Economic dismissal: reasons, procedure and compensation
15 June 2026 · 4 min reading time
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An economic dismissal is not based on the employee’s behavior, but on a situation linked to the company. Economic difficulties, job elimination, reorganization, technological changes, or business closure may lead an employer to consider this termination of the employment contract.
For the employee, the key issue is to understand whether the economic reason is valid, whether the procedure has been followed, and what rights may arise after the termination: economic dismissal compensation, Professional Security Contract, unemployment, or priority of rehire.
Here are the rules to know to understand dismissal for economic reasons and the main points to check.
Key points about economic dismissal
An economic dismissal must be justified by a real economic reason, linked to the company’s situation and having a direct impact on the employee’s job.Before dismissing an employee, the employer must look for solutions to avoid termination, particularly by adapting the role, offering training, or seeking redeployment.The employee may be entitled to economic dismissal compensation, the CSP, unemployment benefits and, under certain conditions, priority of rehire.
What is an economic dismissal?
An economic dismissal is the termination of an employment contract decided by the employer for a reason that is not linked to the employee personally. It is therefore not a disciplinary sanction, nor a dismissal based on misconduct, poor performance, or unfitness for work.
It may be considered when a job is eliminated, when a position is transformed, or when an employee refuses a change to the employment contract involving an essential element, such as pay, duties, or place of work, depending on the situation.
To be valid, the dismissal must be based on a recognized economic reason and follow a regulated procedure. This is what distinguishes it from a simple internal organizational decision.
What reasons can justify an economic dismissal?
A dismissal for economic reasons may be based on several situations. The employer must be able to clearly explain the reason used and show its impact on the job concerned.
| Economic reason | What it means |
|---|---|
| Economic difficulties | The company is experiencing a decline in activity, losses, worsening cash flow, or a fragile financial situation. |
| Technological changes | New tools or working methods transform certain roles or reduce the need for labor. |
| Safeguarding competitiveness | The company reorganizes to preserve its business in the face of an economic risk. |
| Business closure | The company closes permanently, resulting in the disappearance of some jobs or all positions. |
Economic difficulties
Economic difficulties may take the form of a significant drop in turnover or orders, operating losses, deteriorating cash flow, or other elements showing that the company is going through a difficult financial period.
A simple wish to reduce costs is not always enough. To justify an economic dismissal, the employer must be able to link the difficulties encountered to the decision to eliminate or transform a job.
Technological changes
Technological changes can also lead to an economic dismissal. This is the case when a new tool, software, automation, or technical reorganization deeply changes certain roles.
For example, a task that was previously performed manually may become automated. A department may also be reorganized around a new tool that changes employees’ duties. Before considering dismissal, however, the employer must check whether the employee can be trained, adapted, or moved to another position.
Reorganization needed to safeguard competitiveness
A company may also reorganize to preserve its competitiveness. This reason does not only concern companies that are already close to bankruptcy. It may also be used when a reorganization aims to prevent future deterioration in business activity.
Here again, the reason must be serious. The employer must be able to explain why this reorganization is necessary and why it results in a job elimination or transformation of the role.
Business closure
Business closure may justify an economic dismissal when the company permanently ceases its activity. In this case, the disappearance of jobs results directly from the closure.
Even if the business closes, the employer must follow the applicable procedure and provide the employee with the documents related to the termination of the employment contract.
What obligations must the employer respect before an economic dismissal?
Before notifying an employee of an economic dismissal, the employer must check whether there is a solution to avoid termination. This step is essential: dismissal must not be the first option considered.
The company must first make the necessary efforts to adapt the employee to their role. If the position disappears or changes significantly, it must then look for redeployment. This search may concern available jobs within the company, but also, when the company belongs to a group, available positions in other group companies located in France, when the organization allows it.
A redeployment offer must not be vague. The employee must be able to understand the proposed position, duties, location, pay, classification, and type of contract. An imprecise or purely formal proposal may be problematic.
What the employee should check
When receiving notice of an economic dismissal, the first reaction is often to focus on the departure date or the amount of compensation. That is normal, but these are not the only elements to look at.
The employee should also check whether the economic reason is clearly explained, whether the position has actually been eliminated or transformed, whether redeployment positions existed, and whether the offers made were sufficiently precise.
They may also ask how the employees concerned were selected, especially if several people held similar roles. In that case, the employer must apply selection criteria for dismissals, which may take into account family responsibilities, length of service, the employee’s social situation, and professional qualities.
Finally, the documents provided must be consistent: dismissal letter, CSP proposal if applicable, work certificate, France Travail certificate, and final settlement document.
How does the economic dismissal procedure work?
The economic dismissal procedure depends on the number of employees concerned and the size of the company. It will not be exactly the same for an individual economic dismissal, a collective economic dismissal, or a procedure involving an employment protection plan.
For an individual economic dismissal, the employer must generally invite the employee to a preliminary meeting, explain the economic reasons being considered, discuss the solutions examined, and comply with redeployment obligations.
In the case of a collective economic dismissal, the rules are broader. The social and economic committee may be consulted when the company has one. When the company has at least 50 employees and plans at least 10 economic dismissals over a 30-day period, an employment protection plan may be mandatory.
The PSE aims to limit the number of dismissals or support the employees concerned. It may include measures such as training actions, mobility support, redeployment measures, or enhanced support schemes.
What must the economic dismissal letter contain?
The dismissal letter is a central document. It sets out the reasons for the termination and allows the employee to understand precisely why their contract is ending.
It must mention the economic reason, its impact on the job or employment contract, the efforts made in terms of adaptation and redeployment, and the possibility of benefiting from priority of rehire.
A letter that is too vague can weaken the procedure. For example, simply writing that the company “is reorganizing” is not necessarily enough. The employee must be able to understand what is actually happening: decline in activity, elimination of the position, transformation of the job, closure of a department, or another specific element.
What compensation is paid in the event of economic dismissal?
An employee dismissed for economic reasons may receive several sums when the contract ends. The amount depends on their length of service, pay, collective bargaining agreement, and the scheme proposed.
| Possible payment | What it covers |
|---|---|
| Economic dismissal compensation | Amount paid by the employer when the employee meets the length-of-service conditions. |
| Compensation for paid leave not taken | Paid leave accrued but not taken by the contract termination date. |
| Pay in lieu of notice | Amount paid if the notice period is not worked, except in specific cases such as acceptance of the CSP. |
| Contractual compensation | More favorable amounts provided for by certain collective bargaining agreements. |
| Measures provided for by a PSE | Additional support or compensation in some collective dismissal procedures. |
Economic dismissal compensation should not be confused with unemployment benefits or with the allowance paid under the Professional Security Contract. These are different schemes.
Economic dismissal and notice period: what happens?
The notice period depends on the employee’s situation, length of service, contract, and sometimes the applicable collective bargaining agreement. In some cases, the employee works during the notice period. In others, the employer may exempt them from working it while paying compensation in lieu of notice.
The CSP is a specific case. If the employee accepts the Professional Security Contract, the contract is terminated at the end of the reflection period. The employee then does not work their notice period, and the financial consequences depend in particular on their length of service.
Before accepting or refusing the CSP, it is therefore better to look at the whole situation: compensation, support offered, career plan, notice period, and unemployment rights.
What is the CSP in the event of economic dismissal?
The Professional Security Contract, or CSP, is a scheme offered in certain cases of economic dismissal. It mainly concerns employees of companies with fewer than 1,000 employees, as well as certain situations involving receivership or compulsory liquidation.
The employee has a 21-day reflection period to accept or refuse the CSP. During this period, they can gather information, compare the consequences, and check what the scheme changes for them.
If accepted, the employment contract is terminated at the end of the reflection period. The employee then benefits from enhanced support from France Travail, with the aim of helping them return to employment more quickly.
If refused, the economic dismissal procedure continues in the usual way.
What support is available after an economic dismissal?
After an economic dismissal, the employee may receive different support depending on the size of the company and the framework of the procedure.
The CSP, or Professional Security Contract, mainly concerns employees of certain companies with fewer than 1,000 employees. It allows the employee to receive support after the contract ends in order to prepare for a faster return to work.
In companies or groups with at least 1,000 employees, the employee may fall under redeployment leave. This scheme provides support toward a new position, with training, career change, or job search assistance.
If none of these schemes applies, or if the employee refuses the CSP, they can register with France Travail. Since economic dismissal is considered an involuntary loss of employment, it may open entitlement to unemployment benefits when the eligibility conditions are met.
Can you receive unemployment benefits after an economic dismissal?
Economic dismissal is one of the terminations considered an involuntary loss of employment. As such, the employee may receive unemployment benefits, provided they meet the criteria required by France Travail, particularly in terms of working period and affiliation.
The path will not be exactly the same depending on the decision made regarding the CSP. If the employee accepts the Professional Security Contract, they enter a specific scheme with enhanced support and dedicated compensation. If they refuse it, they can register as a jobseeker and apply for standard unemployment benefits under the usual rules.
What is priority of rehire?
Priority of rehire allows an employee dismissed for economic reasons to be informed of available positions in their former company when those positions match their qualifications.
This right does not apply automatically. The employee must request it from their former employer. Once requested, priority of rehire applies for 1 year from the termination of the contract.
This request can be genuinely useful. If the company recruits again for a compatible role, the employee must be able to be informed and apply.
Can an economic dismissal be challenged?
An employee can challenge an economic dismissal when they believe that the termination is not justified or that the procedure was not properly followed.
The challenge may concern several points: the reality of the economic reason, the actual elimination of the position, redeployment efforts, application of the selection criteria for dismissals, or the content of the dismissal letter.
To assess the situation, concrete elements must be examined. Was the company really in difficulty? Did the position actually disappear? Were people hired for similar roles? Could available positions have been offered? Were the selection criteria applied consistently?
In case of doubt, the employee can ask for clarification, keep the documents received, and seek support from an employee representative, an employee adviser, or a legal professional.
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