Tuesday, December 16, 2014

France - New Governmental Proposals to Jump-Start the French Economy

By Roselyn Sands,
EY Société d’Avocats, Paris, France

Over the past years, France’s economic system has often been criticized and accused of being unable to adapt to the new rules of a globalized economy. Indeed, the fact that unemployment is on a continuous rise since 2008 is often pointed out as proof that the French economy is under stress. The French labor market and the laws governing it are considered as being in part responsible for France’s current predicament.

In order to remedy this situation, the French government is taking bold measures in the hopes of jump-starting the economy. Since the beginning of François Hollande’s presidency, major changes have been implemented in areas of French labor law, such as the simplification of large scale redundancy process (while the process remains complex, at least the time is now much better secured).

Indeed, under pressure from the European Union as well as the high unemployment rate, the French government is being more enterprising in its reforms. A team of two French and German economists submitted a paper on the potential reforms both countries could implement to stimulate growth in both countries as well as Europe.

Based on this paper, the French Minister of the Economy has submitted a law which will be discussed before the French Parliament early 2015. This law includes a certain number of reforms which are aimed to create greater flexibility in the labor market and further simplify redundancies.

Measures which aim to increase flexibility

Regarding flexibility, the proposed law implements measures which expand the categories for fixed term employment.
The proposed law plans on preserving the possibility to enter into a fixed term contract for a “specific purpose”. This type of contract was highly sought by companies managing complex projects and that required specific competencies for long but fixed durations of time.

This contract, which had been authorized for an experimental duration between June 2008 and June 2014, allowed employers to hire “cadre” employees for a specific purpose or project, of a minimum duration of at least 18 months and a maximum duration of 36 months.

Measures to simplify redundancy process

The proposed law also aims to simplify additionally the regulations on redundancies in France.

- Selection criteria
Currently, French law requires that when a company considers undertaking the redundancy of more than 10 employees, a selection criterion be applied to all employees based on, notably, factors set forth in the French Labor code: age, number of dependents, years of service and disabilities.
However, this applies regardless of the geographical scope of the redundancy. Therefore, a company making employees redundant in one city had to compare the employees concerned with those located in another city.
The proposed law affords employers greater flexibility; indeed, through either a unilateral decision or through a collective bargaining agreement, the employer would be able to choose to limit the geographical scope of a selection criteria analysis.
- The “reclassement” obligation
In addition, one of the most difficult aspects of the redundancy rules in France is the extra-territorial “reclassement” obligation, requiring employers to search for other positions throughout the group of company even outside of France. The proposed law would limit the geographical scope of this obligation. Thus, if the law passes, employers will no longer have to search for job opportunities in subsidiaries established outside France.
- Labor inspector authorization
Finally, and more importantly, since July 2013 any redundancy plan must be approved by the French labor administration prior to being implemented. Currently, if a plan is approved by the administration and later overturned by the courts after its implementation by the employer, the termination are deemed null and void. This will no longer be the case if the proposed law is implemented as is.

Administrative and other simplifications

The French Parliament is also discussing a new law this month which would aim to simplify administrative procedures for employers and thus, cut through the red tape. The main simplifications are the following:
- Simplification of the part-time mechanisms,
- Harmonization of the timing rules of the French Labor Code,
- Simplification of the profit sharing schemes (merger of the mandatory and the optional profit sharing scheme).

Reducing unemployment is absolutely paramount for the French government. François Hollande had promised, in 2012, that his government would manage to reduce unemployment by the end of 2013.
The burdensome labor laws are viewed as an obstacle to attract investment and reduce unemployment. It is for this reason that labor law has been, and continues to be, at the heart of French politics and legislative reform.
In view of such a daunting political and economic task, the government is convinced that the benefits brought by increased flexibility, entrepreneurship and investments outweigh the potential costs of decreased security for employees.