France: Short-time work scheme becomes key crisis-response measure
The French Government took a series of initiatives in the early months of 2009 to strengthen the state scheme that subsidises short-time working in companies, making short-time work a central plank of its strategy to deal with the employment fall-out from the current economic recession.
On this page:
Increasing focus on short-time work
Current short-time work scheme
Further changes planned
Effects of short-time work
Renault
Renault Trucks
STX
STMicroelectronics
Michelin.
Key points
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Increasing focus on short-time work
At a “social summit” held on 18 February 2009 to discuss responses to the economic downturn, President Nicolas Sarkozy announced to trade unions and employers’ organisations that the level of short-time work benefit will be increased substantially. Further, he called for enhanced training provision for employees affected by short-time working.
The state short-time work scheme (known as “partial unemployment”, or chômage partiel) had been little used during the years of relative economic prosperity. However, recourse to the scheme rose sharply as the economy faltered during 2008: while in January 2008, around 219,000 hours were unworked due to authorised short-time working, in December, the figure stood at 13,513,000 hours. Towards the end of 2008, the Government started to focus on short-time work as a key element in dealing with the recession. In November, the Ministry of Employment instructed the public labour authorities to use the scheme “dynamically”, widening its application to companies facing structural as well as temporary difficulties, and to subcontractors suffering because of falling orders.
In December 2008 and January 2009, the Government introduced measures to increase the level of statutory short-time benefit, to allow it to be paid for longer periods and to extend the scheme to part-time employees working fewer than 18 hours per week. Special short-time work schemes have also been introduced for sectors particularly hard hit by the economic crisis, notably the automotive industry.
The latest decision to further increase short-time benefits, and to encourage training for the workers concerned, underlines the centre-right Government’s commitment to making short-time work a central pillar of its strategy for coping with the employment effects of the downturn. As Sarkozy put it, it is better to keep workers in “partial activity” and maintain their employment contracts, rather than allow them to become unemployed.
The reform and strengthening of the short-time work scheme is seen by some commentators as creating an Italian-style “social shock absorber” system. This refers to the set of public measures that Italy uses to cushion the effects of redundancies and restructuring, including special unemployment benefits and other forms of income support, such as the wages guarantee fund, for workers who are surplus to requirements or are laid off temporarily. The Italian system allows workers to receive an income and retain their employment contracts, often for several years, until such time as economic activity resumes. While the French scheme was originally intended to deal with the short-term effects of temporary company difficulties, it is arguably becoming a long-term response to the economy’s structural problems.
Current short-time work scheme
After the reforms in December 2008 and January 2009, the main features of the short-time working scheme are as follows.
Short-time working benefit (indemnisation du chômage partiel) is available to employees who, while remaining linked to their employer by an employment contract, experience a loss of income because of the temporary closure of the establishment where they work, or because of a reduction of normal working time in the establishment to fewer than 35 hours per week. This temporary closure or hours reduction must be due to:
- the economic situation;
- supply difficulties;
- accidents or exceptional bad weather;
- the transformation, restructuring or modernisation of the company; or
- any other “circumstance of an exceptional nature”.
Almost all employees are eligible. The exceptions are: workers with “inclusive” working time agreements (these contracts, mainly applicable to managerial staff, assume that a certain amount of overtime is worked each year, calculated in hours or days, and that these are remunerated automatically as part of the employee’s salary); seasonal workers; and employees scheduled for redundancy. At present, part-time employees earning less than the equivalent of 18 times the hourly rate of national minimum wage per week are also excluded, but they will soon become eligible, when a recent government decision to include them is implemented by decree.
The employer pays the employees concerned short-time working benefit for the hours not worked. The benefit is made up of two elements. The first is funded by the state and is reimbursed to the employer by the public labour authorities. The second is paid for by the employer itself, on the basis of a national cross-industry collective agreement originally signed in 1968 (and amended to increase the benefit payable in December 2008). From 1 February 2009, the total rate of benefit stands at 60% of normal gross pay (formerly 50%), with a minimum of €6.84 per hour (previously €4.42). For companies with 250 or fewer employees, the state funds €3.84 per hour and the employer €3. For companies with more than 250 employees, the state funds €3.33 per hour and the employer €3.51.
In most cases, benefit may be paid for up to 800 hours per worker per year (previously 600). Further, benefit is payable for up to 1,000 hours per year in the textiles, clothing and leather industries, the automotive industry and its subcontractors, and car retail. Where benefit relates to the temporary closure of an establishment, it may be paid for a maximum of six successive weeks (formerly four weeks). If a closure lasts for more than three months, the authorities may decide to classify the employees as “jobseekers” for a limited period, thereby entitling them to unemployment benefits.
Further changes planned
At the social summit on 18 February, President Sarkozy announced plans to increase the total rate of short-time benefit from 60% of normal gross pay to 75% in sectors and companies that sign an agreement to this effect with the state. The aim is that the increase, to come into effect mid-April 2009, will be funded largely by the Unedic unemployment insurance scheme, with employers also making a contribution.
The Unedic unemployment insurance scheme is funded by employer and employee contributions and jointly managed by trade unions and employers' organisations. On 11 March 2009, its management board agreed to enter into negotiations with the Government about financing the proposed increase in short-time benefit, taking the view that subsidising employment on reduced hours is a better use of unemployment insurance resources than paying benefits to the fully unemployed. The mechanism to be used is the revival of a scheme known as “long-term compensated reduced hours” (temps réduit indemnisé de longue durée, Trild) introduced by legislation in 1993 but repealed in 1996. Trild allowed for Unedic to co-finance, along with the state and the employers concerned, short-time working of up to 1,200 hours per worker, specifically aimed at preventing job losses.
Following Sarkozy’s call for enhanced training provision for workers on short-time work, in early March the social partners agreed with the Government to amend the terms of the national cross-industry agreement on vocational training reached in January 2009. The agreement provided for the creation of a “joint fund to make career paths more secure” (Fonds paritaire de sécurisation des parcours professionnels, FPSPP) to finance training for the low-skilled and unemployed, using a proportion of the existing contributions levied on employers to fund continuing vocational training. It has now been agreed that in 2009, some of the FPSPP’s resources will be used to provide training for employees affected by short-time working.
A proportion of employees on short-time work will be able to undergo training in their unworked hours, within the framework of their employer’s statutory training plan aimed at developing skills, or use their own “individual right to training” (which entitles all employees on open-ended contracts with at least one year’s service to receive 20 hours of training per year). The employees will receive a training allowance worth 50% of normal pay during the training, for up to 80 hours each. However, the combination of the training allowance and short-time work benefit cannot result in hourly remuneration exceeding the employee’s normal pay.
Effects of short-time work
Laurent Wauquiez, the secretary of state for employment, believes that the enhanced short-time working scheme will “avoid redundancies as far as possible and protect between 200,000 and 300,000 jobs in 2009”. It is estimated that between 10% and 20% of workers on short-time work, or between 20,000 and 60,000 people, will receive training under the new arrangements during the year. The cost is put at around €1,000 per worker, which means a total of between €20 million and €60 million of diverted expenditure from vocational training funds.
The Medef employers’ confederation has sounded a note of caution about the increased reliance on short-time working in response to the economic crisis. According to Laurence Parisot, Medef’s president, “short-time work cannot be a panacea, and we must ensure that it does not prevent the necessary adjustments” in companies. While she agrees that short-time work is a “very useful tool at the moment” and that its use should be made rather more flexible, Parisot rejects “long-term short-time work”. Recourse to the scheme should be considered sector by sector, taking into account the specific needs of each industry, and care should be taken that no “perverse effects” arise, such as an increase in undeclared work.
A study published in March 2009 by the Centre of Employment Studies (Centre d'études de l'emploi, CEE), a public research body, also suggests that short-time work is by no means a perfect solution to the current employment crisis. According to the report (PDF format, 284K) (on the CEE website), the main effect of short-time work is to delay redundancies, not to prevent them.
In recent months, numerous companies have signed or proposed collective agreements on short-time work, or introduced schemes unilaterally, to deal with falling demand for their products and services. Most seek to prevent redundancies and to maintain employees’ pay at or near 100% of normal levels during periods of short-time working. Five prominent examples are summarised below.
Renault
At Renault, the leading car manufacturer, negotiations are under way over a “crisis social contract” proposed by management, in the light of a predicted 20% drop in orders for 2009. The aim is to maintain employment levels through the extended use of short-time work (which has already been introduced for some workers), with employees keeping up to 100% of their normal net earnings.
During 2008, Renault offered incentives for 4,000 employees to take voluntary redundancy. It now states that, after this scheme closes in April, it will cut no further jobs during 2009, in line with commitments recently made to the Government in return for a loan of €3 billion. This will be achieved by introducing periods of short-time work for all categories of staff (not just production workers, as is often the case). During unworked hours, employees will receive training to develop their skills, thereby allowing the company to “prepare for the future, and the end of the crisis, under the best conditions”.
At present, Renault employees working short time receive 80% of their normal net pay, with the general benefit of 60% topped up from a special company fund. Under the company’s plan, staff could receive 100% of their normal net monthly pay despite short-time working. Of the additional 20% of pay, 10% would be met by additional payments from the company fund, while employees could choose to fund the final 10% by cashing in time-off entitlements saved in existing individual “working-time accounts”.
Renault Trucks
Renault Trucks, which manufactures lorries, is part of the Sweden-based Volvo group. Under an agreement signed in February by management and all trade unions represented at the company, in order to preserve jobs, all categories of employee will be subject to periods of short-time work from March to May 2009, except some sales managers and research and development staff. For example, during March, the number of unworked days will vary from five for managerial staff to 13 for production staff (who had already experienced some short-time work during January and February). A proportion of the unworked days will be devoted to training.
On top of the general short-time benefit worth 60% of normal pay per unworked day, employees will receive additional payments from a new company fund. The fund, worth €7.1 million, has been created by employees giving up various time-off entitlements, such as one day of seniority-related annual leave and an extra four hours’ leave granted before workers go on holiday, with the company contributing €1 million.
The flat-rate payments from the fund will enable non-managerial staff on short-time work to receive up to 96% of their normal pay, with manual production workers (who will be most affected by short-time work) receiving the highest proportion of their usual wages. Employees may choose to make up the remaining shortfall in their pay by cashing in time-off entitlements saved in individual working-time accounts. Managers are already guaranteed full pay during short-time work by a sectoral collective agreement covering the metalworking industry.
STX
At STX, a shipbuilding company based in Saint-Nazaire, an agreement on short-time work was signed by management and five trade unions on 17 February. It provides for 35 unworked days for 800 employees during 2009, because of cancelled and delayed orders (if further short-time work proves to be required, new negotiations will be held).
Employees will receive full pay during the period of short-term work, and will still be awarded their normal annual bonus of one month’s pay. The company will meet 25% of the cost of topping up the general short-time work benefit of 60% of normal pay, with employees compensating for the remaining 75% by working six extra days (on Saturdays) during the two-year period after the short-time work ends. If they do not wish to work all or some of these extra days, they must give up some of their leave entitlement or time off saved in individual working-time accounts.
The agreement at STX provides for further negotiations if the statutory short-time benefit scheme is amended. As seen above (under “Further changes planned”), the Government is planning to increase benefit from 60% to 75% of normal pay and unions at STX want to be able to reduce the employee contribution to the company scheme (in terms of time off entitlements sacrificed) accordingly if this occurs.
STMicroelectronics
STMicroelectronics, a French/Italian semiconductor manufacturer, has introduced short-time work for the 3,700 production staff at its French plants. On top of the general short-time benefit of 60% of normal pay, employees may reduce their loss of income by cashing in their entitlements to annual leave, seniority-related leave, training leave and time off granted as part of earlier working-time reduction schemes. Management at individual sites may also oblige employees to take a week of their annual leave entitlement as part of short-time working. Employees may choose to undergo training during unworked hours, using their “individual right to training” entitlement and receiving the statutory training allowance of 50% of normal pay on top of their short-time work benefit.
Michelin
In February, management and unions at Michelin signed an agreement whereby all of the tyre manufacturer’s 19,000 employees in France will experience up to 15 unworked days over the next 12 months, while still receiving their usual basic pay, plus a number of their normal bonuses and premium payments. These days off will be debited against the workers in a collective working time account, and the days “owed” to the company will be worked off in future years, with a maximum of five days to be “paid back” per year.
This is an exceptional one-off arrangement, applying only to the coming year, and the agreement contains a number of guarantees for employees in terms of their individual working time. If the scheme does not prove sufficient to deal with cutbacks in production, the agreement provides that Michelin will have recourse to the statutory short-time work scheme. In that case, the company will provide some additional payments on top of the normal short-time benefit.
This article is based on material provided by Christophe Boulay, European Employment Review correspondent for France.
European Employment Review 423 (EER 423) contents
