The Overhaul of France’s Labor Laws Has Been Launched – What Is Going to Change?

September 12, 2017

On August 31st, 2017, after weeks of dialogue and discussions with unions over the summer, the French government unveiled the content of the proposed reform of the French Labor Code through the publication of five draft ordinances (the "Draft Ordinances"). The general objective pursued by the French Government through this reform is to liberalize and to free up the labor market to support economic growth and to bring down the country’s unemployment rate to 7% by 2022[1].

The content of the Draft Ordinances may evolve until publication, notably after receipt of the non-binding opinions to be rendered by relevant consultative bodies (instances consultatives) and by the French Council of State (Conseil d’Etat).

We are pleased to lay out below some of the key measures of the expected reform, which brings about new opportunities for our international clients and is likely to impact decision-making of human resources managers in the months to come:

1. Collective dismissals and departures: the main facilitative measures

  • The scope of assessment of the economic grounds for dismissal in international groups: Under President Macron’s proposed reform, the scope of assessment of the economic difficulties justifying redundancies should be limited to companies located in France only.  Until now, the economic grounds for redundancies have to be assessed at the level of all group companies operating in the same business sector.  This change of scope will offer greater legal certainty to companies belonging to international groups and should encourage inbound investments.  However, in case of fraud (e.g., through accounting manipulations), employers will not be in a position to justify the reasons for dismissal by limiting their appraisal to French companies only.  
  • New opportunities to implement voluntary departure plans: The proposed reform aims at easing and securing voluntary departure plans that were previously regulated by case law.  These collective departure plans will not be subject to the stringent constraints imposed by job preservation plans (plans de sauvegarde de l’emploi).  The collective contractual termination mechanism (i) shall be defined by a collective agreement, (ii) will only concern voluntary departures and (iii) will be placed under the labor administration’s control.
  • Redeployment procedures are made more transparent and simplified: In case of economic dismissals, the employer will no longer be under the obligation to individually communicate redeployment offers to the concerned employees.  Instead, employees could be given access to internal offers via the company’s Intranet, for example.  For international groups also, the proposed reform alleviates employers’ redeployment obligations: failure to respect the obligation to seek redeployment opportunities abroad would no longer call into question an economic dismissal.

2. Employee representative bodies: a merger of existing bodies aiming at streamlining social dialogue

The announced reform proposes to merge the three main employee representative bodies into a single employee representation body named "comité social et économique" (the "CSE").  In companies with at least 11 employees but less than 50 employees, the CSE will exercise the powers of employee delegates; in companies with 50 employees or more, the CSE will cumulate the powers of the works council, the employee delegates and the health and safety committee.  In substance, the mission of the CSE will remain unchanged compared to those of the previous, now combined representative bodies.

Please note that companies employing more than 300 employees and certain high risk companies (such as nuclear companies or "Seveso"-classified companies) would be under the obligation to implement a specific commission within the CSE dealing with health, security, and work conditions issues.

Finally, by collective agreement, the CSE could be merged with union representatives to become a single representative body named "Conseil d’Entreprise" with negotiating powers.

3. Collective negotiations: a greater flexibility for companies

  • A new interplay between company and industry-level agreements: Returning to a topic that crystallized major opposition during the last labour law reform in 2016, the Draft Ordinances propose to reallocate competencies between industry-level and company-level agreements in order to offer an increased flexibility to companies.  Thus, the Draft Ordinances differentiate between three areas:
    • areas in which the industry-level agreement shall prevail over the company-level agreement: these include, notably, minimum wages (bonuses excluded), classifications and gender equality in the workplace, night work, contract for a fixed term period, temporary work;
    • areas in which industry-level agreement may expressly object to any breach by a company-level agreement: these include notably, the prevention of occupational risks and difficult working conditions, disabilities, the conditions governing and means of exercising a trade union mandate;
    • in all other areas (which cover the definition of bonuses or premiums paid to employees), the company-level agreement shall take precedence over the industry-level agreement, it being specified that in the absence of company-level agreement, the industry-level agreements shall apply.
  • New opportunities to negotiate in small/medium sized companies without union representatives: The reform aims at simplifying the negotiation within small/medium companies where there is no union representatives.

    In companies (i) employing less than 50 employees and (ii) without union representatives, the employers may negotiate directly with an employee delegate on all matters open to collective negotiation.

    In companies (i) employing less than 20 employees (ii) without employee delegates, and (iii) without union representatives, the employer may negotiate directly with employees on all matter open to collective negotiation.  In order to be valid, the agreement will have to be ratified by at least two third of the employees.

4. Redundancy procedures: few measures aiming at reducing disputes and securing dismissals

  • The introduction of a cap on damages granted by the judge in case of unfair dismissal: The indicative cap amounts established by the "El Khomri" Act enacted on August 8, 2016, shall become a mandatory reference.  More visibility on the outcome of disputes shall result from the capping of such indemnities.  These caps vary from 1 to 20 months of salary depending on the employee’s seniority (according to the Draft Ordinances, damages will roughly equal 1 month of salary per year of service up to a 10-year seniority, and then, increase year on year by a half month).
  • The introduction of a standard dismissal letter: In order to avoid procedural errors in dismissal procedures, the proposed reform proposes to introduce standard dismissal letters in the form of a "CERFA form" mentioning the rights and obligations of each party.
  • The form should no longer prevail over the substance: A procedural error committed by the employer when implementing a dismissal procedure should no longer deprive the redundancy of actual and serious cause so long as the substance of the dismissal is valid.
  • The reduction of time limits for objections: The proposed reform harmonizes the statute of limitations for actions contesting the lawfulness or validity of a dismissal on personal or economic grounds from 24 to 12 months.

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Through this reform, the French Government has taken a first step in reforming the country’s labor market. President Macron’s next initiative in that respect will be a recasting of France’s unemployment insurance and professional training systems (planned for 2018).

Please note that the content of the Draft Ordinances may evolve until publication, expected at the end of September 2017.  Once published, the ordinances will be immediately applicable.  However, until they are ratified by the French Parliament, the ordinances will retain regulatory status and  can, during this transitional period, be challenged before the French Council of State (Conseil d’Etat).  If any substantial modifications were to be adopted, we will circulate an updated version of this client alert.

[1]      in Q2 2017, the average ILO unemployment rate in metropolitan France and the overseas departments (excluding Mayotte) stood at 9.5% of active population (source: INSEE).

The following Gibson Dunn lawyers assisted in the preparation of this client update: Claire Aristide, Nicolas Autet, Ariel Harroch, Judith Raoul-Bardy and Jean-Philippe Robé.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. For further information, please contact the Gibson Dunn lawyer with whom you usually work or any of the following members of the Paris office by phone (+33 1 56 43 13 00) or by email (see below): 

Nicolas Autet [email protected]
Bernard Grinspan[email protected]
Ariel Harroch[email protected]
Judith Raoul-Bardy[email protected]
Jean-Philippe Robé[email protected]

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