Changes to French Labor Law

Changes to French Labor Law
European American Chamber of Commerce
New York, New York

January 26, 2018

Philip Berkowitz
Littler Mendelson, P.C.

New York, New York

In 2006, President Jacques Chirac sought to enact the “first employment contract”—le contrat premiere embauche—to increase employment among young people, which in some regions was approaching fifty percent.  The initiative was available only to employees under the age of 26.  It would have made it easier for employers to terminate the employment of these individuals by removing the need to establish “cause” for dismissal for the first two years of employment.

This resulted in massive protests and riots, and the law was rescinded—perhaps in part because of the way the law was implemented.  It bypassed certain legal reviews and the time for review by members of Parliament was lessened.  Nevertheless, this seemed to close the door on labor reforms.

Eleven years later, here comes President Emmanuel Macron.  He and Muriel Penicaud, a former head of human resources at Danone, met repeatedly with business leaders and unions.  The President sought and received permission from Parliament to give his government the power to change the labor law by executive order.

Certain worker-aligned groups have been vocal and adamant in their opposition.  Thus, the General Confederation of Labor has taken a hard line, but others, such as the more moderate Democratic Confederation of Labor, have pushed for more a flexible approach, as forces of globalization redraw the competitive landscape.

What are the key changes in the labor law, at least from the perspective of US companies?

First, the reforms give small companies more freedom to negotiate working conditions directly with employees, rather than being bound by industry-wide collective agreements negotiated by trade unions, or the national labor code.  Companies with fewer than 11 employees will be able to negotiate conditions directly with their staff without having a union representative present

Second, the new law sets a cap on the amount of compensation that industrial courts may award in the case of unfair dismissal.

Third, the law imposes a shorter statute of limitations for employees to bring wrongful dismissal claims.  Indeed, it cuts the period in half, from 24 months to 12 months, for workers to bring an application with the Labor Tribunal for compensation for wrongful dismissal.

But perhaps the most far-reaching change for employers concerns assessing whether the employer may dismiss based on economic reasons, as opposed to “cause”.  Previously, the economic condition was not assessed at the company level, but at the level of the group’s business sector across all relevant countries.  If the business was profitable at the group level, the dismissal was deemed unfair even if the company in France was facing economic difficulties.  Under the reforms, though, grounds for redundancy will be assessed at the level of France.

Finally, the obligation to try to redeploy the employee has been eased.  Rather than having to find a position for the employer in France or abroad, the obligation will be narrowed, only to France.

What is the result?  Well, Amazon will be opening a new distribution center south of Paris in 2018, creating more than 1000 jobs.  In January 2018, Facebook and Google announced that they will invest in artificial intelligence development in France, and Toyota announced that it will invest €300 million to increase capacity at a plant in northern France.

The Chairman of Bain and Co. France is upbeat.  He said, in a recent interview with the New York Times, “The complex labor laws have historically been the number one obstacle to the competitiveness and attractiveness of France.”  He said that these changes, together with other business friendly measures such as a gradual reduction in the corporate tax, have “drastically changed investor perceptions.”

So, President Macron may have succeeded where others failed.  He has survived his first eight months in office, even with street demonstrations.  And further, it appears that the changes in the law may well be significant.

But what may be most important to the success of these reforms is that they be perceived as significant.  In truth, the changes do not in any way approach the American hire and fire at will standard.  As author Adam Gopnik recently observed in the New Yorker, these changes “leave the overseeing French state still almost entirely intact in its protection of workers.”

It is too soon to tell whether these changes in fact reflect a shift in mindset in France.  But there is cause for optimism that France is entering the global market in a far more competitive way that it has in the past.