La Revue Squire

Delegation of powers within French subsidiaries or branches of foreign companies


Rédigé par Perrine DE COËTLOGON le 23 Juillet 2008


1. Summary of the French law rules on delegation of powers

The director of any company – French or not – represents that company in its dealings with third parties in France.

This carries with it personal, civil and criminal liability for acts or omissions that arise from the performance of his duties pursuant to his position – but of course the company itself may be (jointly) liable too.

Within a large company or a group of companies, a director will normally lack the time and resources to fully take on responsibility for all of the obligations to which the company or companies are subject. A prudent director will therefore delegate certain of his duties or functions to other employees within the organisation. In this situation, it is necessary to ensure that the delegation of powers to the relevant employee has truly taken effect.

For a director to effectively transfer criminal responsibility in connection with the powers that he delegates, the following conditions must be satisfied:

(i) the delegation must be certain and unambiguous;

(ii) the given criminal offence must arise within the scope of the delegated powers;

(iii) the person delegated to must have the capacity, the authority and the means to be able to satisfy the powers given in the delegation; and

(iv) the director must not have played a role in the commission of the offence.

A director cannot under any circumstance delegate his civil liability, nor can he remove the essence of his position by delegating his general management powers.

The law does not require delegation to be in writing and delegation can arise impliedly as a matter of custom within the business. Nevertheless, resorting to written delegation is important to provide evidence of the delegation and is good managerial practice. A document setting out the terms of the delegation – apart from being useful information for the employee concerned – provides an opportunity to check whether the conditions set out above have been met and whether it is possible under the employee’s contract of employment to delegate such powers to him.

If the delegation is not provided for in the employment contract, it is worth considering whether it amounts to a substantial change in his/her terms (which change under French law gives the employee a certain number of rights), bearing in mind that if the issue is not dealt with at the outset an employee will often make use of this upon leaving the company – and in some instances in front of an Employment Tribunal.

2. The specific case of branches (succursales)

The setting up of a branch by a company does not involve the creation of a separate legal entity. Although the branch constitutes a business division distinct to that of the parent company, it does not own its individual assets.

Both French and European law define the concept of a branch as entailing (i) the direct responsibility of the parent company for the branch’s management and (ii) the presence of an individual with sufficient powers for the branch to benefit from a certain degree of autonomy (in particular the ability to contract with third parties). What, therefore, is the legal status and liability of the responsible person or, if applicable, the entity itself?

In the case of the French branch of a foreign company, an employee will represent it on the French company register. However, this does not entail that the employee’s status is equivalent to that of a company officer since responsibility for the management of the branch lies with the directors of the parent company. In practice, responsibility will be delegated to allow local representatives to deal with third parties. This delegation, whether written or not, must satisfy the conditions briefly set out above.

In this respect French law implies, depending on the facts, a link between the liability of the director of a branch and his degree of independence. The more his role resembles that of a mere employee implementing the parent company’s instructions, the lower his liability, save in the event of gross negligence or recklessness in the performance of his employment contract. In contrast, a branch director who has extensive powers and wide objectives, whether an employee of the parent company -or possibly of another group company-, will be exposed to greater potential liability.

3. The specific case of secondary offices (établissement secondaire)

The establishment of a secondary office equally does not involve the setting-up of a separate legal entity.

Concerning French companies’ secondary offices, the Commercial Code does not require an employee of the company to be named on the company register extract as the legal representative. However, and as a result of French employment law in particular, an authorised representative will in most cases be nominated and may, if the company so wishes, appear on the extract.





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