France: Draft law on profit-sharing

Draft legislation on profit-sharing schemes and employee share ownership was recently adopted by the French cabinet. The draft will be examined by parliament in its session beginning in October 2006. We look at key issues covered in the text.

The main purpose of the draft law on developing profit-sharing schemes and employee share ownership (projet de loi pour le développement de la participation et de l'actionnariat salarié) is to encourage employee involvement in their company. Adopted by the French cabinet on 21 June 2006, it would allow employees to benefit from additional, profit-related bonuses under existing financial participation schemes. It would also change the rules governing employee share ownership to ensure that employees are represented on the company board in enterprises where they own at least 3% of the shares.

The French government is keen to increase the number of employees with access to company profit-sharing schemes and this draft legislation builds on measures announced last year aimed at persuading more employers to offer employee savings schemes and encourage more employees to participate in them (see France: New measures to encourage employee savings schemes ).

At the same time, the government has stressed that there should be no confusion between the money paid to employees as wages and any income supplements deriving from productivity gains.

Profit-sharing arrangements

The main thrust of the proposed legislation is to improve and develop employee profit-sharing schemes and modernise company savings schemes.

Improving profit-sharing schemes

In the first place, the draft seeks to introduce better methods for redistributing profits and allowing employees better access to their company's capital in the form of an additional profit-based "work dividend" (dividende de travail), which could take the form of supplementary profit-sharing payments or the deposit of additional shares in the company savings scheme by the employer. In exchange, companies distributing such payments under financial participation schemes (intéressement or participation, see box) or depositing shares in a company savings scheme would benefit from more advantageous tax arrangements. For instance, companies would be able to deduct any shares distributed free from their tax liability, provided that all employees benefit equally from them.

Shares placed by the employer in a company savings scheme could not be sold by the employee for five years, in order to encourage lasting employee share ownership. However, the dividends to the employee from owning the shares, and the profit from any eventual sale, would not be taxed.

A new measure (intéressement de projet) would allow employees to receive profit-sharing payments related to the profits from a joint project involving several companies. Such a scheme could involve the employees of: different subsidiaries of the same group; a contracting company and its subcontractors; or a number of companies working on the same site, as in a major building project. Those companies wishing to take advantage of the new rules would be expected to draw up an appropriate accord within the framework of their existing profit-sharing agreement.

Developing profit-sharing schemes

At the moment, less than half of all private sector workers have access to profit-sharing schemes. One reason for this is that deferred profit-sharing schemes (participation) are obligatory only in companies employing more than 50 workers and making a certain amount of profit. The draft legislation sets out to broaden the coverage of such schemes by extending the opportunity to small and medium-sized enterprises. It would require the social partners at sector level to draw up new framework agreements on profit-sharing to cover smaller enterprises in the three years after the law is adopted. The negotiations would be overseen by the high-level profit-sharing council (Conseil supérieur de la participation, CSP). Individual companies, however, would be able to decide for themselves whether or not to implement such accords.

Companies that are subject to tax exemptions, such as those located in urban tax-free zones (zones franches urbaines, ZFUs), would in future be able to introduce profit-sharing schemes.

Further, the legislation would introduce funding opportunities and a special tax credit to apply where employees buy out their company, as long as the buyout is based on a negotiated agreement and involves at least 15 employees.

Monitoring profit-sharing agreements

The draft provides for the more widespread use of dedicated company-level committees (comités de suivi des accords d'intéressement) to monitor the implementation of profit-sharing agreements and company savings schemes.

Modernising company savings schemes

The modernisation of company savings schemes is another important part of the draft legislation. Originally, the government wanted to reduce the length of time company payments made into special "company mutual investment funds" (fonds communs de placement d'entreprise, FCPEs) or the company savings scheme (plan d'épargne d'entreprise, PEE) remain blocked (ie cannot be withdrawn by the employees), from five years to three. But it had to abandon this idea when it was rejected by the social partners during consultation on the Bill. They were keen to ensure that the lowest-paid workers were given the opportunity to accrue greater savings over a longer period of time. At the same time, they wanted to make sure that companies would have access to such funds for a longer time.

However, the government still proposes to revise the rules on the circumstances in which employees may withdraw funds before the time is up, such as when they leave the company, get married or buy their own home.

The draft text would encourage employees to invest in a range of savings options, including PEEs, collective retirement savings schemes (plans d'épargne pour la retraite collectifs, PERCOs) and time-saving accounts (comptes épargne temps, CETs).

The draft would oblige companies that have concluded a deferred profit-sharing agreement to introduce a company savings scheme. Another important measure would require enterprises that have had PEEs for more than five years to negotiate a collective retirement savings scheme. Further, employees leaving one company for another, where there is no such scheme, would be able to continue to save in their old company's scheme. However, the employee's former company would not be required to make any further contributions on their behalf.

With regard to time-saving accounts, the draft would allow for the financial equivalent of time saved in this way to be paid into a PERCO or a PEE in order to buy shares in their company, under certain conditions.

Finally, this section of the draft legislation would simplify how inter-company savings schemes (plans d'épargne interentreprises, PEIs) work. These were introduced in 2001, under the loi Fabius (see France: Employee saving schemes get off the ground ), to promote employee savings in smaller firms that do not operate their own schemes.

Employee share ownership

A key section of the legislation is dedicated to developing opportunities for employees to hold shares, and to increase their involvement at board level in their companies. Employee representation on the board would become compulsory at listed companies in which employees hold at least 3% of the shares.

Shares distributed free could be placed in a company savings plan provided they are distributed in an equal fashion to all employees. As noted above, employees would not be able to access the funds for five years, but would be exempt from tax on the financial benefits.

To encourage employee shareholding, companies would be able to deduct from their tax burden the discounts given to employees purchasing shares in a new equity issue (augmentation de capital), providing they are equally distributed among all employees. Further, the rules on the distribution of shares to employees by French multinational companies as part of worldwide employee share-ownership programmes will be simplified.

Other issues

Alongside its provisions on profit-sharing and employee share ownership, the draft legislation contains clauses on a wide range of other employment-related issues. Some of the most notable are summarised below.

Career development

Measures are proposed relating to various aspects of career development (sécurisation des parcours professionnels).Where companies have signed agreements on the "forward-looking management of jobs and skills" (gestion prévisionnelle des emplois et des competences), covering employees in occupations that are seen as "vulnerable", they will be able to offer employees in these jobs "mobility leave". On a voluntary basis, the employees concerned could acquire new skills or work in another company to prepare for future employment elsewhere, without their contract being terminated. The enterprise would benefit from an almost complete exemption from social contributions on behalf of the affected employee for nine months. The aim is to encourage employers to deal in advance with the effects on employees of restructuring. In this way, the new mobility leave scheme differs from the existing "redeployment leave" (congé de reclassement), which can be used in companies of 1,000 employees or more, and the "personalised reclassification agreement" (including further training and career development advice), which can be used in companies of fewer than 1,000 employees (EIRR 376 p.6), which both apply to employees who have already been given notice of redundancy.

Small and medium-sized enterprises located in "competitiveness clusters" (pôles de compétitivité) would, it is proposed, have better access to the expertise they need through the option of "borrowing" employees with sought-after skills from larger enterprises, also located in such clusters. The employees would remain employed by their original employer, and the scheme aims to help broaden their career experience. These clusters are designed to concentrate a broad range of enterprises, public and private research centres focusing on a specific technology area in a single location to encourage the sharing and cross-fertilisation of innovation between research and business.

Older people

The French government has been keen to improve the labour market situation for older people; a national action plan to promote their employment was announced earlier this year (ee France: Second stage of the government's employment plan ). The draft legislation contains a section providing further details of how the plan will be realised. One article provides for the two-stage abolition of the Delalande contribution - which firms have to pay into the Unedic unemployment insurance fund when terminating the contract of an employee aged 50 or over. Initially, companies taking on workers over the age of 45 would not have to pay this supplement if they subsequently dismiss them after they reach 50. On 1 January 2010, the contribution would be abolished entirely.

Another article would eliminate a derogation provided under the 2003 pension reforms that allows the sectoral social partners to negotiate early retirement accords for workers before they reach the age of 65, on condition that the company makes additional training efforts. This option would be phased out by 31 December 2009.

To encourage a culture of "mentoring", the draft legislation envisages that retired people returning to their former companies voluntarily to mentor younger employees would be able to receive pay without affecting their pensions. Any payments they earn would not be included in the amount they can earn from a combination of pay and pension (cumul emploi-retraite) and which is capped at the last wage they earned before retirement. Further, the six-month waiting period before retired employees are permitted to return to their former employer would be abolished in the case of mentors.

Workforce size calculation

The issue of how the workforce is counted with regard to workplace elections of employee representatives is controversial because works councils (comités d'entreprise) are obligatory at companies with 50 or more employees. The draft law aims to clarify how employees of other companies working on a company's site are taken into account when the latter holds workplace elections. It would make clear that only permanent employees of the company in which the elections are taking place, and not the employees of subcontractors, count in calculating the workforce size. This would overturn a ruling by the French supreme court, the court of cassation, which decided in May 2004 that all workers participating in the activities "necessary for the functioning of the enterprise" should be counted.

Apprenticeships

Apprenticeships have been in the limelight recently, and the draft law addresses issues relating to their financing. It would allow for the national fund for the development and the modernisation of apprenticeships (fonds national pour le développement et la modernisation de l'apprentissage, FNDMA) to make direct contributions to national apprentices' centres, via the regional apprenticeship funds.

Finally, the arrangements for the registration of apprentice contracts are to be amended. The contracts would no longer have to be submitted to the regional offices of the employment ministry (Direction départmentale du travail, de l'emploi et de la formation professionnelle, DDTEFP), but to the chambers of commerce, trade or agriculture.