France: Labor Code Reform ‘First Step' in Plan to Renew Economy

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By Rick Mitchell

France’s government published five decrees Sept. 23 aimed at making “unprecedented” reforms to the country’s labor code as a first step in a plan to boost hiring, attract foreign investment, and revive the economy.

Among the principal measures in the reform, France’s fourth revision to the code in three years, is a new mandatory scale that limits the damages and interest labor tribunals can impose on companies for unfair dismissals. The changes also simplify the processes and rules governing dismissals, layoffs, and redeployments and the rules for teleworking.

A key simplification measure calls for gradually combining as many as three employee-representative groups into one by the end of 2019. Another measure would allow companies to negotiate labor agreements directly with their employees in some cases rather than at sector or national level. A third would require that when labor judges scrutinize companies’ economic justifications for layoffs, they look only at conditions in France, not at the company’s group or sector worldwide.

‘Simplifies Interactions,' Doesn’t Reduce Costs

According to Claire Toumieux, partner and head of Allen & Overy’s employment law practice in Paris, President Emanuel Macron has kept his campaign promises for an “ambitious, unprecedented reform. It addresses employer complaints that France’s rigid framework puts brakes on employment by creating legal insecurities for companies. This was considered urgent to getting France’s economy going again.”

While the reform “simplifies and clarifies” key interactions between employers and employees, however, “it does not reduce the cost of labor in France,” a key consideration for foreign investors, Anne-Elisabeth Combes, a Paris-based partner at EY Sociétés d’Avocats, told Bloomberg BNA.

That will require budget-law changes, Combes said, some of which the Macron government has already proposed to Parliament in its 2018 budget.

The reform is set to take effect in three phases, Toumieux said. Phase 1 took effect immediately with the Sept. 23 decrees (called “ordonnances” in French); phase 2 will require new decrees between now and Dec. 31; and the rest of the measures will take effect in either 2018 or 2019.

Most of the measures require decrees to clarify how they should be implemented, Combes said.

Labor unions have called the reform “social regression” and “dangerous for workers,” but to date street protests have not reached anywhere near the level that greeted past reforms.

Parliament must still ratify the reform, but Combes and Toumieux both believe rejection unlikely since Macron has a majority in the National Assembly. Were Parliament not to pass the reforms, the decrees would essentially be voided, and that would “create legal disruption,” Toumieux said. Following passage, provisions can still be challenged before the Constitutional Council.

Clearer View on ‘Risk of Damages'

One of the reform’s most significant and controversial measures sets a mandatory scale for compensation for unfair dismissal. For companies with at least 11 employees, compensation for a successful unfair dismissal claim could until now not be less than the last six months of an employee’s salary if the employee had over two years’ service.

“Before now, labor tribunes could set compensation as high as they wanted, and different tribunes could set different amounts for similar situations,” said Combes. “The new scale writes limits into the law, and that is practical.”

“Now there is a much clearer view of the risks of damages and interest,” Toumieux said. “The lack of a cap was a problem for foreign investors.”

Starting Sept. 23, awards for unfair dismissal are linked to an employee’s years of experience, for companies of 11 employees or more ranging from one month of salary up to a maximum 20 months for an employee with at least 30 years’ service. The “statutory” minimum severance payment for all dismissals, except for gross misconduct, is increased to one-fourth of a month’s salary per year up to 10 years and one-third of a month’s salary above 10 years.

Combes said the new scale should not cause problems at the Constitutional Council even though it rejected a similar scale in the Hollande government’s 2016 El Khomri law, calling it “insufficiently objective.” To answer the council's criticism, the new scale includes minimum and maximum levels linked to the employee’s years of seniority.

The new mandatory scale does not apply to dismissal claims that cite harassment, discrimination, or violation of fundamental liberties, which Toumieux said could possibly lead to a future increase of such claims.

Simplified Layoffs

In the past, French labor judges have sometimes voided international companies’ plans to lay off employees at French facilities if the company was performing well internationally. As of Sept. 23, only the performance of the company's French units can be considered in determining whether a layoff is justified.

“This is good, reassuring news for foreign groups,” Combes said. “When judges have looked abroad to assess the company’s situation, it gets complicated.”

A future decree will make it clear that when an employee must be redeployed because of physical incapacity or “redundancy,” the employer will only have to look for redeployment possibilities within the company or group in France, not abroad, before considering terminating the person’s contract, Toumieux said. Processes for voluntary departures, now called collective mutual terminations, will also be streamlined, and templates will be provided of forms employers can use to notify employees of dismissals.

The reform sets a 12-month statute of limitations on claims related to termination of employment.

Wider Latitude for Negotiating

The new reform also covers the “competitiveness agreements” created by the 2016 El Khomri law, Toumieux said, allowing a company to negotiate with employees on measures to help maintain jobs while staying competitive. The new measures, which require a future decree to take effect, will allow a company to negotiate changes to working time arrangements, pay, and mobility.

In France, most labor agreements have had to be negotiated at national or sector level with union representatives. The reform will allow agreements to be reached at the company level on issues such as bonuses, Toumieux said, provided at least 50 percent of the members of the employee works council approve. If at lest 30 percent of members but fewer than 50 percent agree, an agreement can be ratified by employee referendum.

A future decree, expected by Jan. 1, 2018, will set details of these new provisions.

Simplifying Employee Representation

Employers currently must deal with up to three employee representative groups—employee delegates, the works council, and the health and safety committee. The reform calls for a gradual reorganization, to be completed no later than Dec. 31, 2019, combining the three groups’ functions into one body called the “social and economic committee.”

“This is very important because it addresses a serious criticism by employers who say that they spend too much time in employee representatives meetings with much duplication,” Toumieux said. Previously, for example, a company would have to discuss its layoff or other plans with two groups. After the reform, it will have only one group to deal with.

“That’s a simplification,” Combes said. “But the new group will be much bigger, so that might actually produce more complicated politics.”

The decrees are the first step in a larger plan to “reinvigorate” the French economy, Toumieux said. Macron’s representatives began negotiations with unions Oct. 12 on the second step—reform of professional training and of the costly systems for unemployment and pensions.

To contact the reporter on this story: Rick Mitchell in Paris at correspondents@bna.com

To contact the editor on this story: Rick Vollmar at rvollmar@bna.com

For More Information

Full text of Decree No. 2017-1385 on the Strengthening of Collective Negotiation is available here, of Decree No. 2017-1386 on the New Organization of the Social and Economic Dialog in Companies and Favoring the Exercise and Enhancement of Union Responsibilities here, of Decree No. 2017-1387 on the Predictability and Securing of Labor Relations here, of Decree No. 2017-1388 on Bringing Various Measures on the Framework for Collective Negotiation here, and of Decree No. 2017-1389 on the Prevention and Taking into Account of Effects of Exposure to Certain Professional Risk Factors and Prevention here, all in French.

For more information on French HR law and regulation, see the France primer.

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