France: Unions, Legal Experts Debate Effects of Labor, Pension Reforms Under Sarkozy
By Rick Mitchell
PARIS--In his successful 2007 presidential run, then-candidate Nicolas Sarkozy told France that short working hours and costly social benefits were hamstringing the country's ability to compete in an ever tougher global marketplace, as well as running up its national debt.
To voters concerned about their paychecks' shrinking purchasing power, Sarkozy promised to modernize France's economy to allow them to “work more to earn more.” Since 2008, President Sarkozy has pushed through key reforms of the labor market, health care coverage, and pensions, among other things. Now, with a new presidential election looming in 2012, French voters are taking a hard look at what those reforms have meant to their lives. Early opinion polls suggest they are leaning toward ousting Sarkozy.
Today, although French workers can legally work more than they could in 2008, rising inflation takes a big bite out of their wages. Labor union representatives told BNA that social protections have been reduced and they expect bigger cuts as future governments try to keep reducing red ink. In 2010, the government reported that economic-crisis related programs had pushed up the country's deficit to 152 billion euros (U.S. $215 billion), not including the pension system's 32.3 billion euro ($45.8 billion) shortfall.
Still, sources from law firms, business, and the government say French workers remain among the world's most protected and recent court decisions have extended these protections further still.
Collective (and Individual) Bargaining
Compared with other mainland European countries, French workers have a low rate of unionization, under 10 percent by some estimates. Nevertheless, unions historically had been allowed to negotiate agreements, even when their representation level was low, Francis Kramarz, a member of the government's Council of Economic Analysis, told BNA, but a major Sarkozy reform in 2008 requires unions to get a minimum percentage of votes—30 percent of employees at company and national level—to be able to represent workers in negotiations.
This reform is still being implemented, and it remains unclear what effect it will have, according to Kramarz, who is also director of the Research Center for Economy and Statistics and a professor at the Ecole Polytechnique.
Another 2008 reform created the so-called “friendly” process—la rupture conventionnelle—under which an employer and an employee can mutually agree to terminate an employment contract without going to labor court. Before the reform, even a mutual agreement might not have been enough to avoid bureaucratic obstacles to ending a work contract, Kramarz said. The new process can be used for layoffs for economic reasons, firings “for cause,” and other reasons, as long as the separation is mutually agreed to, sources said. Under the reform, the worker gets a negotiated severance payment as well as unemployment benefits from the government system.
This change is “a veritable revolution in French law,” according to Nathalie Devernay, a Lyons-based attorney for Bird & Bird, and “an enormous success since its creation, with more than 500,000 such agreements signed and approved by the French government.”
Workweek Flexibility
Another reform made it easier for companies to negotiate overtime exceptions to the 35-hour workweek enacted under the socialist Jospin government in the late 1990s. Under the August 2008 law, the legal workweek technically remains 35 hours, but employers can directly negotiate the annual cap on overtime hours with employee representatives at company level without being bound by the cap set at business-sector level, Claire Toumieux, a Paris-based attorney for law firm Flichy Grangé Avocats, told BNA.
“This made working time arrangements considerably more flexible from a legal standpoint,” Toumieux said, although “that being said, what has not changed is that for the first eight hours over 35, companies must pay a surcharge of 25 percent, then 50 percent up to the legal maximum of 48 total hours worked per week.”
Business continues to push for complete elimination of the 35-hour workweek, Toumieux added.
Eric Aubin, a member of the executive committee of France's largest labor union, the CGT (Confédération Générale du Travail), said the 35-hour workweek has never been fully implemented for half the French workforce, because employees in many small and medium-size enterprises were unable to negotiate agreements to switch over from the old system.
“So there has been an inequality in the system between workers in small companies and the bigger groups,” Aubin said, “and the efforts to dismantle the 35-hour workweek come on top of that.”
Devernay also noted that rules for Sunday work have been eased in certain sectors, broadening zones where such work is allowed and providing for negotiations at country level.
Unemployment Coverage Cut, Trial Periods Extended
Reforms also reduced unemployment coverage from three years to two, except for workers over age 50, and extended legal trial periods from one month to two months for workers, from two months to three months for employees and first-line supervisors, and from three months to four months for upper-level management.
“These [trial] periods can now be renewed once, so trials could last as long as eight months for upper-level managers,” Devernay said.
Retirement at 62
Thanks to President François Mitterrand, French workers could since the early 1980s look forward to retirement at age 60. Attempts to reform this expensive benefit failed, most notably in 1995 when the Juppé government's reform plan sparked a month of strikes that paralyzed the economy. Learning from that failure, Sarkozy began his retirement reform by making a concerted effort to explain to the public that the nation's pension system was on the verge of collapse. Union efforts to sink Sarkozy's plan through major strikes won some concessions from the government, but the reform went ahead and the strikes fizzled out.
In October 2010, France's parliament, dominated by Sarkozy's center right UMP (Union pour un Mouvement Populaire) party, voted to increase the country's minimum retirement age by four months per year, from 60 to 62 years of age by 2018, and to increase the full retirement age from 65 to 67 by that year.
Aubin noted that, since 60 percent of private-sector workers are already retired by age 60, “that means extension of the retirement age is going to put a certain number of workers into a situation of unemployment, rather than retirement, and this is going to put additional stress on funds for social security and unemployment coverage.”
Sarkozy's reforms have already made conditions more difficult for workers, according to Aubin, by reducing unemployment coverage, cutting medication reimbursements under the national health care system, and adding deductibles for medical treatment. Now, “workers will have to work two years longer in labor conditions that are already excessively degraded and getting worse,” Aubin said.
Pension Fight Not Over
According to Aubin and other observers, the pension reform did not solve the system's solvency problems but simply postponed them until 2018 when the government will likely attempt to extend the retirement age further.
“Some would like to see the age extended to 70,” Aubin said.
“This [pension] reform is not going to deliver the savings needed,” said Jean-Marc Bilquez, an official at labor union Force Ouvrière (FO). “It's just a first drawer to lead us to a second drawer that in 2018 will contain real systemic changes.”
Aubin said the French public is largely unaware that the system is still in peril.
“We are trying to get the word out,” he said, “that the fight is not over.”
Too Far or Not Far Enough?
While French workers' health coverage and other benefits under social security have been “compressed to reduce system deficits,” according to Bilquez, who follows workplace health issues at FO, “benefits have not disappeared.”
Labor unions, including the FO, recently signed agreements with employers to maintain unemployment and other coverage at current levels, Bilquez said, and while “it's true the situation is precarious and coverage was not increased . . . it was maintained.”
Laurence Parisot, head of France's largest business association, MEDEF, has welcomed reforms under Sarkozy, but in a recent speech said the government needs to do more to cut labor costs by reducing social welfare taxes and through other measures. Parisot said France's hourly labor costs increased three times more than those of its biggest competitor, Germany, in 2010.
Aubin said cuts in companies' social welfare and other taxes would further undermine France's social welfare system by depriving it of funds.
“We remain a wealthy country, yet the focus has shifted from protection of workers to providing profits to shareholders,” Aubin said. Unions have tried to get companies to negotiate on sharing profits with employees, he added, “but so far they have refused to budge on the issue.”
In Bilquez's view, reductions in worker benefits will dampen economic growth by reducing workers' ability to consume. MEDEF's view of competition is distorted, according to Bilquez, who argues that “comparisons with Germany are not always relevant. You also have to look at France's very high productivity. And the idea of competing with China on wage costs simply can't be taken seriously.”
“It's not by reducing social charges that France will suddenly be more profitable,” Bilquez added, particularly since some French companies have recently decided against sending production abroad, after calculating that rising wages in emerging economies and logistical factors make it cheaper to stay in France.
New Work Contract Needed
One necessary reform is the elimination of the country's current system of two kinds of work contracts: short-term contracts (CDD) and indefinite, long-term contracts (CDI), Kramarz said. About 85 percent of the workforce is under CDI contracts, but 80 percent of new hires are under CDD contracts, which are far easier to terminate since companies currently pay no penalty for layoffs of CDD workers.
France needs a single work contract that ends differences between the two existing contracts, Kramarz said—a long-term contract that would make it easier for employers to terminate employees for economic and other reasons. Reducing costs and red-tape for ending contracts would encourage companies to hire, Kramarz said.
Court Decisions Expand Worker Protections
Offsetting to some extent Sarkozy reforms reducing worker protections, recent decisions by the labor chamber of France's highest appeals court, the Cour de Cassation, have extended protections by creating new requirements for employer justification of layoffs, employee notification of pending layoffs, employee consent to changes in working conditions, and other matters.
“Jurisprudence holds a very important place in the safeguard, even the strengthening, of workers' rights in France, despite legal reforms,” said Devernay.
Toumieux said that the consequences of a 2009 Cassation decision that requires companies to offer equal benefits to upper-level management and salaried workers are still being worked out, but will likely be enormous in terms of employer obligations.
Aubin agreed that reforms have strengthened certain legal protections for employees, but “they do nothing at all to protect levels of social benefits,” he said.
According to Kramarz, the trend toward reduction of employee benefits is irreversible.
“Neither the left or right will say it to the public,” he said, “but the issue is that, due to budgetary and demographic reasons, there is no other option.”
(Appeared May 20, 2011)
