallah v. Pakistan case, French and English courts once again rendered opposite decisions on the determination of the rules governing the application of an arbitration agreement to a non-signatory.

In 2021, the United Kingdom Supreme Court declined to recognize and enforce an award which extended the arbitration agreement to a non-signatory third party, on the ground that such an extension was not allowed under English law, the governing law of the contract.

By contrast, in a much-commented decision dated 28 September 2022, the Cour de cassation (French Supreme Civil Court) upheld the same award, considering that before French courts, the validity and effects of the arbitration agreement were not governed by English law but by French substantive rules (règles matérielles).

These opposite decisions illustrate a profound difference in the French and English conceptions of the autonomy of the arbitration agreement. More generally, it could be an incentive for practitioners anticipating enforcement in several jurisdictions, to specify in the contract which law is applicable to the validity and effects of the arbitration agreement. 

Background

In 2001, the Lebanese company Kabab-Ji SAL (hereafter, “Kabab-Ji”) entered into a ten-year franchise agreement with the Kuwaiti company Al-Homaizi Foodstuff Co. (hereafter, “AHFC”) for the exploitation of Kabab-Ji’s restaurant brand in Kuwait. The franchise agreement and subsequent agreements contained governing law clauses providing for English law, and arbitration agreements providing for International Chamber of Commerce (ICC) arbitration seated in Paris.

In 2005, Kout Food Group (“Kout Food”) became the holding company of the AHFC group. Kout Food did not become a signatory party to the agreements but took part in its performance.

In 2011, the parties failed to renew their agreements which expired.

Arbitration proceedings seated in Paris

In 2015, Kabab-Ji commenced arbitration proceedings in Paris against Kout Food, claiming damages for breach of the agreements and unauthorized appropriation of know-how.

Kout Food challenged both the jurisdiction of the arbitral tribunal and the merits of Kabab-Ji claims, on the ground that it was not a signatory party to the agreements.

In 2017, by majority decision, the arbitral tribunal:

• held that it had jurisdiction considering that under French law, the law of the seat of the arbitration, Kout Food was a party to the arbitration agreement;
• found that Kout Food was bound by the agreements, held Kout Food liable for their breach and awarded Kabab-Ji USD 7 million in damages and legal costs.

Interestingly, the only English-qualified lawyer member of the arbitral tribunal issued a dissenting opinion, considering that the strict wording of the agreements precluded Koot Food from becoming a party to the agreements.

This award gave rise to parallel state court proceedings on both sides of the Channel: Kabab-Ji filed an application for an enforcement order before English courts and Kout Food filed an application to set aside the arbitral award before French courts.

U.K. courts refused to recognize and enforce the award

In 2018, Kabab-Ji obtained an ex parte order allowing the enforcement of the award in the United Kingdom. Kout Food appealed this order. On 27 October 2021, the United Kingdom Supreme Court ruled in favor of Kout Food.

The Supreme Court first considered which law applied to the issue at stake and decided that the answer would be found in the law governing the arbitration agreement rather than the law of the seat of arbitration. In the absence of a specific choice of law to govern the arbitration agreement, the Court considered that the parties’ choice of law to govern the contract (lex contractus) also applied to the arbitration agreement (see previously Enka v. Chubb case, schematically resorting to the law of the seat only if there is no other express choice of law). The parties had chosen English law to govern the agreements and therefore, the Court applied English law to determine the scope of the arbitration agreement.

Then, the Supreme Court held that Kout Food was not a party to the arbitration agreement under English law. The terms of the agreements provided that any modification had to be in writing, and the Court found that there was no evidence of such a written agreement of Kout Food.

The Supreme Court concluded that the arbitral tribunal lacked jurisdiction and refused recognition and enforcement to the arbitral award in the United Kingdom.

French courts dismissed the application to set aside the award

In parallel, in 2017, Kout Food filed an application to set aside the award before the Paris Court of Appeal, mainly for lack of jurisdiction of the arbitral tribunal. On 23 June 2020, the Court of Appeal upheld the arbitral tribunal’s jurisdiction and dismissed Kout Food’s application.

Firstly, the Court of Appeal did not seek to determine a law which would govern the arbitration agreement, but instead applied the well-established French substantive rule under which, as a result of the autonomy of the arbitration agreement from the contract containing it, the existence, validity and effects of the arbitration agreement are determined without any reference to a domestic law but exclusively by reference to the common will of the parties, subject to mandatory rules of French law and international public policy (see Dalico v. Khoms et El Mergeb case).

In the case at hand, the specific provisions contained in the agreements did not reflect, according to the Court, an express designation of English law to govern the arbitration agreement. Therefore, French substantive rules applied.

Secondly, the Court of Appeal recalled the French substantive rule allowing the extension of arbitration agreements to non-signatory parties which directly participated to the performance of the contract and the resulting disputes (see ABS case), “as long as their contractual situation and activities justify the presumption that they accepted the arbitration agreement, the existence and scope of which they were aware”.

The Court found that Kout Food had participated in the performance of the main agreement, notably by taking part in the exploitation of Kabab-Ji’s restaurant brand in Kuwait and paying invoices addressed to AHFC, and concluded that Kout Food had become a party to the arbitration agreement.

Kout Food challenged this decision before the Cour de cassation.

On 28 September 2022, the Cour de cassation confirmed the Court of Appeal’s decision, endorsing the Cour of Appeal’s position and adding that if parties wish to apply a specific domestic law to the arbitration agreement, they must expressly provide for it.

Comments

The outcome of this matter before French and British courts calls for several comments.

Firstly, after these conflicting decisions on both sides of the Channel, Kabab-Ji is now confronted to a race to enforce the award around the world.

Secondly, both courts agree that parties can choose the law applicable to the arbitration agreement. The case at hand shows that this choice has consequences, notably when determining the parties bound by such agreement. However, in the absence of an express provision designing the law applicable to the validity and effects of the arbitration agreement, French courts apply their substantive rules while British courts principally apply the law chosen by the parties to govern the main contract, or failing such a choice, the law of the seat.

Finally, by contrast to the Dallah case where British courts applied French law but reached a decision opposite to that of the French courts, in this case, each court applied its own rules. It would be interesting to know what the position of the French courts would be if they were to apply English law to the existence and the validity of an arbitration agreement.

In any event, parties choosing arbitration in Paris, or anticipating enforcement of a future award in France, must be aware that French courts always review the arbitration tribunal’s jurisdiction under French substantive rules, unless otherwise expressly provided. In the latter case, the given provision would have to clearly designate the law governing “the arbitration agreement.” The designation of a law to govern the “arbitration” would not be considered specific enough to override the applicability of the substantive rules of French law (see Pharaon case).

Jacques Bouyssou, Partner, Marie-Hélène Bartoli Vallet, Counsel, and Juan Diego Niño–Vargas, Associate.

If the first “blockchain” was conceptualized by Satoshi Nakamoto in 2008, NFTs, “non-fungible tokens”, have been successful since 2017, thanks to cryptokitties. From now on, these new technologies are at the heart of Web 3.0 and trademark registration has become one of the main issues.

The various Offices, and in particular the French National Institute of Intellectual Property (INPI) and the European Intellectual Property Office (EUIPO), are receiving more and more trademark applications concerning these new technologies and are confronted with very often imprecise wording. However, Article R.712-3-1 of the French Intellectual Property Code states that “The goods and services shall be designated with sufficient clarity and precision to enable any person to determine, on this basis alone, the extent of the protection.”. It is clear that it is difficult for all the actors involved (applicants, lawyers, legal advisers in industrial property, legal experts, etc.) to draft sufficiently clear, precise, and adequate wording to cover these new products and services rigorously.

In this respect, on June 23, 2022, the EUIPO came to provide its first clarifications (Virtual goods, non-fungible tokens and the metaverse). The EUIPO confirms that virtual goods fall under class 9. On the other hand, the term “virtual goods” is imprecise and will have to be refused by the different Offices. Therefore, the EUIPO states that it is necessary to specify the content to which the virtual goods relate “for example: downloadable virtual goods, namely, virtual clothes“. Furthermore, the EUIPO indicates that the next version of the Nice Classification will include, in Class 9, the wording “downloadable digital files authenticated by non-fungible tokens“, considering the use of the term “non-fungible tokens” alone unacceptable.

The INPI, on November 15, 2022, aligned itself with the recommendations of the EUIPO and proposed different examples of wording. Thus, in the future, “digital content, i.e., downloadable digital files authenticated by non-fungible tokens [NFT] containing toys and graphic designs to be collected“, as well as “downloadable image files containing works of art authenticated by non-fungible tokens [NFT]“, in class 9, but also “services for the authentication of intangible goods by means of blockchain technology [blockchain]” in class 42[1].

In general, these new technologies in Web 3.0 will essentially be integrated into classes 9, 35, 38, 41 and 42.

From now on, it is up to professionals to adapt to their clients’ requests while making their best efforts to reconcile these new trademark filings with the requirements of the Offices.

[1] A. Drappier, C. Neveu, L.Zambito-Marsala, trademark legal experts, K.Bounif, Head of the Trademark pole, at the Department of Trademarks, Designs and Models of the INPI, « Designation of goods and services in the context of trademark applications relating to NFTs, metavers and digital assets », PIBD 1 1912-II-1, November 15, 2022

Alerion’s lawyers in the IP/IT/Privacy Department can assist their clients in all matters related to intellectual property and in particular in determining strategies for Web 3.0 related trademark registrations.

Corinne Thiérache, Partner Lawyer, and Océane Desplands, Master II Intellectual Property and New Technologies (UGA)

Keep it in mind #2: Update your company’s risk assessment document

Employers are required to assess the occupational risks and to implement prevention activities, working methods and production to mitigate them.

The results of this assessment are recorded in a document available to the employees, the occupational physician, the Labor Inspector and the staff representatives.

This document must be updated every year.

Failure to establish or to update such document is punishable by a fine of up to € 7,500.

Case law: Working time arrangement in days over the year does not grant total freedom to set working hours

Employees with a certain level of autonomy may be subject to a working time arrangement in days over the year, in which cases they benefit from a certain degree of independence to organize their working time.

This doesn’t mean a total freedom, without consideration of professional obligations, as recently ruled by the French supreme court: constraint related to the organisation of the work by the employer (such as meetings for example) shall be taken into consideration.

French Supreme Court – 22nd February 2022, n°20-15.744

New regulation on whistle blowing

Since 1^st September, the whistleblowers status has been modified:

• The definition is wider, and more situations are covered;
• The whistleblower has now an immediate choice between internal and external (administration bodies) channels of diffusion;
• Protection has been enhanced: no civil liability, extension of the scope of the lack of criminal responsibility, no possible retaliation for the associations and Trade unions helping the whistleblower;
• The company’s internal policy shall remind the existence of a protective status for whistleblowers.

Do not hesitate to reach out on the multiple features of this status.

Law 2022-421, 21^st March 2022

Article: Guidelines on internal investigation about harassment

Anne-Sophie Houbart introduces a few recommendations on how to handle an investigation, in light of the most recent cases law of the French Supreme Court.

Case law: dismissal of an ill employee

Dismissing an ill employee in consideration of illness is discriminatory and therefore void.

By exception, an employee may be dismissed if:

• her/his continued or successive sick leaves disrupts the functioning of the company;

• there is no satisfying temporary solution to manage the situation;

• the employee is permanently replaced shortly after her/his dismissal.

These conditions are very strictly appreciated: the Supreme Court recently confirmed that the disruption of a service/unit is insufficient: the employer shall demonstrate and mention the disruption of the whole company.

French Supreme Court, 6 July 2022, n°21-10.621

Case law: content of the dismissal letter

Since 2017, the employee may request clarification on the grounds of the dismissal letter within 15 days of the dismissal. It was not yet clear whether the employer must inform the employee of this possibility or not.

The French supreme court ruled that it is not mandatory for the employer to mention such opportunity, which may therefore be removed from the templates.

French Supreme Court – 29th June 2022 – n°20-22.220

Jacques Perotto, Partner, Maxime Hermes, Anne-Sophie Houbart, Eloïse Ramos, Associates.

Facing facts possibly qualifying as moral or sexual harassment, the employer is required to react, under the risk of failing its obligation to prevent occupational risks.

When such a situation is identified, an internal investigation, which unveils the reality, nature and extent of the facts reported, is in practice one the first measures to be taken.

There is no legal obligation to hold an internal investigation, except if a right of alert is triggered by at least one member of the Works council (“CSE”); although:

• A national Collective bargaining agreement (“ANI”) of 2010 recommends the implementation of an appropriate procedure to identify, understand and address harassment and violence in the workplace;

• Moreover, pursuant to the case law of the Supreme Court (“Cour de cassation”) the absence of an internal investigation after the disclosure of harassment may constitute a violation of the employer’s obligation to prevent occupational risks (Cass. Soc., 29 June 2011, n°09-70.902). 

In this regard, the lack of a reaction of an HR Manager informed of a harassment situation may be regarded as a misconduct and may lead to a disciplinary sanction, up to a dismissal (Cass. Soc., 8 March 2017, n°15-24.406).

On the other hand, the practical approach of the investigation is up to the employer: although good practices can be identified[1], the Supreme Court accepts the result of the investigation as valid evidence, even when such good practices are not strictly applied.

This article reminds some of these practices at the light of recent case law.

1. The scope of the interviews to be conducted during an internal investigation

The first question is about the framework of the investigation: should a systematic approach be adopted by interviewing all employees likely to have witnessed acts of harassment?

In a decision of 29 June 2022, the Supreme Court reminds the role of the judge in assessing the value as evidence of the internal investigation (Cass. Soc., 29 June 2022, n°21-11.437).

In a case where the employer only interviewed the employees who complained about the harassment, the Court deemed that judges can neither simply dismiss the internal investigation report nor refuse to examine the other elements of proof communicated by the parties.

Our recommendation consists of hearing, in the framework of an internal investigation:

• Direct witnesses (declared or in frequent contact with the victims and potential harassers);

• Employees who have complained of harassment.

On the other hand, employees who do not belong to this “first circle” should be interviewed at a later stage, if it is relevant to the investigation (was this employee mentioned during the other interviews? Will he or she male it possible to confirm a statement? Will he or she bring something new to the investigation?).

Depending on the circumstances of the case, this allows to adapt the investigation to the nature and seriousness of the facts brought to the company’s attention, to bring balance between serious information gathering and counterproductive comprehensiveness:

• Too extensive, the investigation may generate a miscommunication about the incident by bringing too many employees into its scope, when such a situation requires to act swiftly and discreetly.

• Excessively limited, the investigation may give rise to criticism, or event to its results being questioned.

2. The absence of an obligation to hear the alleged harasser 

In a decision of 29 June 2022, the Supreme Court specified that it was not mandatory, during an internal investigation:

• To hear the alleged harasser;

• To confront him or her with the plaintiff employees;

• To give him or her access to the file and documents collected during the investigation.

The rights of the defence are not disregarded, insofar as the employee can provide explanations during the pre-dismissal interview, if applicable, or during legal proceedings (Cass. Soc., 29 June 2022, n°20-22.220).

The internal investigation carried out by the employer without the accused employee’s version is therefore admissible evidence.

However, avoiding confrontation may look shady to the judges.

Our recommendation is to systematically include the accused employee in the interviews conducted as part of the internal investigation in order to demonstrate impartiality and to obtain a complete view of the facts, enabling the most appropriate decision to be taken at the end of the investigation.

3. The staff representative (“CSE”) does not have to be involved in the internal investigation

Except for the exercise of their right to alert[2], the employer is not obliged to involve the “CSE” in the internal investigation.

This is the solution adopted by the Supreme Court in a case where the unloyalty of an investigation that revealed moral harassment, conducted by the HR Department without including the staff representatives, was raised (Cass. Soc., 1 June 2022, n°20-22.058).

However, in order to avoid the risk of bias in the analysis, our recommendation is to involve the “CSE” members in the internal investigation, but to make sure they don’t take the lead: the conduct of the investigation is first of all the employer’s responsibility.

The harassment referent in the “CSE” is then the preferred point of contact.

Furthermore, when facing a tricky cases, it is advisable to entrust the lead of the investigation to an external consultant.

These three decisions illustrate the pragmatic approach of the Supreme Court, which unreservedly accepts the results of investigations which, in certain cases, may have seemed insufficiently serious.

However, the internal investigation remains a delicate exercise that requires to be framed and conducted with sufficient objectivity and discernment.

Otherwise, and even if it constitutes an admissible form of evidence, its strength as evidence is likely to be reduced.

[1] See for example the guide against sexual harassment: https://travail-emploi.gouv.fr/IMG/pdf/30645_dicom_-_guide_contre_harce_lement_sexuel_val_v4_bd_ok-2.pdf

[2] Article L.2312-59 of the Labour Code

Jacques Perotto, Partner, and Anne-Sophie Houbart, Associate.

The French Treasury’s Directorate General (“DGT“) has published its first guidelines to assist investors and their advisors to comply with the French foreign investment screening process.

These guidelines set out the scope of this control, including its key concepts, the conduct of the procedure and the follow-up of authorizations issued by the Minister in charge of the Economy.

1 – Clarification on the concept of “foreign investor”

A “foreign investor” is an individual of foreign nationality, an individual (even of French nationality) not resident in France for tax purposes, or a legal person (entity) governed by foreign law, regardless of its legal form or location (including investment funds and investment vehicles).

The DGT has clarified that all persons and entities in the same chain of control (as defined by Article L. 233-3 of the French Commercial Code) are investors under the regulations. Control therefore applies as soon as one member of the chain of control is foreign, even if the ultimate investor controlling the entire chain is a French entity or person.

Investment funds may be foreign investors, regardless of their management company. The guidelines indicate that the analysis of the chain of control of investment funds is carried out on a case-by-case basis and must take into account the specificity of each structure and the way the fund is managed. Furthermore, the transfer of an interest in an entity of an investment fund to another fund controlled by the same management company is not exempted from authorization, provided that this management company does not hold more than 50% of the capital or voting rights of these two funds.

2 – Clarification on the different forms of investment

Investment transactions are diverse, and the regulations do not list them. Only transactions carried out by a foreign investor on a French target entity operating in sensitive activities require a prior authorization.

Therefore, investment transactions in French branches of foreign companies are not subject to screening, because these branches are not considered French targets.

The DGT also confirms that “greenfield” investments – corresponding to the creation of an entity in France by a foreign investor to develop an activity in that country – are not subject to foreign investment screening.

Finally, the DGT recalls that a transaction which consists in the direct or indirect acquisition of a portfolio of sensitive contracts, a significant number of intellectual property rights (including software or know-how) or materials, vehicles, furniture, or equipment necessary to operate a sensitive business (asset deal), may be analyzed as the acquisition of part of a business, and thenbe subject to screening (see §3 below).

3 – “Sensitive” activities

The Guidelines remind the three types of activities that are “sensitive”:

• Activities listed in Article R. 151-3, I of the French Monetary and Financial Code (“Code monétaire et financier”, “CMF”) are eligible by nature (so-called “objective” eligibility).
• Activities that are likely to harm national defense interests, public order, or the exercise of public authority (Article R. 151-3, II CMF) are subject to a “sensitivity test” to assess their essential nature. Among the key criteria are the target’s customers, the nature, specificity and applications of the products or services provided, or the associated know-how, the substitutability of the activities or their dangerousness.
• Research and development (“R&D”) activities are eligible when they are intended to be implemented in one of the activities listed in the abovementioned paragraphs (Article R. 151-3, III CMF).

The sensitivity of the activity is therefore determined on a case-by-case basis (see reminder below). The targets carrying out subcontracting or supply activities for the benefit of an operator of vital importance (also known by the French acronym “OIV“) are strongly presumed to be sensitive. However, as the list of OIVs is protected by national Defense secrecy, the DGT will not be able to confirm or deny the presence of an OIV among the customers/partners of a French target.

4 – Exceptions to the authorization requirement: intra-group operations

Foreign investors are exempted from the authorization requirement when the investment is made between entities that all belong to the same group, as defined in Article L. 233-1 of the French Commercial Code.

However, a simple control relationship of a shareholder over different entities is not sufficient, as it does not imply the ownership of more than 50% of the capital or voting rights. Similarly, if 50% of the capital or voting rights of entities are held by several shareholders acting jointly, the investment is not exempt from authorization.

Reminder of the principles applicable to foreign investments

Regardless of the amount of the transaction, any investment – whether direct or indirect – made through the acquisition of shares (takeover of a company, or for non-EEA investors, acquisition of more than 25% – or, until December 31, 2022[1], 10% of the voting rights of the target company) or acquisition of goodwill or assets (all or part of a branch of activity of a company) of a French company performing critical activities is subject to a prior authorization by the Minister of the Economy, under penalty of nullity and heavy financial fines.

Since October 11, 2020[2], foreign investments must also be notified to the European Commission and to other Member States. This screening mechanism reinforces the protection of activities and essential assets of the Union and coordinates the responses brought to the investors. In 2021, just over 1,500 cases were notified. Nearly 73% of the cases analyzed were authorized. 23% were conditionally authorized, 3% were abandoned and only 1% were refused[3].

For European and non-European investors, the controlled sectors include (i) activities likely to affect national defence, public order, or public safety (war materials and similar, dual-use goods, national defence secrets, information systems security, encryption, sensitive data storage, etc.) or (ii) the same activities when they concern essential infrastructures, goods or services (energy, water, transport, space operations, communications, integrity, security and continuity of a vital operator, public health, agricultural products, press) and (iii) R&D activities in the above-mentioned sectors and related to the critical technologies defined in the order of December 31, 2019 (including cybersecurity, robotics, 3D printing, energy storage and renewable energies), as well as to dual-use goods and technologies.

[1] French Decree No 2021-1758 of 22 December 2021

[2] Date of the entry into force of UE Regulation 2019/452 of 19 March 2019

[3] See report of the Commission of 1 September 2022 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52022DC0433

For any additional information, please contact the Compliance and Regulatory team.

Frédéric Saffroy, Partner, and Alice Bastien, Associate.

On April 23, 2022, almost a month to the day after the adoption of the provisional political agreement on the Digital Markets Act (DMA) on March 24, 2022, an agreement was finally reached between the European Parliament and the Council of the European Union on the Digital Services Act (DSA) to modernize the rules applicable to digital services.

This legislation, which has yet to be formally and finally adopted, sets a new standard for the liability of online platforms for illegal and harmful content.

The European Union’s intention is to put into practice the principle that what is illegal offline is also illegal online. Thus, the DSA aims to put in place a new liability framework for large digital platforms.

More broadly, the objective is to better protect the fundamental rights of users on the Internet by setting rules with which actors meeting the conditions set out in the DSA will have to comply, in a manner commensurate with their capacity and size, when providing their services to EU nationals.

The obligations of the various actors can be classified into three categories:

• The fight against illegal content. In this perspective and as an example, marketplaces will have to better trace sellers and better inform consumers. In addition, although these online platforms retain the qualification of hosters limiting their liability for published content, they will have to offer a tool allowing users to report illegal content and products and to designate a “contact point” in each Member State that will serve as a privileged interlocutor with the judicial institutions.

• Online transparency. In this respect, platforms will be obliged to explain the algorithms they use to recommend certain advertising content based on users’ profiles and will have to make available to the public a register of advertisements containing various information.

• Risk mitigation and crisis response. The very large platforms and the very large search engines, i.e., those used by more than 45 million Europeans per month, which will be listed by the European Commission, will have to carry out independent risk mitigation audits every year, under the control of the European Commission.

In terms of personal data, the DSA provides new guarantees for the protection of minors and limitations on the use of sensitive personal data for targeted advertising.

The substantial penalties, which can go up to 6% of global turnover or even a ban on activities in the European Union’s single market in the event of serious and repeated violations, should encourage online platforms to comply and thus put an end to the opacity in which they have been operating until now.

Once finally adopted, the DSA will be directly applicable in all Member States and will be enforced fifteen months after its entry into force or from January 1, 2024, whichever is later. For very large online platforms and search engines, the DSA will apply earlier, i.e. four months after their designation.

The year 2022 marks the European Union’s involvement in the digital economy and the development of digital technology. Indeed, in addition to the DSA, other important texts have been initiated within the European Union, such as the aforementioned Digital Market Act, but also the Data Governance Act and the Data Act, which aim to develop a single market for data.

European Union law is intended to be a complex law, in order to effectively protect the rights and interests of the various operators, whether companies or consumers, and also to ensure freedom of the press, with the recent adoption of the Media Freedom Act. These regulations are in particular a response to a strong political expectation of the French government, which wants to see the European Union promote its own model. Through these different texts establishing common rules for the Member States, the European Union reinforces its digital sovereignty and there is no doubt that these provisions will have a real impact in France, between prevention and repression. 

Corinne Thiérache, Partner

The French tax authorities released in June 2022 their comments on several mechanisms introduced by Budget Laws and related to the restitution of certain withholding taxes (“WHT”) paid by non-resident companies. 

The Finance Law for 2020 and 2022 introduced the possibility for non-resident legal entities or organizations in a loss-making position to obtain a temporary restitution of WHT paid in France on dividends, royalties, fees, or capital gain (art. 235 quater of the CGI – French tax code), which can be assimilated to a tax deferral.

The deferral is ended in certain circumstances (for example when the company becomes profitable again) making the WHT concerned definitively due. The French tax authorities explain that when the tax deferral is ended because of a profit, the amount of income in respect of which the deferral is ended is limited to this profit.

The Finance Law for 2020 and 2022 also introduced the possibility for beneficiaries of certain incomes subject to the WHT to claim a refund. The amount of this refund is equal to the difference between the WHT paid and the WHT determined from a basis net of costs directly connected to this income (article 235 quinquies of the CGI – French tax code).

To benefit from this refund, the taxation rules in the State of residence as well as the provisions of the applicable international tax treaties must not have allowed the beneficiary to offset the WHT in that State. The French tax authorities specify that if the offsetting of WHT in the State of residence is allowed but limited, the restitution is possible but will also be limited to the part of the WHT that cannot be offset.

All the comments on these new mechanisms for restitution of certain WHT are available on the French tax administration’s website “Bulletin Officiel des Finances Publiques – Impôts” (www.bofip.impots.gouv.fr).

Philippe Pescayre, Partner, Mathilde Colonna d’Istria, Associate

The Competition, Merger Control Department of Alerion regularly works with the Corporate law, Mergers & Acquisitions and Private equity practice teams for merger control operations. In order to identify the most essential aspects of the merger control procedure in France, our team summarizes the first information needed in such transactions.

Type of mergers reviewed by the French Competition Authority: “Autorité de la concurrence” Art. L. 430-1 and sq. of the French commercial code :

A merger shall be deemed to have occurred where:

• Two or more previously independent undertakings merge;
• One or more persons already having control of at least one undertaking or when one or more undertakings acquire control of all or part of one or more other undertakings, directly or indirectly, whether by the acquisition of a holding in the capital or by purchasing assets, a contract or any other means.

The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity shall constitute a merger.

The control results from rights, agreements or any other means which, either separately or jointly and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on the activity of an undertaking, in particular by:

• rights of ownership or enjoyment of all or parts of the assets of an undertaking;
• rights or agreements which confer decisive influence on the composition, voting or decisions of the organs of an undertaking.

Thresholds applicable to all transactions Art. L. 430-2, I. of the French commercial code :

Mandatory notification if the three following cumulative conditions are met:

• The combined worldwide turnover exclusive of tax of all of the undertakings or of all of the individuals or legal entities involved in the merger is greater than €150 million, and
• The combined aggregate turnover exclusive of tax earned in France by at least two of the undertakings or groups of individuals or legal entities concerned is greater than €50 million; and;
• The transaction does not fall within the jurisdiction of the European Commission.

Specific thresholds applicable in retail trade Art. L. 430-2, II. of the French commercial code :

When at least two of the parties to the concentration operate one or more retail outlets notification is mandatory if the three following cumulative conditions are met:

• Aggregate turnover exclusive of tax earned worldwide by all of the undertakings or of all of the individuals or legal entities involved in the merger is greater than €75 million;
• The total turnover exclusive of tax generated in France, in the retail business sector, by at least two of the undertakings or groups of individuals or legal entities concerned is greater than €15 million;
• The transaction does not fall within the jurisdiction of the European Commission.

Mergers concerning certain French overseas territories Art. L. 430-2, II. of the French commercial code :

When at least one of the parties to the concentration exercises all or part of its business in one or more French overseas departments, in the department of Mayotte, the Wallis and Futuna Islands or the overseas territories of Saint-Pierre-et-Miquelon, Saint-Martin and Saint-Barthélemy, notification is mandatory if the three following cumulative conditions are met:

• The combined aggregate turnover exclusive of tax earned worldwide by all of the undertakings or of all the individuals or legal entities involved in the merger is greater than €75 million;
• The total worldwide turnover exclusive of tax generated separately in at least one of the French overseas territories concerned by at least two of the undertakings or groups of individuals or legal entities concerned is greater than €15 million, or €5 million in the retail sector without this threshold having to be reached by all the undertakings concerned in the same French overseas territory;
• The transaction does not fall within the jurisdiction of the European Commission.

Date by which the transaction must be notified to the Competition Authority Art. L. 430-3 and Art. L430-4 of the French commercial code :

The transaction must be notified prior to its completion, when the project is sufficiently advanced to enable the processing of the file.

The transaction can be effectively completed only after the Autorité de la concurrence has given its consent.

The notification procedure has a suspensive effect (except in the exceptional cases provided for by law).

Pre-notification :

The parties to the operation may initiate a contact with the French Competition Authority before the formal notification, in order to have a first formal evaluation of the questions raised by such operation.

At this stage, the procedure remains confidential, and the French Competition Authority cannot disclose it to third parties.

The confidential pre-notification is strongly recommended.

Fines Failure to notify Art. L. 430-8, I of the French Commercial Code :

Persons responsible for the notification, legal entity: Financial penalty of 5% of their pre-tax turnover made in France during the last closed fiscal year, plus, if applicable, the turnover that the acquired party made in France during the same period.

Persons responsible for the notification, individuals, €1.5 million.

Fines Early implementation of a merger, or gun jumping Art. L. 430-8, II of the French Commercial Code :

Notifying person, legal entity: financial penalty of 5% of the turnover excluding taxes made in France during the last financial year ended, increased, where applicable, by the turnover made in France during the same period by the acquired party.

Notifying person, individuals: financial penalty of €1.5 million.

Fines Omission or inaccurate statement Art. L. 430-8, III of the French Commercial Code :

Financial penalty of 5% of turnover for legal entity withdrawal of the decision of the Competition Authority.

Catherine Robin, Partner