French Employment law - Economic Dismissal: The Mere Observation of a Decrease in Revenue Is Not Sufficient to Establish Economic Difficulties – Employees, Managers, Senior Executives (cass. Soc. Oct. 7th 26, 25-10.107)

The mere observation of a decrease in revenue or orders during the period stipulated by the Labor Code is not sufficient to establish economic difficulties justifying dismissal.

It is up to the judge to verify, in light of all the evidence in the case, that this change is sufficiently significant.

This is what the Social Chamber of the Court of Cassation affirmed in a ruling dated October 7th, 2026, 25-10.107, published in the Bulletin.

The significance of this ruling lies in the clarification it brings to the judicial assessment of economic difficulties: compliance with the time thresholds stipulated by law does not exempt the judge from verifying the reality and extent of the economic downturn invoked by the employer.

I. Ruling.

The Court of Cassation dismissed the appeals.

With reference to Article L1233-3, 1°, of the French Labor Code, as interpreted by parliamentary debates, it held that, even when a decline in revenue or orders is established during the period stipulated by this article, it is incumbent upon the judge, after considering all the evidence presented, to verify that this decline is sufficiently significant to constitute economic hardship justifying dismissal. In this case, the Paris Court of Appeal noted that the company had indeed experienced a decrease in its revenue during the first two quarters of 2020, compared to the same quarters of the previous year.

However, it observed that this decrease corresponded to a sudden and temporary drop in management fees starting in March 2020, in the context of the Covid-19 pandemic. It also noted that these fees subsequently increased and that several pieces of evidence presented during the proceedings indicated a recovery in the financial markets.

Furthermore, the company failed to provide all the supporting documentation relating to the monthly changes in its management fees after October 2020, nor the information necessary to assess the changes in the performance fees of the funds it managed.

The Court of Cassation held that the Court of Appeal was correct in concluding that the economic difficulties were not sufficiently substantiated and that the dismissals were therefore without just cause.

It thus dismissed the appeals and upheld the judgments against the company.

II. Analysis.

This judgment of October 7, 2026, No. 25-10.107, clarifies the relationship between the time thresholds stipulated in Article L1233-3 of the French Labor Code and the judicial review of the validity of the economic difficulties cited to justify a dismissal.

Indeed, the text stipulates that a significant decrease in orders or turnover is constituted when its duration, compared to the same period of the previous year, reaches at least one quarter for companies with fewer than eleven employees, two consecutive quarters for those with between eleven and forty-nine employees, three consecutive quarters for those with between fifty and two hundred and ninety-nine employees and four consecutive quarters for companies with at least three hundred employees.

However, the Court of Cassation clarifies that compliance with these thresholds is not, in itself, sufficient to establish the existence of economic difficulties justifying dismissal.

Indeed, the judge must also verify that the change in the economic indicator is sufficiently significant, in light of all the evidence presented.

The significance of this decision lies in the distinction between the duration of the decline and its actual economic impact. While the former is determined by the legal thresholds, the latter remains subject to the assessment of the lower courts.

In this case, BDL Capital Management cited a decline in its revenue during the first two quarters of 2020, a period corresponding to the threshold applicable to companies with eleven to forty-nine employees.

However, the Court of Appeal noted the sudden and cyclical nature of this decline, linked to the health crisis, as well as evidence of a recovery in the financial markets. She had also highlighted the inadequacy of the supporting documents provided by the employer regarding the subsequent evolution of certain components of its turnover.

The Court of Cassation thus validates a concrete assessment of the company's economic situation, which is not limited to the mechanical observation of a decline over the statutory period.

This ruling strengthens the role of the judge in disputes concerning economic dismissals. It is incumbent upon the judge to examine the accounting data provided, its evolution over time, and other elements that allow for an assessment of the reality of the difficulties invoked.

A temporary or cyclical decline does not therefore necessarily constitute sufficient economic difficulties to justify dismissal.

However, this ruling does not mean that a cyclical decline systematically excludes the existence of economic difficulties, nor that any subsequent recovery necessarily renders the dismissal without just cause. The assessment depends on the circumstances of each case and the evidence actually presented. Thus, the significance of this ruling lies less in the modification of legal thresholds than in the confirmation of the judge's discretionary power: the duration of the decline in turnover is a necessary element of the analysis, but does not exempt the judge from verifying that the economic difficulties are sufficiently serious to justify dismissal.

Sources.

Cass. Soc. 7 octobre 2026 n°25.10-107.
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Frédéric CHHUM avocat et ancien membre du conseil de l’ordre des avocats de Paris (mandat 2019-2021)

CHHUM AVOCATS (Paris, Nantes, Lille)

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