International Labor & Employment Law Committee Newsletter

Issue: November 2012

Editor: Tim Darby | Africa and Middle East Editor: Karen Seigel | Asia and Oceania Editor: Ute Krudewagen | Canada Editor: Gilles Touchette
| European Editor: Paul Callaghan | Latin America Editor: Juan Carlos Varela | Law Student Editor: Irene Lehne, Earle Mack School of Law at Drexel University


Government Pressures Labor and Management to Revise Mass Redundancy and Other Measures

Thomas Lestavel, Capstan Avocats, Paris

Trade unions and employer associations will be required to negotiate revised arrangements regarding such practices as mass redundancies or face unilateral government action, the government announced September 7, 2012, sending the groups a list of items on which negotiations have to be launched. The government's approach is to give the trade unions and employer's organizations the chance to reach negotiated agreements on these items. Only if they fail to reach agreement will the government go ahead and draft laws to deal with the items concerned.

One of the main items to be negotiated concerns the national legislation on mass redundancies.

A series of plant closures over recent months has generated intense debate about reform of the France's labor market, with employee trade unions resisting business demands for greater flexibility to hire and fire.

One of the main plant closures that has been a focus of great media attention is the dispute at Fralib, a Unilever subsidiary making teas and infusions near the southern city of Marseille. This closure illustrates how hard it can be for companies to downsize--and how politicised such cases can become. The closure of Fralib, which employed around 180 people, has been in progress for 18 months (the dispute began when Unilever announced its plan to close the plant in September 2010 due to overcapacity) and became an icon of the Presidential campaign as well as a subject of huge media interest.

Taking into account situations similar to that of Fralib, one of the government's objectives of the negotiation on mass redundancies, as set by the government, is to improve the mass redundancy procedures in order to provide more support for the employees as well as greater legal certainty for companies and employees. The government has, for example, asked the unions and employer's organizations to negotiate to find solutions to situations in which companies which plan to close a site would refuse to take into consideration a valid offer from a purchaser which would save jobs.

It is likely that reaching agreement on this subject between representatives of employers and employees will be difficult. On the basis of the negotiation timeframe imposed by the government, the absence of agreement by mid-2013 would result in the government's taking unilateral measures to further adapt French employment law to the economic downturn.

Already-Completed Changes in Social Charges as Revenue-Raising Measures

Until the proposals noted above, the main changes in French employment law have involved increases in social security contributions and, as a result, of employment costs, the goal of these measures being to contribute towards redressing the situation of the state's public finances.

One of the main reforms introduced in the past 12 months concerns how dismissal indemnities are treated with respect to social security contributions. Historically dismissal indemnities have always benefited from favorable treatment as regards social security contributions because they are considered as indemnification of the prejudice suffered by the dismissed employee. However, over the last decade, and especially since the recent reforms effected last year, several laws have limited this favorable treatment.

As a result of these various reforms, dismissal indemnities are now only exempt from social security contributions within certain limits, with the most important threshold having been decreased from six times the annual value of the so-called "social security ceiling" to twice this ceiling, which corresponds to 72,744.00 EUR for 2012.

In addition, since the entry into force of the law of 31 July 2012, any part of an indemnity exceeding ten times the annual value of the social security ceiling (363,720.00 EUR for 2012) is to be used solely for social security contributions.

These exemption thresholds are applied taking account the aggregate amount of all the indemnities due the employee (i.e., including notably any severance payment due by virtue of a collective bargaining agreement or a specific settlement).

Consequently, it is now more common for companies to be paying higher social security contributions on dismissal indemnities even though the net amount being paid to the employee is actually decreased.

Other social charges have also been increased recently:

  • Overtime hours are now considered as normal salary for the purposes of social security contributions and income tax. This means that they are now entirely subject to social security contributions and income tax; previously (since 2008) they had been exempt from such charges.
  • Various social charges paid by employers and employees have been increased, such as the forfait social, which is notably due on sums paid in under mandatory and voluntary profit sharing schemes. Such an increase may discourage companies from using voluntary profit sharing schemes, as the cost of the social charges linked to the schemes is getting closer to the cost of the social charges paid on normal salary.

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