Many laws merely add to existing problems without addressing the real issues of today’s economy. The latest reform on commercial negotiations introduced by the Hamon Law of 17 March 2014 (Journal Officiel of 18 March, p. 5400) is one of them. It is one of umpteen laws which will fail to solve the recurring difficulties that arise in the dealings between suppliers and large retail distributors. However the greater administrative constraints put in place will result in further impediments to the workings of the economy. A reading of the new provisions intended to facilitate negotiations will clearly show general counsel, business leaders and their advisors that such is not the case.

1. Draconian penalties to ensure compliance with payment terms.

The Hamon law has kept the deadlines laid down in the 2008 LME law: 60 days from the invoice or 45 days end of month. It allows for no exceptions; payment deadlines can only be extended where there is a procedure of acceptance or verification by which conformity of the goods or services with the contract is to be ascertained if such an extension has been expressly provided for in the contract and it does not constitute an unfair practice. More importantly, failure to comply with  the 45 and 60 day contractual payment deadline is now subject to very heavy administrative penalties (EUR 75 000 for natural persons and EUR 375 000 for legal persons). Does this mean greater compliance with payment deadlines? This is doubtful since, once again, the legislator has treated the symptom (longer deadlines in France than other countries) rather than the cause – highly reduced cash flow linked to lower margin rates for businesses in France compared to our neighbors (the EBITDA/value added rate of French companies has dropped to 30% whereas it is over 40% across the Rhine). Until effective measures can restore margins, undertakings will have cash flow problems making the late payment of invoices unavoidable.

2. General terms and conditions of sale strengthened.

Previously forming the base of commercial negotiations, the general terms and conditions have now become the “sole basis” of negotiations. Does this semantic addition change anything? Probably not. Of course, negotiations will have to begin on the basis of the general terms and conditions of sale and cannot be ruled out ex ante without markedly facilitating liability claims for significant imbalance (e.g. see CA Paris, 18 Dec. 2013, LawLex201300001881JBJ). But, far from introducing a principle of absolute primacy, it will consist in a first-in-time chronological rule. The freedom to negotiate will prevail and insofar as the balance of power is very unequal the large retail distributors will continue to impose their terms on suppliers.

3. Stricter time-frame for commercial negotiations.

The general terms and conditions of sale are to be provided 3 months before the 1 March deadline for “single commercial agreements” (convention unique) i.e. before the 1 December. The distributor has 2 months in which to reply to any written demand from the supplier concerning the execution of the agreement. This excessive requirement of a fixed timetable for all supplier/distributor dealings in France constitutes a generalized constraint to address a particular problem – the buyer power of the larger retail distributors.

4. More formalized single commercial agreement. 

The single commercial agreement, a constraint required in supplier/distributor dealings, becomes more onerous. It must now provide the price scales as previously communicated in the supplier’s general terms and conditions of sale or the means of consulting the scale in the version having served as basis of the negotiation. It must also include price reductions, the products or services to which the obligations to promote the marketing of products refer, the remuneration of commercial cooperation obligations and the reduction in overall price relating to other obligations. The agreed price is applicable at the latest from 1 March and the tariff, price reductions, commercial cooperation and other obligations will apply concurrently. NIPs (new promotional instruments) must be subject to separate mandates. Failure to comply with the rules set out in the single commercial agreements is now sanctioned directly by the administrative authorities (EUR 75 000 and EUR 375 000).  This is another rule generalizing formalities which are pointless in ordinary commercial relations.

5. Mandatory re-negotiation of certain contracts.

For certain food products, the contract must provide for a re-negotiation clause in the case of a significant increase of the prices of raw materials, with reference to the indices and minutes of the negotiation. Non-compliance is subject to the same administrative sanctions.

6. Creation of new unfair practices.

Unfair demands for compensation of margins are now sanctioned, as is the issuing, settling or invoicing of orders at a price other than the agreed price.

Interventionism is thus making headway. All these administrative measures do not solve the difficulties between the large retail distributors and their suppliers. A result of the disparity in the balance of power, the problems will go on for as long as this imbalance prevails. The Hamon law does nothing to address this issue. It does however reinforce the constraints of administrative regulations by adding further rules which weigh on the economy as a whole by subjecting the majority of firms to formalities – unnecessary in their areas of activity – on penalty of very heavy fines. The Hamon law is doubly ineffective as it fails to tackle the real problems of the few and creates real problems for the many.