Length of service and contract transfer (L1224-1)

Quick answer. When a business or a going concern is sold and an autonomous economic entity is transferred, Article L1224-1 of the French Labour Code automatically transfers all ongoing employment contracts. The buyer keeps each employee's length of service, maintains contracts on the same terms, and takes over the seller's social obligations.

You are buying a going concern, absorbing a company or taking over a line of business. One question always comes up: what happens to the existing employees? The answer is not a management choice, it is a matter of public policy. The transfer of contracts is mandatory, and it has concrete payroll consequences from the very first payslip you issue as the new employer.

At Hayot Expertise, a firm registered with the Ordre des experts-comptables, we regularly support buyers on the employment side of an acquisition. The L1224-1 transfer is one of the points where an insufficient social due diligence becomes expensive after signing.

Article L1224-1 of the French Labour Code states a simple rule: when a change occurs in the employer's legal situation (succession, sale, merger, transformation of the business, incorporation), all employment contracts in force on the day of the change continue between the new employer and the company's staff.

This transfer is automatic and a matter of public policy. Two consequences follow. First, it does not have to be decided or accepted: neither the seller, nor the buyer, nor the employee can object to it where the conditions are met. Second, no clause of the sale agreement can set it aside. A provision stating that the seller keeps the employees would have no effect on the legal mechanism.

The contract therefore moves from seller to buyer with its content intact: job classification, contractual pay, clauses (mobility, non-compete, length of service). The buyer becomes the employer in place of the seller, with no termination and no new contract to sign.

The rule does not apply to every transaction. The Cour de cassation, transposing EU Directive 2001/23/EC, set its scope: Article L1224-1 applies where an autonomous economic entity that retains its identity is transferred and its activity is pursued or resumed by the new employer.

An autonomous economic entity is an organised set of people and tangible or intangible elements enabling an economic activity with its own objective. What matters is whether such an entity is transferred, regardless of the legal form of the transaction (sale of a going concern, contribution, merger, management lease).

In practice: three questions to ask#

1. Is an organised set being transferred? Equipment, a customer base, know-how, staff assigned to the activity.
2. Does that set retain its identity? Is the resumed activity the same, using the same essential resources?
3. Is the activity pursued? A mere takeover of a contract without a transfer of resources is not always enough.

If the three answers are yes, the L1224-1 transfer applies as of right. In our acquisition files, the most common friction point is underestimating this automatic nature: a buyer convinced he can hire freely discovers afterwards that he has inherited contracts, lengths of service and latent disputes.

The most structuring consequence for payroll is the carryover of length of service. Service acquired with the seller is not reset to zero: it is kept and continues with the buyer. An employee transferred on 1 January with eight years of service remains, the next day, an eight-year employee with the new employer.

This continuing service has concrete, measurable effects:

• the length of notice in the event of a later termination;
• the amount of the statutory or collective severance pay;
• collective rights tied to seniority (seniority bonuses, extra leave days under the applicable collective agreement);
• progression through pay scales. Our article on the collective pay scale covers this configuration point.

The buyer is also bound by the obligations that fell on the seller at the date of the transfer (the framework of Article L1224-2 of the Labour Code, which organises joint liability between seller and buyer for obligations existing at the date of the change, except in insolvency proceedings). In concrete terms, balances of accrued unused paid leave, RTT counters, and amounts and bonuses due move to the buyer.

This is where the subject becomes more complex. Not everything is maintained in the same way. Three sources of benefits must be distinguished.

The fate of collective agreements: the mise en cause (Article L2261-14)#

The transfer (merger, sale, demerger, change of activity) calls into question (mise en cause) the collective conventions and agreements applicable with the seller. The agreement does not disappear at once: it continues to apply until a replacement agreement comes into force or, failing that, for one year from the end of the three-month notice of denunciation (Article L2261-9), unless a clause provides a longer period.

A fresh negotiation must begin, at the request of an interested party, within three months of the mise en cause. A replacement agreement can be negotiated in advance; its term cannot exceed three years (the framework of Article L2261-14-2).

Key point for the buyer: failing a replacement agreement within the deadline, employees benefit from a guaranteed remuneration whose annual amount cannot be lower than the pay received under the agreement called into question, assessed over the last twelve months. In other words, you cannot wipe out pay-related benefits at the stroke of a pen when the agreement expires.

The legal transfer translates immediately into payroll operations. This is where our social and payroll team is most directly involved.

Cumulative resumption is a technical subject in its own right. Issuing a new payslip from blank bases distorts Social Security ceilings and annual exemptions. For reference, the 2026 annual Social Security ceiling (PASS) is 48,060 euros, i.e. a monthly ceiling of 4,005 euros: these thresholds are assessed over the year, which makes continuity of cumulative figures essential when an employee changes employer mid-year. Our dedicated article on the payroll changeover with history carryover describes the method step by step, and the DSN 2026 guide sets out the relevant declaration blocks.

The L1224-1 transfer is not a payroll risk, it is a poorly documented acquisition risk. In practice, the loss rarely materialises on the day of the transfer: it shows up six months later, when the buyer discovers a high length of service, a costly customary practice he thought he could remove, or a company agreement whose guaranteed remuneration ties his hands. The right sequence is to audit the social liability before signing, not to suffer it afterwards.

We position the chartered accountant on payroll and compliance: social due diligence, counter carryover, configuration of rates and the DSN, securing the transferred benefits. For an employment dispute or a complex collective negotiation (replacement agreement, contested denunciation of a practice), the lawyer remains the contact for the procedure.

The most often overlooked item is the stock of accrued paid leave and bonuses with the seller. These amounts move to the buyer through the joint liability set at the date of the transfer. A buyer who has not priced these provisions in the negotiation pays them twice: once in the sale price, once on the payslips. The social due diligence, part of our tax and social acquisition audit, is precisely intended to isolate that liability.

The second blind spot concerns company customary practices. Contrary to a widespread belief, they do not fall away with the transfer: they follow the contract and bind the buyer until he ends them through the proper procedure.

Recently, the head of an SME asked us about taking over a going concern employing six people. His letter of intent provided for "taking over the team with new contracts". On analysis, the L1224-1 mechanism required keeping the existing contracts, including lengths of service, two of which exceeded ten years. The direct consequence concerned the cost of any future dismissal, calculated on total service, and a long-standing year-end bonus practice. We reconstructed the social liability, included the paid-leave provisions in the acquisition plan, and organised the cumulative payroll changeover. The price negotiation was adjusted accordingly. The figures in this file are specific to the situation and are not a general rule.

• Check that the transaction transfers an autonomous economic entity (the condition for L1224-1).
• Obtain the list of employees, their contracts, lengths of service and clauses.
• Identify the collective agreement and the company agreements applicable with the seller.
• List the customary practices and unilateral commitments in force.
• Price the balances of paid leave, RTT, bonuses and provisions at the date of transfer.
• Anticipate the mise en cause of agreements (replacement, or one-year survival after a three-month notice).
• Organise the cumulative payroll resumption and the DSN declaration of the movement.

This work fits into the broader logic of acquiring an SME and, after signing, into a post-acquisition integration plan. The payroll software configuration must be prepared before the first payslip issued under the new employer.

• The exact scope of the autonomous economic entity is assessed case by case by the courts: a mischaracterised transfer exposes you to disputes in both directions.
• The "fine" article numbers of the Labour Code (L1224-2, L2261-14-2) are accurate at the level of principle; the Code evolves, so a check at the date of the transaction remains prudent.
• The guaranteed remuneration in the absence of a replacement agreement is a rule often forgotten when budgeting the post-acquisition payroll.