New French Employment Legislation One Year Later

The inspiration and the objective of the law was “flexicurity,” defined, according to the EU Commission, as “an integrated strategy for enhancing, at the same time, flexibility and security in the labor market. It attempts to reconcile employers' need for a flexible workforce with employees' need for security.” Vaguely inspired by the experience of Denmark, and more openly by German industrial relations (which are viewed, from the French perspective, as more constructive and pragmatic than the sometimes obstructive and dogmatic attitude of a number of French union delegates), the law pursues three main objectives:

• Flexibility: Create more flexibility for employers in reorganization and redundancy measures, with shortened timelines for implementation and the aim of providing a higher level of legal certainty;
• Security: Enhance training for employees, discourage precarious employment relationships and provide a “tool-box” of plans and measures as alternatives to layoffs;
• Industrial Relations: encourage collective bargaining as the preferred way to find locally appropriate and balanced solutions, but provide the employer with a fall-back solution if unions refuse to sign.

Main Areas of Change: Reorganization and Redundancies

One of the areas most substantially changed by the new law is reorganization and redundancy measures ' particularly the legislation on “social plans.” This part of the law applies to companies with a head count of at least 50, where 10 or more employees are affected by a contemplated layoff. Social plans, which establish among other things the number of layoffs, the categories of employees affected, and the social measures granted by the employer (which include redeployment, outplacement, training and financial support), have become increasingly difficult to implement in France. Negotiations and consultations with unions, works councils and health and safety committees, occasionally interrupted by court-ordered suspensions and resumptions of the entire procedure, and political pressure in certain cases, have led to delays of around a year before the first layoffs could be implemented. The new law radically changed the time-lines and the roles of the parties:

1. Consultation with the Works Council(s) and Health and Safety Committee(s): Before the adoption of the new law, this was an open-ended procedure that, in case of conflict, could lead either party to lodge a claim before a judge to obtain either the suspension or the resumption of the consultation procedure, or the provision of additional information to the employee representatives. This was often very time-consuming, and hence a de-facto empowerment of the works council to bargain for enhancements to the social plan. Now, the works council and health and safety committee consultation is limited by law to a two-, three- or four-month period depending on the number of redundancies under consideration (up to 99, between 100 and 249, or 250 and above, respectively).

The works council consultation is by law “deemed” terminated at the expiration date of the applicable deadline. As a result, the works council's previous de-facto bargaining role is shifted to the unions. (French employment law distinguishes the role of elected works councils, which includes consultation and exchanging information, from the role of unions, which includes collective negotiation and the right to call strikes.)

2. Negotiation with the Unions: The employer is encouraged, but legally not obligated, to engage in negotiations with the unions about the content of the social plan. Negotiations are generally conducted in parallel with works council consultations. The possibility of negotiating a social plan with the unions is not new, but the law clearly provides a fall-back solution: If the unions refuse to sign, the employer may proceed with a unilaterally drafted social plan, but must also secure the approval of the labor administration.

3. The role of the Labor Administration: This piece of the law is entirely new. The employer is required to obtain the labor administration's approval for the draft social plan. This approval will be easier to obtain if the social plan is, in whole or in part, a negotiated deal with the unions. If the proposed social plan was rejected by the unions or if the employer did not even try to negotiate with them, the labor administration will examine more closely the reasons for the unions' non-acceptance of the plan. It will approve or reject the draft social plan in accordance with the proposed terms and the regularity of the procedure the employer followed with the works council and the unions. If the labor administration rejects the social plan, the plan cannot validly be implemented and any announced layoffs would be rendered null and void.

4. The Role of Courts: In the past, judges could suspend consultation procedures, order their resumption, or order additional external expertise (such as accounting and health and safety professionals) to be provided during the consultation procedure, often resulting in considerable delays. The new law substantially changes this practice, and assigns the “policing” of the consultation and negotiation procedure exclusively to the labor administration. In a “fast-track” procedure, the labor administration must decide within only five days whether or not any incidents reported by works councils or unions during the consultation procedure are sufficiently serious that it should use its newly created right of injunction against the employer (for example to provide additional information to the works councils and unions).

In general terms, courts will now have only one opportunity to rule on the social plan procedure, and that occurs at the end of the procedure, after the labor administration has approved or rejected the social plan. Moreover, the administrative courts will now have exclusive jurisdiction to review decisions of the labor administration, whereas before, civil courts had authority to review employer or works council decisions. Only the role of labor tribunals is not changed by the law: post-termination disputes involving individual employees will continue to be heard by the labor tribunals.

A 'Tool-Box' of Plans and Measures As Alternatives to Layoffs

The law provides a set of alternatives to layoffs, among which the following four are particularly noteworthy:

1. “Mobility Agreements”: Employers and unions may, on a company-level, negotiate so-called mobility agreements. These can provide for geographic mobility (for example, workplaces can be changed from one region to another) and/or functional mobility (employee duties can be changed to support more future-oriented types of work). These changes must generally be accompanied by appropriate relocation assistance and benefits, professional training, etc. According to the explicit wording of the law, these agreements only apply in a context that is “not related to a planned reduction in force.”

The innovation of this tool lies in the fact that the collectively bargained mobility, whether geographical and/or functional, supersedes any contrary provision in individual contracts of employment. Employees who refuse such a collectively agreed-upon offer of mobility can be laid off, under certain circumstances, without the assistance of the social plan obligations described above. (They would be counted as individual dismissals, not collective redundancies, even if 10 or more employees are affected.)

2. “Maintained Employment Agreements”: Employers and unions may, on a company level, negotiate so-called maintained employment agreements. These can, in case of “temporary serious economic difficulties,” provide for reductions in employee salary levels and/or working hours, to enable the employer to maintain employment during an economic down-turn. Again, the innovation of this tool lies in the fact that the collectively bargained changes supersede any contrary provision in individual contracts of employment. Employees who refuse such collectively agreed-upon changes can be laid off under certain circumstances without the assistance of the social plan obligations described above. As with mobility agreements, employees who refuse to accept the temporary changes would be counted as individual dismissals. Those who accept however, are protected against layoffs during the time the collectively agreed changes apply.

Track Record: A First Assessment of the Law's Effectiveness After Almost One Year

The Employment Securization Law represented one of the most significant changes in French employment law in many years, requiring a 130-page addendum to the already 3.4 pounds of French Labor Code. Was it worth it?

First, has the “Employment Securization Law” lived up to its name? The answer may lie in the French unemployment statistics. More and more employees have lost their jobs, and unemployment has risen by 4.5% over one year. In this initial period, therefore, the answer to this question appears to be “no.” But admittedly, the law is aimed at the longer term and could not, in one step, heal all of the underlying problems of the French economy.

Second, have the various mechanisms ' in particular the tool-box of alternatives to layoffs ' been successful in practice? The answer is quite clearly “no.” As of February, 2014, only two “maintained employment agreements” have been signed in the entire country. The “mobility agreements” are considered by a number of unionists to be generally unfavorable for employees and have therefore not been successful, either. Again, these alternatives to layoff plans may have been intended to work over a longer period, but so far, they have not fulfilled their promise.

Third, has the implementation of social plans become more streamlined? In particular, does the labor administration's “policing” of the implementation process work better, in practice, than the frequent court procedures that occurred before the new law was enacted? Here, the most recent statistics of the Ministry of Labor show a more positive picture: before the new law, 30% to 40% of social plans were challenged in court during the implementation phase, often resulting in considerable delays. Now, only 7% of the social plans end up in the administrative tribunal.

Fourth, has the new law had a positive effect on the negotiation culture between employers and unions? The Ministry of Labor is encouraging on this point: More than 60% of social plans (latest figures available; excludes companies in insolvency) have been successfully negotiated and signed with the unions. It is likely that even more social plans were negotiated in part, even if at the end the unions did not sign and the employer unilaterally implemented the proposed terms. Negotiating with the unions, although not mandatory, has become the predominant practice. Thus, the law has been generally successful in pushing both parties to the negotiation table.

Fifth, does the labor administration operate fairly or does it make political decisions? The Ministry of Labor's data supports its view that the process is working well: More than 90% of all social plans submitted get approved. However, this official number does not reveal how hard the companies had to negotiate with the administration to secure approval. Moreover, the labor administration's priorities are quite different from those of many employees in the past. Training and outplacement are at the top of the list, while costly severance packages ' even for employees who, with little training or support, might remain unemployed for a long time ' are disfavored.

Conclusion

The lesson to be learned from the new law's first year is that negotiating with the unions is good, but satisfying the administration is even better.

John D. Shyer, a member of this newsletter's Board of Editors, is a partner in the New York office of Latham & Watkins LLP, and co-chair of the firm's global labor and employment law practice group. Matthias Rubner is an employment law partner in the firm's Paris office.

On June 14, 2013, France enacted the so-called “Employment Securization Law.” Promised to be a “small revolution” by the then Minister of Labor (now Minister of Finance) Michel Sapin (of the Socialist Party), it affects almost all aspects of the employer-employee relationship, including recruiting, benefits, training, employee representatives, and termination. It is therefore of the highest importance to all corporations having operations in France. However, the most significant changes the law enacted affect companies with at least 50 employees in France. This, of course, includes the operations in France of companies whose headquarters are located in other countries, such as the United States.

The text of the law is a relatively faithful transcription by the legislature of an agreement reached after months of intense negotiations between unions and employer federations at the national level. Only two (the CGT and FO) out of five unions refused to sign, leading moderate policymakers, employers and unions to be cautious optimistic that the law would bring more balanced, consensual and therefore more efficient ways of addressing, among other things, restructurings and headcount reductions in France. Now, just about one year after the law came into force, employers, professionals and policymakers alike are asking: Did the new law keep its promises?

'Flexicurity'

The inspiration and the objective of the law was “flexicurity,” defined, according to the EU Commission, as “an integrated strategy for enhancing, at the same time, flexibility and security in the labor market. It attempts to reconcile employers' need for a flexible workforce with employees' need for security.” Vaguely inspired by the experience of Denmark, and more openly by German industrial relations (which are viewed, from the French perspective, as more constructive and pragmatic than the sometimes obstructive and dogmatic attitude of a number of French union delegates), the law pursues three main objectives:

• Flexibility: Create more flexibility for employers in reorganization and redundancy measures, with shortened timelines for implementation and the aim of providing a higher level of legal certainty;
• Security: Enhance training for employees, discourage precarious employment relationships and provide a “tool-box” of plans and measures as alternatives to layoffs;
• Industrial Relations: encourage collective bargaining as the preferred way to find locally appropriate and balanced solutions, but provide the employer with a fall-back solution if unions refuse to sign.

Main Areas of Change: Reorganization and Redundancies

One of the areas most substantially changed by the new law is reorganization and redundancy measures ' particularly the legislation on “social plans.” This part of the law applies to companies with a head count of at least 50, where 10 or more employees are affected by a contemplated layoff. Social plans, which establish among other things the number of layoffs, the categories of employees affected, and the social measures granted by the employer (which include redeployment, outplacement, training and financial support), have become increasingly difficult to implement in France. Negotiations and consultations with unions, works councils and health and safety committees, occasionally interrupted by court-ordered suspensions and resumptions of the entire procedure, and political pressure in certain cases, have led to delays of around a year before the first layoffs could be implemented. The new law radically changed the time-lines and the roles of the parties:

1. Consultation with the Works Council(s) and Health and Safety Committee(s): Before the adoption of the new law, this was an open-ended procedure that, in case of conflict, could lead either party to lodge a claim before a judge to obtain either the suspension or the resumption of the consultation procedure, or the provision of additional information to the employee representatives. This was often very time-consuming, and hence a de-facto empowerment of the works council to bargain for enhancements to the social plan. Now, the works council and health and safety committee consultation is limited by law to a two-, three- or four-month period depending on the number of redundancies under consideration (up to 99, between 100 and 249, or 250 and above, respectively).

The works council consultation is by law “deemed” terminated at the expiration date of the applicable deadline. As a result, the works council's previous de-facto bargaining role is shifted to the unions. (French employment law distinguishes the role of elected works councils, which includes consultation and exchanging information, from the role of unions, which includes collective negotiation and the right to call strikes.)

2. Negotiation with the Unions: The employer is encouraged, but legally not obligated, to engage in negotiations with the unions about the content of the social plan. Negotiations are generally conducted in parallel with works council consultations. The possibility of negotiating a social plan with the unions is not new, but the law clearly provides a fall-back solution: If the unions refuse to sign, the employer may proceed with a unilaterally drafted social plan, but must also secure the approval of the labor administration.

3. The role of the Labor Administration: This piece of the law is entirely new. The employer is required to obtain the labor administration's approval for the draft social plan. This approval will be easier to obtain if the social plan is, in whole or in part, a negotiated deal with the unions. If the proposed social plan was rejected by the unions or if the employer did not even try to negotiate with them, the labor administration will examine more closely the reasons for the unions' non-acceptance of the plan. It will approve or reject the draft social plan in accordance with the proposed terms and the regularity of the procedure the employer followed with the works council and the unions. If the labor administration rejects the social plan, the plan cannot validly be implemented and any announced layoffs would be rendered null and void.

4. The Role of Courts: In the past, judges could suspend consultation procedures, order their resumption, or order additional external expertise (such as accounting and health and safety professionals) to be provided during the consultation procedure, often resulting in considerable delays. The new law substantially changes this practice, and assigns the “policing” of the consultation and negotiation procedure exclusively to the labor administration. In a “fast-track” procedure, the labor administration must decide within only five days whether or not any incidents reported by works councils or unions during the consultation procedure are sufficiently serious that it should use its newly created right of injunction against the employer (for example to provide additional information to the works councils and unions).

In general terms, courts will now have only one opportunity to rule on the social plan procedure, and that occurs at the end of the procedure, after the labor administration has approved or rejected the social plan. Moreover, the administrative courts will now have exclusive jurisdiction to review decisions of the labor administration, whereas before, civil courts had authority to review employer or works council decisions. Only the role of labor tribunals is not changed by the law: post-termination disputes involving individual employees will continue to be heard by the labor tribunals.

A 'Tool-Box' of Plans and Measures As Alternatives to Layoffs

The law provides a set of alternatives to layoffs, among which the following four are particularly noteworthy:

1. “Mobility Agreements”: Employers and unions may, on a company-level, negotiate so-called mobility agreements. These can provide for geographic mobility (for example, workplaces can be changed from one region to another) and/or functional mobility (employee duties can be changed to support more future-oriented types of work). These changes must generally be accompanied by appropriate relocation assistance and benefits, professional training, etc. According to the explicit wording of the law, these agreements only apply in a context that is “not related to a planned reduction in force.”

The innovation of this tool lies in the fact that the collectively bargained mobility, whether geographical and/or functional, supersedes any contrary provision in individual contracts of employment. Employees who refuse such a collectively agreed-upon offer of mobility can be laid off, under certain circumstances, without the assistance of the social plan obligations described above. (They would be counted as individual dismissals, not collective redundancies, even if 10 or more employees are affected.)

2. “Maintained Employment Agreements”: Employers and unions may, on a company level, negotiate so-called maintained employment agreements. These can, in case of “temporary serious economic difficulties,” provide for reductions in employee salary levels and/or working hours, to enable the employer to maintain employment during an economic down-turn. Again, the innovation of this tool lies in the fact that the collectively bargained changes supersede any contrary provision in individual contracts of employment. Employees who refuse such collectively agreed-upon changes can be laid off under certain circumstances without the assistance of the social plan obligations described above. As with mobility agreements, employees who refuse to accept the temporary changes would be counted as individual dismissals. Those who accept however, are protected against layoffs during the time the collectively agreed changes apply.

Track Record: A First Assessment of the Law's Effectiveness After Almost One Year

The Employment Securization Law represented one of the most significant changes in French employment law in many years, requiring a 130-page addendum to the already 3.4 pounds of French Labor Code. Was it worth it?

First, has the “Employment Securization Law” lived up to its name? The answer may lie in the French unemployment statistics. More and more employees have lost their jobs, and unemployment has risen by 4.5% over one year. In this initial period, therefore, the answer to this question appears to be “no.” But admittedly, the law is aimed at the longer term and could not, in one step, heal all of the underlying problems of the French economy.

Second, have the various mechanisms ' in particular the tool-box of alternatives to layoffs ' been successful in practice? The answer is quite clearly “no.” As of February, 2014, only two “maintained employment agreements” have been signed in the entire country. The “mobility agreements” are considered by a number of unionists to be generally unfavorable for employees and have therefore not been successful, either. Again, these alternatives to layoff plans may have been intended to work over a longer period, but so far, they have not fulfilled their promise.

Third, has the implementation of social plans become more streamlined? In particular, does the labor administration's “policing” of the implementation process work better, in practice, than the frequent court procedures that occurred before the new law was enacted? Here, the most recent statistics of the Ministry of Labor show a more positive picture: before the new law, 30% to 40% of social plans were challenged in court during the implementation phase, often resulting in considerable delays. Now, only 7% of the social plans end up in the administrative tribunal.

Fourth, has the new law had a positive effect on the negotiation culture between employers and unions? The Ministry of Labor is encouraging on this point: More than 60% of social plans (latest figures available; excludes companies in insolvency) have been successfully negotiated and signed with the unions. It is likely that even more social plans were negotiated in part, even if at the end the unions did not sign and the employer unilaterally implemented the proposed terms. Negotiating with the unions, although not mandatory, has become the predominant practice. Thus, the law has been generally successful in pushing both parties to the negotiation table.

Fifth, does the labor administration operate fairly or does it make political decisions? The Ministry of Labor's data supports its view that the process is working well: More than 90% of all social plans submitted get approved. However, this official number does not reveal how hard the companies had to negotiate with the administration to secure approval. Moreover, the labor administration's priorities are quite different from those of many employees in the past. Training and outplacement are at the top of the list, while costly severance packages ' even for employees who, with little training or support, might remain unemployed for a long time ' are disfavored.

Conclusion

The lesson to be learned from the new law's first year is that negotiating with the unions is good, but satisfying the administration is even better.

John D. Shyer, a member of this newsletter's Board of Editors, is a partner in the New York office of Latham & Watkins LLP, and co-chair of the firm's global labor and employment law practice group. Matthias Rubner is an employment law partner in the firm's Paris office.