Friday, May 1, 2009


HR Cost Reduction in France: "Everything Old is New Again"

By Roselyn S. Sands

Ernst & Young Société d’Avocats

By all standards, the current global crisis has no precedent. In these turbulent times, companies are more than ever looking at reducing their HR costs.

HR cost reduction is most often thought of as headcount reduction. However, French regulatory constraints require employers to use best efforts to reduce HR costs through less drastic means first before resorting to forced redundancies. Moreover, given the current economic climate, employers are looking for quicker and more flexible means to reduce HR costs. It is in this context that many French employers are using the recently resurrected "chômage technique"or "furlough".

The notion of "chômage technique" was created in the late 1970s as a means of reducing HR costs by putting workers on "temporary unemployment". Subject to certain conditions, including works council process, this measure allows employers to cut back on their activities, such as closing a factory, on a temporary basis. Originally, this mechanism was limited to a maximum of 4 weeks and a maximum of 600 hours per worker. If conditions were met, employees were paid 50% of their salary. Government subsidies could also be requested to cover a portion of this partial salary.

Since January 2009, the French government has encouraged companies to use this old measure by rendering it more attractive. Thus,

  • the 4-week maximum has been extended to 6 weeks;
  • the hours per worker limit has been extended to 800 hours per worker (and 1000 hours in the automobile industry);
  • the amount paid to employees has been increased to 60% of their salary;
  • the Government is more lenient, when processing subsidy requests; and
  • the Government has increased the rates of its subsidies. 

As a result, "chômage technique" is living a renaissance as an efficient and more attractive way to temporarily cut HR costs, while ensuring that companies will be prepared to ramp up quickly and be ready when the economy recovers.