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Reform of French Labor Laws Offers the Middle Market More Flexibility

By Gabriel Geist

Throughout 2018, employers operating in France have been restructuring their HR departments in order to comply with the recently enacted reforms of the French labor code. Several important reforms employers must consider are the simplification and standardization of employee termination processes, the requirement to maintain a new type of employee representative committee, and changes to negotiation processes between employers and employees. The reforms are mandatory, and employers operating in France should take steps to understand and implement the new requirements.

The following article, originally published by RSM US on www.rsmus.com/france, June 18, 2018, describes the reforms in greater detail.

On March 21, 2018, the constitutionality of French labor law reforms was confirmed by the Constitutional Council of France, with few exceptions, and the ordinances were signed into law by French President Emmanuel Macron. The so-called Macron Ordinances aim to simplify and stabilize French labor laws as well as add security and flexibility.

The Macron Ordinances aim to develop a more dynamic French labor market, one that is able to compete in a rapidly evolving global economy. Reforms present unique opportunities for multinationals seeking to expand into French markets as well as implementation requirements for companies currently operating in France. The following are some highlights:


Increased Flexibility

One of the most significant changes brought on by the reforms gives employers greater flexibility to hire and dismiss employees. Previously, salaried positions in France were highly protected, making the dismissal of employees without cause a costly and complex process. Historically, these social protections made employers apprehensive about adding salaried employees, which in turn led to high unemployment levels across France.

Prior to this reform, for example, if economic difficulties compelled a French company to reorganize and reduce the number of its personnel, management needed to make an assessment (as a part of the reorganization proceedings in court) of the economic difficulties at the consolidated level. This consolidated perspective meant that the financial status of all companies of the group, whether within or outside of France, entered into the assessment of the difficulties of the French company seeking to reorganize. This was a significant hurdle for groups with a presence in multiple countries.

As part of the reform, for the purposes of reorganization, economic difficulty is now assessed at the level of the entity that is undergoing reorganization. If a group has several entities within France, this determination is made at the level of the France-based sub-group, instead of on an international basis.


Streamlined Employee Representative Bodies

Internal organization of employee representative bodies has been streamlined. Within companies of at least 11 salaried employees, a new representative organization, the Social and Economic Committee, will be required. In companies of at least 50 salaried employees, such a committee will consolidate the previously existing employee delegation, enterprise committee, and the committee of health, security, and working conditions.   

These reforms are still new, and it is difficult to assess their impact on unemployment in France. However, they have created a new mindset and when fully implemented, should provide some of the flexibility that middle market companies have been expecting for years.


Working Conditions

The reforms bring more freedom for small companies (less than 50 employees) to negotiate working conditions by allowing negotiations to take place at a local level. Historically, most agreements had to be negotiated and approved at an industrywide level. Such negotiated agreements went into effect, even when there was a disagreement locally and there was a prohibition on negotiating numerous topics on a local level, including minimum wage, temporary contracts, trial periods, and equality of professional opportunities for men and women. As a result of this industrywide negotiation process, these agreements were usually more effective and relevant to large companies than small to midsize organizations.
Post-reform, small companies are less obligated to follow nationally set industry standards when determining agreements regarding working conditions. This will allow small employers and their employees the ability to negotiate working-condition agreements that are more relevant to their environment.


Collective Bargaining Agreements

The reform reinforces the ability of employers and employees to conduct collective bargaining negotiations at the company level rather than through industrywide agreements negotiated with unions only. This can now be achieved by, for example, empowering employees of small companies (less than 11 employees) to negotiate directly with their employers on all matters, even in the absence of an elected employee representative. In these instances, collective agreements can be reached by a two-thirds majority vote of the employees. Similarly, in companies with less than 50 employees, employers, and elected employee representatives are empowered to negotiate with the company, regardless of whether or not the employee representative is appointed by a trade union.


Simplified Termination Process

Many aspects of the process to terminate an employee and to determine the severance package have been simplified. For example, previously, two separate statutes of limitations for filing a case of wrongful dismissal existed for two separate categories of dismissals. Employees had 12 months to file a wrongful dismissal suit in cases where they had been dismissed for economic reasons, or 24 months to file suit in cases where they had been dismissed for poor performance.

The reforms revise the 12-month limitation to now encompass both types of dismissal cases (economic and performance). Additionally, damages awarded to an employee, who is successful in proving a wrongful dismissal, are now determined by a formula based upon the employee’s years of service and monthly salary amount, and a maximum amount of damages is specified by the formula. In the past, these damages had only a prescribed minimum, with the amounts being determined by judges on a case-by-case basis.

These changes enhance the ability of employers to predict the financial and legal liabilities that may arise during the employee termination process. This improves the certainty of financial projections and the predictability of the outcome of business decisions.


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GabrielGeist

Gabriel B. Geist is an International Tax Associate at RSM and a Member of the RSM French Desk. He has studied internationally at EDHEC Business School in Lille, France with a focus in International Business, and has experience working in multinational teams. He obtained a B.S. in Business Administration, Concentration in Accounting, from Southern Connecticut State University in 2017.