Weary French employers square up as Hollande takes on '50th worker' reform

Removing threshold effects could create 140,000 jobs: Think tank
By Nicholas Vinocur
|hrreporter.com|Last Updated: 10/21/2014

PARIS (Reuters) — Of all the decisions that Dominique Goubault says have helped to keep his 117-year-old family business alive, one in particular raises eyebrows: Limiting his staff numbers to 49 or fewer.

The CEO is among many bosses in France who won't hire a 50th worker, in order to avoid the subsequent obligation to run and pay for an in-house works council — something Goubault says is costly, time-consuming, and "entirely useless."

Goubault's frustration is shared by bosses of small and mid-sized businesses right across France, who say their growth is stifled by endless bureaucratic demands regulating everything from worker representatives to office space to healthcare.

It's a cry that President Francois Hollande — watching the country's economy stagnate and its unemployment levels stick above 10 per cent — is finally heeding. While all of Europe is grappling with poor growth and the threat of deflation, France is one of its weakest members — and under pressure from its euro zone partners to take action to halt the drag.

Though Hollande is now pushing through market reforms such as limited deregulation of protected jobs and more Sunday opening times in order to get more people into work and jumpstart the economy, Goubault says it may be too late.

Bosses have been for so long cowed by high taxes, punitive workforce rules and worries about the wider European economy that, even unshackled, they may still balk at hiring.

"It's great that they are finally doing something about these idiotic rules," said Goubault, 49, the fourth generation of printers to run Goubault Imprimeur in western France.

"But in the current context, with all the other issues we have, I don't think we should expect companies to start recruiting aggressively overnight."

Deal by year-end

Hollande has asked managers and unions to strike a deal by year-end to work around rules mandating escalating bureaucratic obligations that kick in at 10, 50 and 300 employees.

France's Ifrap think tank wrote in a recent study that removing threshold effects could create 140,000 jobs, with more than 22,500 firms likely to grow if thresholds were removed.

In 2012, France counted 1,600 companies with 49 employees, which fell abruptly to 600 firms with 50 employees, according to CGPME, the main lobby for small- and medium-sized businesses.

"Companies just don't try to expand, which means they don't have enough critical mass to export their products," said Genevieve Roy, vice president of social affairs at the CGPME.

It's this lack of export capacity that has hurt the French economy and set its firms at a disadvantage to competitors in Germany — a raft of mid-sized, export-oriented firms that have steadily gained market share from France in the past few years and helped keep Germany's economy afloat.

Germany's firms are helped by more flexible worker representation thresholds. A works council can be elected in any unit with staff of five or more, but is not obligatory, while firms with more than 20 employees need only choose one 'safety advisor' — rather than the committee of several that is required in French firms with 50 workers or more.

In 2013, Germany had 55,510 medium-sized firms with more than 250 workers versus 21,418 in France, according to European Commission data. Medium-sized firms accounted for 2.6 per cent of all firms in Germany versus 0.9 per cent in France.

Among French law's most irksome features for managers — aside from electing worker representatives at set levels — are rules requiring them to set aside designated office space, create permanent health and wellness committees, set up profit-sharing schemes and, in the case of downsizing, strike collective severance deals — all of which drains resources.

Hiring a 50th staffer also increases the amount of paperwork the companies must file to the state. That extra head means companies then have to apply a further 30 legal norms, including obligations to maintain detailed records of their hiring activity to ensure gender equality.

Satellites

The rules are so off-putting that many small business-owners simply prefer to start new, satellite firms rather than hire a 50th worker — creating yet more tiny corporate structures.

"I've been tempted at various points to hire a 50th worker," said Goubault, 49. "But when you look at the costs — 3.5 per cent of my total salary costs — and all the obligations, you think, what's the point? It bothers me and doesn't help my workers."

"I also explored putting workers into a holding company and all sorts of acrobatics to get around the rules. But at the end of the day all of it was more complicated than just keeping our current, close-knit structure," he added.

The Organization for Economic Co-operation and Development said on Friday that if France implements the reforms it has flagged, growth could improve by 0.3 percentage points annually. Labour market moves alone would account for a total 0.4 percentage points over five years.

But implementing those reforms may prove tricky. Relations between employer and union groups are at a low ebb — tested by years of low growth and cost-cutting — and neither side is in the mood to make concessions.

If they have not reached a deal on circumventing the most onerous demands of workforce number thresholds by year-end, Hollande has said he will implement the reform by decree. That's a risky move for a government whose unpopularity is already at record levels and has many of its Socialist Party members arguing that worker representation is a core right.

One manager participating in talks on thresholds was skeptical about the chances of a negotiated deal and said both sides were barely on speaking terms.

"Things are very, very complicated," said the manager, who declined to give his name because of the sensitivity of the discussions.

"In France, when you have given something, unions consider it given for life. You can't go back on it, or with enormous difficulty."

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