France seeks labor overhaul

The government of Socialist President François Hollande, faced with rising unemployment and a spate of high-profile factory closures, is seeking ways to introduce more flexibility into the French labor market.

Many of Mr. Hollande's predecessors, including the conservative Nicolas Sarkozy, have tried and failed to loosen France's rigid labor laws. Past attempts have led to street protests and government retreat.

Trying to avoid such pitfalls, Mr. Hollande has sent olive branches to both labor unions and business representatives. He has banned the word "flexibility" from the government vernacular, instead referring to souplesse, meaning "smoothness" or "suppleness"—a term deemed less aggressive to union ears. And he has asked Labor Minister Michel Sapin, a politician widely regarded as pro-business, to shepherd talks between unions and companies.

The two sides have agreed to meet once a week starting Oct. 4. If they haven't reached a compromise to substantially amend France's labor code by the end of December, the government will present its own bill to Parliament, Mr. Sapin said in a recent interview. "The situation is so serious that both unions and business leaders are ready to negotiate," said the 60-year-old Mr. Sapin, also a Socialist Party member. "It can work."

France is under growing pressure to make it easier for companies to hire and fire employees. Other European governments, including Italy and Spain, are in the process of simplifying their labor codes, measures that could boost their competitiveness as they ride out the euro-zone sovereign-debt crisis.

In Italy, the government of Prime Minister Mario Monti has eased layoff procedures and narrowed the situations in which employees can challenge their dismissals in court. In Spain, Prime Minister Mariano Rajoy has loosened collective-bargaining procedures and trimmed some benefits, such as minimum severance payments.

Mr. Hollande is also considering ways to reduce labor costs by lowering payroll charges currently paid by companies.

Italy, Spain, and France are trying to catch up with Germany, which in the past decade has painfully unwound parts of its welfare state, as German companies have pressured unions into accepting pay restraint and more-flexible working practices. The changes have helped Germany expand exports and navigate the 2009 recession. "It's quite clear that it works better [in Germany] than here," Mr. Sapin said.

In August, unemployment in France rose to 10.2% of the active population, and the government said the rising trend would likely extend for another year.

By Mr. Sapin's own account, French labor laws are out of touch with reality. "They are ill-suited for an open economy, for evolving markets, for evolving technologies, and for the real economy," he said.

Existing labor rules fail to achieve their goal of protecting employees, the minister said. There are 36 different ways for a French company to hire an employee. That has created a two-track system, with a shrinking group of workers covered by long-term, open-ended contracts, the most protective. Only one in five newly hired youths is on such a contract, Mr. Sapin said.

"Long-term contracts are considered to be the centerpiece of French labor law. And still, companies have tried to circumvent it in all possible ways," Mr. Sapin said. Long-term contracts are still, in theory, the standard, but in practice they have been supplanted by more-flexible contracts, he noted; "The totem is still there, but the reality is quite different."

Mr. Sapin suggests that trimming some of the benefits currently in long-term contracts, while making it more expensive for companies to hire under short-term contracts, would encourage businesses to hire more people on long-term contracts, and ultimately benefit both employees and employers.

Both union and business leaders say they respect Mr. Sapin, though some union representatives said they feared the minister would lean in favor of "bosses."

"This is a leftist government," said Mourad Rabhi, who will represent the powerful left-leaning Confédération Générale du Travail during the three-month discussion with business leaders. "It would be incredible if it adopted measures exclusively in favor of employers."

Mr. Sapin said he would observe strict neutrality in the talks.

The minister's pro-business reputation stems from his previous stint in government. Mr. Sapin, known for always sporting bright-pink socks, gained field experience in the early 1990s when he served as finance minister in the administration of Socialist President François Mitterrand. In September 1992, Mr. Sapin oversaw the French referendum on the Maastricht treaty, which laid the foundations of the euro; the treaty was approved, with just over 51% of French voters in favor.

The complexities of France's labor code are on display at Sodimedical, a company that used to make medical bed sheets at a facility near Paris. Sodimedical's German parent, Lohmann & Rauscher GmbH, has been trying to close the factory for several years as part of a plan to move production to China and the Czech Republic.

Sodimedical's 52 employees sought to block the move by going to court. They are currently appealing four separate court rulings allowing the company's liquidation. Now, they are in a bind. The company hasn't paid their salaries for the past year, but because they haven't been formally laid off—which can't happen until the company goes into liquidation—they can't collect unemployment benefits.

"The hardest part has been to make do with no money," said Angélique Debruyne, one of the Sodimedical workers. "We are exhausted."

Sodimedical executives said they also felt they were victims of "terribly complex systems."

"We have no idea how much this will cost and when it will end," said Dominique Richard, Sodimedical's co-chief executive. Officials at Lohmann & Rauscher's French office didn't return calls seeking comment.

Mr. Sapin said it was important to find areas where both union and business representatives could find interests in a compromise.

At Sodimedical, for example, both employees and company owners would have been better off if a clear decision had been made from the start on whether the plant closure was legitimate, allowing employees to focus on negotiating a good severance package, Mr. Sapin said.

"When you don't move, things move around you," he added.

(Published by WSJ - September 23, 2012)