Since June, and the beginning of a round of talks between social partners who framework was established by the newly elected Hollande administration, employers’ representatives and trades union have been discussing the reform of France’s labour market rules. Unions want to create more rights for employees, employers want more flexibility, in particular the ability to furlough or even fire staff during downturns. The negotiation has until the end of the year to come to an agreement, failing which the government has promised it will legislate. The negotiation is currently at a crucial phase, and a recently leaked proposal by employers gives us a peek inside this most difficult of discussions. But at the end of the year, will France hit its own labour code cliff?
Led by the effective Laurence Parisot, President of the employers’ federation, the Medef, has led the charge for increased flexibility of labour, and linked it to the Gallois Report (which was silent on the subject) and the need for France to maintain its competitiveness. The point is, according to her thesis, neatly demonstrated by the German Hartz reforms in the 2000s which not only decreased the cost of social charges for employers, as is proposed by the Ayrault government in France from next year, radically reducing unemployment benefits at the same time, but also made it easier to fire workers or cut their hours.
Trades union have firmly resisted any suggestion of making it easier to fire workers, but have conceded that it should be possible to find a compromise to allow workers’ hours to be reduced when a business is in difficulty. However, the unions are having a turbulent time: the FO, CFDT, CFE-CGC and CGT unions are all in the process of changing leader, and some are doing so with a blood-letting enthusiasm for internal strife that the UMP would marvel at. The CFDT union, known for its relative centrism and desire for compromise, has been strengthened by its orderly leadership change.
Last week a text was leaked to the media outlining a detailed draft agreement put forward by the Medef and its allies. The text included a number of elements to expand top-up health insurance for employees and make the insurance portable for the recently unemployed, as well as introducing new rights for private pensions. On the “flexibility” side, the text proposed limiting the limitation period for employment matters, introducing permanent contracts for specific projects and capping damages in labour courts. The text also contained detailed provisions (most of which were not leaked) on the famous lay-off mechanism which is in principle agreed by all, allowing workers’ hours to be cut.
The text is, however, rather unambitious and almost wholly technocratic. It will result in a body of rules that, having been recently “simplified” in a wholesale reorganization of the labour code, will be even more complex and difficult to navigate for small businesses and employees alike. So what should the reform of the labour code include? Here is my wishlist:
Hiring and firing
In common with many sclerotic labour markets, France has one third of workers on precarious fixed term or temporary contracts, whilst the other two thirds benefit from cast-iron indefinite contracts. Whilst not as stark as in Spain, this two tier labour market creates a system which discriminates against the young. Fixed term contracts are tightly regulated, and only permitted in specific circumstances, save for certain sectors where they have largely become the norm. The sectoral authorisation should be abolished, in favour of application of the standard criteria across the market, which could be render a tiny bit more realistic (the Medef talks of creating “project specific indefinite contracts” which seems like a misnomer – better simply to allow project specific definite term contracts to be used by businesses similar to the current practice). In return the indefinite contract needs to be more flexible in the beginning: no-fault dismissal should be possible (with a small amount notice but without compensation or procedural hurdles) for the first year of the contract. This is a prudent trade off and would enable more young people to be hired initially on indefinite contracts – if they don’t make the grade, the employer has a year to fire them without procedural or financial complications. Employers will be able to take a chance with an indefinite contract once more.
At the end of the relationship, the dismissal process in France is unnecessarily technical and leads to both mistakes and abuse by employers. That is not in the interests of employees either, as cases of bad faith employees who jump from business to business to catch employers out damage the credibility of the whole system (a real danger in a country where personal references are still fairly rare). Instead, the English “Polkey” principle should be adopted – a point raised in the Medef’s proposal no less – so that a technical breach of the rules in circumstances where a dismissal is justified will commensurately reduce compensation for the employee. SMEs should not be unduly punished for not having access to good legal advice.
On the subject of compensation, there is much talk of capping the high levels of compensation often awarded by labour courts. Capping compensation is difficult – it seems odd to arbitrarily cap compensation as is done in England – as every loss is by definition individual. The Medef proposal is to have a sliding scale in line with seniority. That is the wrong link; compensation is currently linked to wages and that should remain. However automatic compensation awards in cases of unjustifiable economic dismissals should be abolished and greater weight should be given to employees’ contributory fault. Labour courts should also take account of actual losses, not theoretical ones. Employees should have to prove their losses when they present their cases – it is wholly unfair that an employee who finds a job almost immediately after being dismissed can still be awarded twelve months’ lost pay.
Pensions, sick leave and health insurance
France already has a complex system of basic and top-up pensions for all employees in the private sector. The Medef proposals advance an idea that has recently become popular in the US: where employers provide top up health insurance, that coverage should remain with the employee for a time after they are dismissed. This is often incorporated in lay-off packages, but should be generalised.
Sick leave benefits are often backed in France by insurance packages which pay the sick pay costs for larger businesses (only sick leave after the first three days is paid for by the state’s welfare system). In return for an extension of this benefit to more SMEs, businesses should be able to police the system better, requiring employees to come in for “back to work” meetings after periods of sickness, as well as the existing requirement to provide a sick note.
Trades union in France are woefully under represented in the private sector, with only about 8% of the workforce being members of a union. This often surprises foreign observers who assume that France is a hotbed of trade union activism. Instead, despite the relative lock on workplace elections that the historic “central” unions had until 2008, they have failed to engage with private sector employees, instead focusing on heavy industry (an increasingly small part of the economy) and the public sector. New unions might gradually form now that the monopoly on access to the first round of elections has been broken by the 2008 reform, but this will take time, and the government should allow this process to work through without further intervention.
Making the labour courts work
France’s labour courts are no more and no less chaotic, unpredictable and inefficient than any other system around the world, but they do suffer from an almost total lack of procedural rules. Whilst the spirit of these “councils” (technically they are not courts at all) is informal and accessible, their members should have a greater role in managing cases. It is unacceptable that cases may drag on for years because parties (both employers and employees) miss deadlines willfully without consequences. The English Employment Tribunal system has looked closely at better case management recently, and the French system should set out procedural rules with teeth. Presidents of Councils should have the authority to impose penalties on parties who miss deadlines (including the ability to strike out cases, much like Courts of Appeal can, and often do, with employment cases). Parties should have to explain their cases from the outset – it is insane that the defendant might not know the claimant’s case for months after the case has been filed (and sometimes only days before the first hearing). Greater information exchange prior to cases should be required by councils which would set a timetable in each case. Nuisance cases will be whittled out quickly, and more cases would settle, for the benefit of both parties, because the issues would become clearer.
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My wishlist is hopeful, and I would like to think, not hopeless. What strikes me the most is the fact that the vast majority of the suggestions above would bring about great improvements in how the labour market functions without costing the state a penny. In fact, the changes to hiring and firing and the courts would probably bring about efficiency savings, for the state and businesses alike. France can no longer continue to tinker with a broken system. It is time to be bold. Employers’ organisations and trades union cannot do it alone. The government must act.