What is a dismissal for economic reasons?
Verified 18 April 2023 - Legal and Administrative Information Directorate (Prime Minister), Ministry of Labor
When a company is in economic difficulties or if it closes down permanently, for example, it may dismiss an employee for economic reasons.
What is the definition redundancy on economic grounds? What are the causes which can justify redundancy on economic grounds?
We are taking stock of the regulations.
Dismissal for economic reasons is the dismissal made by an employer for one or more reasons unrelated to the employee.
The reason for the dismissal results from the termination or conversion of employment or from the amendment, refused by the employee, of an essential element of the employment contract.
The list of causes which may justify an economic dismissal is not limiting. It may be in particular economic difficulties, technological changes, a reorganization of the company necessary to safeguard its competitiveness, the cessation of activity of the company.
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Economic difficulties
Economic difficulties arise when the company undergoes a significant change in at least one of the following economic indicators:
- Decrease in orders or sales
- Operating losses or deterioration of cash flow or gross operating surplus
- Any other factor capable of justifying economic difficulties
A drop in orders or turnover is significant when, compared with the same period of the previous year, it reaches a certain duration. This time varies depending on the size of the company.
Technological change
The introduction of a new technology may justify an economic dismissal.
One example is the adoption of a manufacturing process by digital printing replacing a screen printing process.
Reorganization of the company necessary to safeguard its competitiveness
The reorganization of the company may justify an economic dismissal if it is necessary to safeguard its competitiveness.
Discontinuance of the company
The cessation of activity of the company may justify an economic dismissal.
Please note
the cessation of the company's activity due to the employer's fault cannot justify an economic dismissal. For example, the cessation of a company's activity as a result of the company's misappropriation of funds to pay down a personal debt.
Company does not belong to a group
The economic cause is taken into account at the company level.
The company belongs to a group
The economic cause is taken into account at the level of the sector of activity common to the company and the other companies of the group located in France.
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Definition of economic motive
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