France: Key aspect of new redundancy law ruled unconstitutional
The decision of the constitutional council (conseil constitutionnel), made public on 12 January 2002, has thrown into disarray the government's new legislation tightening the regulation of redundancy. It ruled that the article governing the circumstances under which redundancies can be made was unconstitutional as it restricted companies' freedom to restructure to such an extent that there was a risk of a greater number of redundancies having to be made at a later date, thus being contrary to the French Constitution's aim of preserving jobs. In this feature, we examine the context, the detail of the new legislation - the most part of which nevertheless remains unchanged - the council's ruling and the way forward.
Background
New provisions tightening existing legislation governing redundancy were first drafted by the French government in the summer of 2001. This move followed a number of high-profile and controversial corporate restructuring announcements earlier in that year, notably the decision of the UK-headquartered retailer Marks & Spencer to close all of its Continental European operations and the French food group Danone's decision to restructure its biscuits division. Left-wing and Communist members of the government subsequently lobbied hard for redundancy legislation to be tightened.
The changes to existing legislation took the form of extra amendments to the government's social modernisation Bill, a wide-ranging piece of social legislation. The text was passed by the lower house of the French parliament, the national assembly, at a second reading on 13 June 2001 and finally adopted on 18 December 2001.
However, the new legislation has been fiercely resisted from the outset by employer representatives, who have consistently claimed that it will severely damage French employers' ability to manage their businesses. Thus, the legislation has been controversial from its inception.
The new legislation has three main aims:
to make redundancy an action of last resort, to be used when all other options have failed;
to increase protection for workers by doubling redundancy payments; and
to increase employees' involvement in the redundancy process.
Making redundancy a last resort
In keeping with this aim, the legislation originally contained a new and tighter definition of redundancy. This has been one of the most controversial elements of the new legislation, and the one which has subsequently been ruled unconstitutional by the constitutional council.
Prior to the drawing up of this legislation, the French labour code (Article L321-1) defined a redundancy as "a redundancy of an employee by an employer for one or more reasons which are not connected with that employee and which are the result of a reduction or reorganisation of employment or a substantial modification in the employment contract notably as a result of economic difficulties or technological change".
The new legislation altered this definition, stating that a redundancy may take place only "for one or more reasons which are not connected with that employee and which are the result of a reduction or reorganisation of employment or a substantial change in the employment contract as a result of serious difficulties that have not been able to be resolved by any other means, technological changes which threaten the existence of the company, or the needs of a reorganisation which are vital to the safeguarding of the activity of the company".
Thus, the new definition was much tighter, leaving the employer much less scope when making redundancies. In particular, it obliged the employer to be able to prove that the serious difficulties experienced by the company have not been surmountable by any other means. The new wording also took into account a range of recent case law on this issue. The constitutional court has ruled that this new definition is unconstitutional and that the previous wording of the Labour Code must stand.
Preventing and reducing redundancies
Job-saving plans
The legislation replaces the term "social plan" (which must be drawn up in the event of collective redundancies of at least 10 employees) with "job-saving plan" (plan du sauvegarde de l'emploi). This is essentially a semantic change to the Labour Code which the government hopes will focus employers' minds on their responsibility to save jobs.
Further, the law attempts to prevent employers from circumventing the statutory requirement to draw up a job-saving plan by dismissing employees in smaller groups of under 10 employees. It states that if a company has made more than 18 employees redundant over a calendar year, each new redundancy during the three months following the end of that year must be accompanied by a job-saving plan.
The law also aims to improve the implementation of the job-saving plan by providing for regular and detailed consultations with the works council or employee representatives, in addition to providing for the involvement of the labour inspectorate. This body must be sent a copy of the plan and then has eight days to examine it. If it finds the plan to be inadequate, the employer, if requested by the works council or by employee representatives, must organise an extra meeting with employee representatives to examine the plan once more. This has the effect of delaying the implementation of the plan.
The new law also extends the powers of the labour inspectorate to propose changes and amendments to the job safeguarding plan, in the context of the economic situation of the company. The employer must then respond to the labour inspectorate's suggestions before the letters of redundancy are sent out.
The legislation also obliges the employer to negotiate, prior to devising a job-saving plan, an agreement on reducing working time to 35 hours a week. This provision was originally contained in the 35-hour week legislation as the so-called "Michelin" amendment, but was ruled unconstitutional by the constitutional court when the legislation came into force in 2000. This provision now essentially integrates this obligation with the annual obligation to negotiate on working time, particularly in the light of the fact that the 35-hour week has now been extended to smaller companies from 1 January 2002 (France: New 35-hour week for small companies).
Other measures
The legislation extends the scope of the current five-yearly sectoral negotiations on training to cover the management of employment and on how employees may benefit from individual discussions on their professional development. Small and medium-sized companies will be able to benefit from state support in devising a management-of-employment plan.
Further, any complete or partial cessation of the activity of an establishment or autonomous business entity which results in the loss of at least 100 jobs must be preceded by a study of the direct and indirect consequences of this development, carried out by the employer; and any strategic development plans must be accompanied by a social impact study carried out by the employer.
Information and consultation of employee representatives
A range of provisions strengthen the rights of employee representatives to be informed and consulted about employer plans which affect them and may result in redundancies.
The legislation basically distinguishes between two types of consultation of employee representatives:
information and consultation of the works council on decisions taken by the employer which are likely to affect the volume or structure of the workforce and which involve any reductions in the workforce, according to the fourth book of the Labour Code; and
specific consultations on the social consequences of job cuts in a collective redundancy situation, according to the third book of the Labour Code.
The first type of consultation should come before the second type. Further, the text makes it clear that the works council should, prior to consultations on planned redundancies, have been kept informed of any developments which affect the workforce.
Labour minister Elisabeth Guigou stated in a parliamentary debate that this clause was aimed at drawing a clear distinction between the two types of information and consultation and ensuring that any decision relating to collective redundancy is preceded by a proper period of consultation. Nevertheless, commentators note that this clause does introduce some rigidities into the process, as issues surrounding the concurrence of the two procedures had already been dealt with by case law. They note further that restructuring plans are inextricably linked to their social consequences and it is therefore artificial to separate out the two consultation processes.
Public announcements
If the employer makes a public announcement relating to the economic strategy of the company, the works council has the right to demand to meet within 48 hours of the announcement and to ask the employer to provide any useful information. The employer may then only proceed to give a public announcement that affects employment or working conditions after having informed the works council. If the announcement affects more than one enterprise in a group, each works council may be informed individually, in addition to the group works council and, if relevant, the European works council. If this information is not forthcoming, the employer may be charged with a criminal offence for interfering with trade union or employee representative activities (délit d'entrave).
Powers of works councils
The law strengthens the works council's powers in the context of restructuring plans and workforce reductions (excluding in companies which are in liquidation or recovering from an economic crisis). Previous legislation gave the works council the right to be informed in advance and to give an opinion on how the plan should be implemented, which is then forwarded to the labour inspector. The new legislation gives the works council the power to propose alternative solutions to restructuring plans and it may also be assisted by an accountant, paid for by the employer. The employer must then respond to these suggestions within 15 days. This provision is aimed at putting in place a dialogue between the employer and the works council.
In the case of employer plans to completely or partially cease the activity of an establishment or business unit of at least 100 employees, if negotiations between the employer and the works council cannot reach agreement, the legislation gives the works council the right to request the services of a mediator. This mediator is to be appointed jointly by the employer and the works council.
The length of time the mediator has in which to make a recommendation is to be determined by the parties, but must not exceed one month. Once the mediator has issued a recommendation, the parties have five days in which to accept or reject it. If the recommendation is rejected, it is transmitted to company management and attached to the social impact study (see above).
Thus, this new right increases the powers of the works council in that, if it disagrees with the employer's plans, it can involve a mediator and therefore effectively put on hold the implementation of the plans until the mediator has made a recommendation. However, this right does not go as far as co-determination as the employer is not obliged to accept the mediator's recommendation.
Sanctions for not following consultation procedures
The law considers all redundancies to be "irregular" if they have been carried out in a company in which employee representative bodies have not been put in place. Further, the law inserts into the Labour Code a clause which makes it possible for a redundancy and subsequent reinstatements, to be pronounced null and void if the proper procedure has not been followed and the content of the job-saving plan is not adequate. In this case, a judge may rule on whether an employee's contract of employment should continue. If the employee does not wish this, an employment tribunal may award the employee compensation, which may not be less than the previous 12 months' pay.
Regrading in a redundancy situation
The law permits employers to offer employees the possibility of being regraded to a lower grade in the context of a job-saving plan, if it is not possible to offer the employee a post at the same grade and the employee is in agreement with this.
Severance pay
The law doubles severance payments in the case of redundancies, from one-tenth to one-fifth of a month's pay per year of service. Dismissals for reasons connected with the employee will still attract severance payments of one-tenth of a month's pay per year of service.
Creating jobs after redundancies
The law creates a new "contribution" on the part of companies employing between 50 and 1,000 employees if the scale of the redundancies is likely to have a significant effect on employment in the area. In this case, the law provides for the possibility of a meeting to be set up between the employer, trade union representatives and other interested parties. This meeting has the aim of determining ways in which the company can contribute to the creation of jobs, to vocational training and to the development of employment in the area.
In the case of companies employing more than 1,000 employees, and those that have a group works council or a European works council, the law states that a contribution to the creation of jobs, vocational training and the development of employment is an obligation. The contribution increases in line with the number of redundancies the company has made and the economic situation of the area, and takes into account the means of the company. This contribution will take the form either of action on the part of the company or a financial contribution to the relevant organisations. The size of this financial contribution will be determined by the local authorities but will be between two and four times the monthly value of the national minimum wage (SMIC) for each redundancy made. The current monthly value of the SMIC is FF 7,388.68 (€1,226.32), based on a 169-hour week.
Retraining leave
The law creates a right to retraining leave (congé de reclassement) for those employees who are being made redundant from companies with at least 1,000 employees and smaller companies that have a group works council or a European works council. This leave should be taken before the expiry of the employee's contract and must not exceed nine months. During the leave, employees may benefit from the training necessary for them to master alternative skills, paid for by an employer-financed fund.
If the retraining leave exceeds the redundancy notice period, the latter must be extended to tally with the retraining leave. During a period of extended time, the employee is entitled to salary equivalent to that received by employees engaged on training agreements (conventions de conversion). These provisions do not apply to companies in liquidation or in a period of economic recovery.
In the case of companies with fewer than 1,000 employees and companies in liquidation or in economic recovery, the law extends the provisions of the PARE (plan d'aide au retour à l'emploi, provided for by the unemployment insurance fund UNEDIC) to their employees. Thus, redundant employees working for these types of companies may receive benefits from this scheme as soon as the redundancies are announced.
Controversy and opposition
As stated earlier in this article, these new provisions provoked an outcry amongst employer representatives and opposition from some government members. In the parliament, right-wing members such as those belonging to the RPR party, stated that the law "gravely compromises the ability of French companies to adapt to changes in technology and economic fluctuations." The central employers' organisation Medef also spoke out forcefully against the new legislation. During June 2001, economics minister Laurent Fabius also expressed reservations about the legislation, particularly on the grounds that it appeared to compromise companies' freedom to act.
Further, a group of 56 heads of companies such as Axa, TotalFinaElf, Crédit Lyonnais, Peugeot and Dassault drafted an open letter to the government on 24 October in an attempt to persuade it to backtrack on this legislation. The signatories accused the French government of having decided to tighten the legislation, a move which would have a detrimental effect on employers, without engaging in any prior consultation of the social partners. They were particularly damning of the tightening of the definition of a redundancy, stating that this would severely hamper the competitiveness of French companies and ultimately rebound to the detriment of employees. They also criticised the fact that the legislative amendments would mean a lengthening of the whole redundancy process. For example, in the case of a company with more than 1,000 employees, wishing to make 250 redundancies, the new procedures would lengthen the process from 100 to 200 days and to around 500 days if the retraining leave provisions are included in the calculation. They stated that this was unacceptable and increased uncertainty for employees. They were also highly critical of the provisions obliging companies to consult employee representatives simultaneously with making a public announcement, stating that this breached confidentiality provisions.
The government responded to these criticisms in mid-November. Employment minister Elisabeth Guigou admitted that the new procedures would, in effect, lengthen the redundancy process by around 21 days, if no recourse to a mediator was made. However, she also stated that the spirit of the text was such that the extra time was intended to permit those involved to debate all the issues properly, to devise the best possible solutions to the situation and to avoid conflicts. She added that many large companies already allow for a redundancy procedure which is at least as long as that contained in the new legislation. On 6 December, she told the French parliament that she was confident that this new, longer procedure would help to eliminate delays arising from conflicts further on in the procedure: "If the social dialogue process is good, the process will be lengthened by at most 21 days. If there are problems and an external mediator has to be called in, the delay would be at the most a little over two months."
Constitutional council rules against key provisions
Nevertheless, opposition to the new legislation remained in many camps. After the legislation was adopted by the lower house of parliament, on 18 December 2001, but before it was promulgated, 60 opposition members of parliament brought a case against the legislation to the constitutional court (conseil constitutionel) on the grounds that many of its provisions were unconstitutional as they infringed corporate freedom, contractual freedom and legal security.
The constitutional court is an independent body set up to monitor French legislation and to decide whether it conforms to the French Constitution. Its decisions are binding. In the case of provisions such as standing orders of the parliament and institutional acts, it automatically issues a decision, whereas in the case of other laws, it will issue a decision if a case is brought by at least 60 members of the national assembly or the senate (lower and upper houses of parliament). In this instance, a case was brought by the requisite 60 members of parliament.
The constitutional council issued its decision on the new legislation on 12 January 2002. Its most far-reaching finding was that article 107 of the law, relating to the definition of a redundancy, was unconstitutional. This article essentially prohibits redundancies except in three cases:
if they are as a result of serious difficulties which have not been able to be resolved by any other means;
if they are as a result of technological changes which threaten the existence of the company; or
if they are due to the needs of a reorganisation which is vital to the safeguarding of the activity of the company.
The council ruled that this article would have the effect of delaying some restructuring plans and ultimately lead to greater numbers of redundancies. It ruled therefore that the former definition of redundancies, contained in the labour code and in relevant case law, should remain.
However, the council ruled that the amendments to the information and consultation procedures, contained in articles 101 and 106 of the law, were not unconstitutional, even though they served to lengthen the redundancy process. The council therefore rejected the opposing arguments concerning this issue.
Reactions
The government has stated that although the constitutional council has censured one part of the legislation (albeit a key part), the bulk of it is unchanged. However, Communist members of the government, who have been keen for redundancy legislation to be tightened, have condemned the council's decision. They state that it was politically motivated (seven of the nine council members belong to the political right wing) and are calling on the government to rush through an amendment to the legislation. Further, an article in the French daily Le Monde notes that the three reasons justifying redundancies given by the law and which have been censured by the constitutional council are actually the principles on which case law has tended to rest over the past decade. It argues that this provision has merely codified into law the main points of principle of case law, in particular the fact that redundancies cannot be made if the aim is to increase profitability1.
The employers' organisation Medef has reacted positively to the judgment. From the outset, Medef has been opposed to strengthening dismissals legislation on the grounds that this would infringe employers' freedom of action and reduce the attractiveness of France as a business location.
On the whole, trade unions have not been supportive of this particular clause of the new legislation, fearing that it could well ultimately be to the detriment of employment. Michel Jalmain, CFDT national secretary, stated that the new definition of redundancy would have been difficult to implement and that, when drafting the legislation, the government did not listen sufficiently to the views of trade unions.
What happens now?
The judgment has severely embarrassed the government, which has also in recent weeks had to withstand the constitutional council's censure of the government's plans to use social security funds to finance the 35-hour week (this issue p.00). Although the majority of the law's provisions remain unchanged, it is clear that the key provisions relating to the definition of a redundancy will now have to be redrafted if the government wishes them to be updated. The text of the entire social modernisation law (law of 17 January 2002), of which these provisions are a part, was published in the French Official Journal on 18 January minus article 107
However, there is a complication, in that presidential elections are due in April and May 2002, and parliamentary elections in June 2002, which means that parliament will be dissolved by 22 February. It is therefore extremely unlikely that there will be time before this date for a new clause to be drafted and approved by parliament. Nevertheless, Communist members of the government are hoping that the government will try to do this in order to avoid any threats of strike action in protest against the failure of this clause to pass the scrutiny of the constitutional council. Such industrial unrest could prove politically embarrassing so near to parliamentary elections.
It is thus unlikely that this controversy will
be solved within the next few weeks.
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Social plans - containing measures to cushion redundancies and which are drawn up in the case of collective redundancies of 10 or more employees - are renamed "job-saving plans" in order to focus employers' minds on the employment aspects of the plan.
To prevent employers circumventing this requirement, any employer which has made more than 18 employees redundant over a calendar year must draw up a job-saving plan for each new redundancy in the following three months. |
1"Conseil constitutionnel contre Cour de cassation", Dominique Rousseau, Le Monde, 16 January 2002.
