France: New law relaxes implementation of 35-hour week

Mr Fillon stressed that the new law does not jeopardise the existence of the 35-hour week, but merely makes its implementation in companies more flexible and simple and gives the social partners more room to negotiate. The government hopes that this will solve a number of problems, including a previous lack of clarity, a rigidity in terms of the organisation of work and social dialogue, and an adverse effect on low pay.

Harmonisation of the SMIC

Harmonisation of the range of SMIC rates in existence, which are linked to the implementation of the 35-hour week, is one of the government's key policy priorities. The economic and social committee, CES - the commission charged with examining the issue and making recommendations on how to effect this - issued its report in July 2002 (France: SMIC and the 35-hour week). In its report, it proposed a range of different ways to harmonise the various monthly guaranteed SMIC rates currently in existence. These range from a very gradual phasing-out of the different rates, by 2009, to immediate convergence. The main problem is that there is a wide and increasing gap between the lowest rate of SMIC (€1,035 a month) and the highest rate of SMIC (€1,154 a month). Not only does this contravene equal pay legislation, but it will also entail a considerable amount of cost to equalise the rates. It is currently estimated that around six million people in France receive one of the SMIC rates.

Having carefully considered the recommendations contained in the CES report and listened to the range of views on the issue that have been put forward by the social partners, the new legislation opts to harmonise the various SMIC rates to the highest rate in existence by 1 July 2005 in stages as follows:

It is calculated that, over the three years from 1 July 2002 to 1 July 2005, the income of around half of SMIC recipients will increase by 11.4%. The government is also keen to stress that nobody will lose any purchasing power as a result of this mechanism, and that an estimated 90% of SMIC recipients will actually gain. On average, it is estimated that the average purchasing power of SMIC recipients will increase by 6.5% over three years, an increase not seen for the past 20 years.

Relaxing the 35-hour week

The introduction of the 35-hour week has not been without controversy. Apart from the implications for the minimum wage and the impossibly complicated system which resulted (from which the government is now attempting to extricate itself - see above), the working time reduction has put pressure on companies which are short of staff at a time of considerable skills shortages in some areas. Limits on overtime working have curtailed companies' ability to operate in the way they would like, resulting in considerable protest from employer representative organisations.

At present, there are two separate sets of provisions governing overtime working:

The draft legislation will unify and simplify the current system - one sole system will cover the first eight hours of weekly overtime. It also reverses the current system of time off in lieu in the absence of a collective agreement - overtime will be remunerated by means of cash payment in the absence of a collective agreement. It is envisaged that this will benefit employees in terms of pay and relieve the employer of organisational difficulties connected with the scheduling of time off in lieu.

Annual overtime hours

The draft law also introduces changes relating to annual overtime limits. Currently, the annual overtime limit for each employee is 130 hours (provided for under article L 212-6 of the Labour Code). If an employee wishes to work hours above this limit, the permission of the labour inspector is needed. Any hours worked above this limit must be compensated by time off in lieu to the value of 50% of the time worked (in companies with fewer than 10 employees) or 100% of time worked (in companies with 10 employees or more).

There are currently some variations to this. In the case of those working annualised hours, the limit is 90 hours. In the case of certain managers, it is 180 hours. Further, the limit has been raised to 180 hours for companies with 20 employees or fewer on a temporary basis during 2002.

The draft legislation wishes to simplify this situation and also give more leeway to the social partners to negotiate their own arrangements. Accordingly, it provides for the drawing up of a decree (published on 16 October) to raise the annual overtime limit for each employee to 180 hours, which will apply if no extended sectoral agreement is in place. This ceiling will be re-examined by the national collective bargaining commission (CNNC) and the CES after 18 months.

Further, the company size threshold for the granting of compensatory rest of 100% of time worked for hours exceeding the annual overtime contingent is raised from 10 to 20 employees.

This means that those employees who want to work longer will be able to, one of the key promises of Jacques Chirac when he came to power in June 2002 (EIRR 342). For companies, this will mean the immediate introduction of more flexibility with regard to working time.

The social partners in each sector will subsequently negotiate on how many overtime hours will be allowed in their sector (in the context of the 180-hour upper limit).

The social partners will also be able to negotiate agreements on how to remunerate overtime hours, although the premium must not be lower than 10%. If there is no collective agreement, the statutory premium of 25% will apply. Nevertheless, for small companies with 20 employees or fewer, the 10% premium rate will remain in force until 31 December 2005 at the latest, in order to allow for more flexibility for smaller employers (this provision was set to expire at the end of 2002).

Thus, the social partners are given a considerable amount of additional scope in terms of opportunity to negotiate.

Annualised working time

Currently, in order to achieve the 35-hour working week, working time may be annualised, up to a ceiling of 1,600 hours. This means that not every working week may be of 35 hours' duration, as long as the annual average is 1,600 hours. This annual average is calculated according to a formula which takes account of paid annual leave, weekly rest days and public holidays, and may vary slightly from year to year, according to when public holidays fall. If the actual annual total comes out as less than the 1,600 ceiling (for example, this year it is actually 1,593 hours), the law states that the lower ceiling should apply.

However, the social partners, when negotiating working time agreements, have tended to stick to the 1,600 annual ceiling. For reasons of simplicity, therefore, this new law proposes that the 1,600-hour annual ceiling should apply in all cases, thus rendering complex calculations unnecessary. Nevertheless, it leaves room for the social partners to negotiate a lower ceiling if they so wish.

Working time for managers

The calculation of working time for managers (cadres), within the context of the 35-hour week, has always been complicated. The 35-hour week law of 19 January 2000 split managers into three groups for the purposes of the law:

Although this system applies to managers, it has become apparent that a number of employees who are not officially classed as managers would benefit from this system. The new law therefore introduces more flexibility in the definition of manager for the purposes of working time calculation. It also gives the social partners more scope to negotiate their own agreements on this issue.

Time-banking accounts

The concept of time-banking accounts, whereby employees bank hours worked and some elements of pay in order to take as longer, paid blocks of time off, to finance a working time reduction or even a period of training, was introduced by the law of 15 July 1994. This law allowed for time-banking schemes to be put into place within the context of a sectoral or company agreement.

The new draft law extends the negotiating potential of the social partners, by allowing them to negotiate time-banking schemes in which time is saved as amounts of money, or in which elements of pay do not have to be converted into time in order to be deposited into the scheme. Employees could then withdraw credits either in the form of cash or time.

Reducing employer social charges

The third chapter of the draft legislation is devoted to the subject of employer social charges. It contains three main elements:

Accordingly, the government will earmark an extra €6 billion over three years to fund the reduction of employer social charges, particularly in small and medium-sized companies, over a total of three years.

Thus, from 1 July 2005, employer social changes will be reduced by a maximum of 26%, for employees receiving the SMIC (compared with the current reductions of around 18.2% for most companies). The reductions will diminish as pay increases, up to pay which is 1.7 times the SMIC (the present system halts the reductions at pay which is 1.3 times the SMIC). These reductions may not be coupled with any other social charge reduction or exemption, with some minor exceptions (such as reductions relating to meal benefits in kind in the hotels and restaurants sector).

The reductions in social charges will be decoupled from working time reduction in that, contrary to practice up until now, employers will not receive any bonus linked to introducing a reduction in working time. Accordingly, the reductions will be based on actual hours worked - either 39 or 35 hours a week.

Transition phase

From now until 1 July 2005, however, there will be a transition phase. Thus, maximum social charge reduction for those employees receiving the SMIC will be as follows:

The current system of social charge reductions, linked to the introduction of the 35-hour week and provided for under the January 2000 35-hour week legislation, will cease on 1 July 2003.

During this transition phase, however, these social charge reductions will only apply to companies which have not yet introduced the 35-hour week or 1,600-hour year, either by means of a collective agreement, or in accordance with the 35-hour week legislation of 19 January 2000.

In addition, during this transitional phase, the calculation formula will be adapted in the case of certain road transport employees in order to take into account the particular remuneration strategy in these cases.

These provisions will amend the provisions of the 19 January 2000 35-hour week legislation, in addition to provisions of the social security code.

The government estimates that a total of 90% of companies (ie those which have not introduced the 35-hour week) will benefit from employer social charge reductions. However, the government stresses that it has not forgotten the 10% of companies which have switched to a 35-hour week. It claims that although these companies, particularly those which moved early to a 35-hour week, will not benefit as greatly as other companies, they will nevertheless benefit from the extension of the overtime payment provision and a reduction in the overall cost of hiring an employee on the SMIC.

Reactions to the draft legislation

Prime minister Jean-Pierre Raffarin has characterised this legislation as "an important step in the fight for employment", praising it for supporting employees by raising low pay and supporting employers by introducing flexibility into the implementation of the 35-hour week and reducing social charges. He added that, despite the new flexibility, "the principle of the 35-hour week is not called into question: all hours worked above this limit will be remunerated as overtime hours".

The legislation has been broadly welcomed by employer representatives. Ernest-Antoine Seillière, president of the Medef employers' organisation, declared the draft law to be "a substantial step forward", adding, however, that it did not correspond to all of employers' wishes in this area. Employers are particularly critical of the three-year implementation period for harmonisation of the various SMIC rates, believing that this will entail a 17% increase in SMIC over this period. Mr Seillière was also critical of the proposed reductions in employer social charges, stating that they will not benefit some large companies which have already introduced the 35-hour week.

Trade unions have been less welcoming. The CGT confederation has criticised the text for benefiting employers rather than employees. The confederation believes that the law will serve to lengthen working time and therefore represents a backwards step in terms of social progress. The CGT is also critical of the SMIC proposals, stressing that harmonisation will be effected at the cost of limiting the growth in purchasing power of the minimum wage until 2005.

François Chérèque, general secretary of the CFDT union confederation, has also criticised the legislation, believing that it will increase inequalities between employees. However, he stressed that the confederation was satisfied with the SMIC harmonisation proposal as this provided for upwards harmonisation of the different SMIC rates.