Outsourcing and labour reform in France

Printed by Outsource Magazine

A new law, published on 16th June 2013, is set to deliver significant reforms to France’s notoriously inflexible labour market.

The continuing, and deepening, economic crisis in Europe, and in France, has encouraged the government to look for ways to improve competitiveness. Indeed, although a number of surveys published in 2011 and 2012 demonstrated that France has a number of key advantages in competitiveness and attractiveness to investors, the number of foreign businesses setting up in France has fallen sharply since 2008, dropping by 13 per cent alone in 2012.

France’s reputation is primarily undermined by the rigidity of its labour market. In particular, restructuring procedures and the processes of dialogue with Works Councils can significantly impede proposed changes within companies operating in France: in extreme cases, a works council can obtain a court injunction preventing a company from implementing a site closure for several years, as recently evidenced with the Fralib site in southern France, or the Goodyear tyre plant near Amiens.

Clarifying and speeding up these processes, while reducing the potential for lengthy and reiterative litigation, was one of the main goals assigned by the government to the unions and employers’ organisations during a special negotiation in late 2012. The agreement reached on 11th January 2013, which makes some important reforms in exchange for limited new rights for employees, forms the basis for the new legislation.

Measures to promote flexibility and adaptation

Among the provisions regarding flexibility, several will allow companies to adapt and react more quickly to changes in the economic situation, and to rationalise the procedures for information and consultation of the employee representatives:

1. Adapting terms and conditions as a response to cyclical economic difficulties

If a company is facing cyclical economic difficulties, an employer and associated unions will be able to conclude a temporary agreement (maximum two years), to reduce wages, increase working time and/or change the company’s organisation. No compensation for such changes would be due to the affected employees. To be valid, such an agreement will have to be signed by unions representing at least 50 per ent of the company’s workforce.

In exchange, the employer undertakes not to make the affected employees redundant for the duration of the collective agreement.

At an individual level, each employee will still have the right to refuse the changes made as a result of the agreement in his own contract of employment – but if the employee refuses, he/she can be made redundant.

A major innovation of the new law is that such a redundancy will be subject to a very simplified procedure. The implementation of a lengthy and burdensome mass redundancy procedure will not be required.

Thus, once a collective agreement of this type has been concluded, its application to all the affected employees should be far simpler than in the past.

2. Securing internal mobility

Issues regarding employee mobility (particularly geographical mobility) can, in some circumstances, slow down changes in the workplace.

From now on companies will be able to negotiate collective bargaining agreements on internal mobility in order to define the terms and conditions for geographical or professional mobility of their employees, when such mobility is linked to the evolution of the company.

The agreements will have to define limits to this mobility and some side measures (including but not limited to training, assistance with geographical mobility, work-life balance). Employees will be obliged to comply with the mobility conditions set forth in the agreement. Any employee refusing such mobility can be made redundant as per the conditions and guarantees provided by the agreement.

3. Promoting voluntary external mobility

In order to facilitate the employees’ mobility in the labour market and develop their employability, the new law allows employees in large companies with at least 24 months’ total service to request temporary unpaid leave in order to work for another company.

If the employee chooses not to come back to his/her initial employer at the end of the leave, this will be considered as a resignation.

Measures to facilitate mass redundancies

Another major area of innovation in this new law concerns collective redundancies in companies with more than 50 employees, including collective redundancies which may result from an outsourcing project.

Over the past few years, the duration of redundancy procedures has progressively increased due to the ease with which the employees’ representatives can obtain a court order to suspend the consultation process.

Under the new provisions, applicable to mass redundancy procedures started after 1st July, companies can, by negotiation with the unions representing a majority of employees, set up their own rules in two essential respects; the consultation procedure to be followed with the Works Council; and the redeployment measures that must be offered to the employees who may be made redundant.

If agreement cannot be reached with unions representing a majority, the works council must be consulted on the basis of the redeployment measures defined by the employer. In this case, the duration of the procedure will be strictly limited: from two months when the number of redundancies is below 100, to four months when the number of redundancies is 250 or more.

With reinforced powers, the Labour Authority will be in charge of controlling the regularity of the redundancy procedures and the validity of the redeployment measures and will have to validate or approve them before the employer can make an employee redundant. The Labour Authority’s control can be expected to be much lighter if the procedure and the redeployment measures are the result of an agreement with the unions.

An additional welcome result of the new rules is greater certainty for companies that initiate redundancy procedures, since the scope for claims of procedural regularity will be reduced. Certain disputes will be subject to immediate resolution by the labour administration as the procedure develops, and any further challenge in the courts will have to be introduced within two months. The claim will have to be brought before the administrative courts, manned by judges that will specialise in this field (in the past these cases were brought before regular civil courts). The administrative courts will have to issue their decision within three months following the claim.

Impact as regards outsourcing projects

In the future, any outsourcing project which impacts on jobs will be subject to the new process which gives greater visibility on timings of the process, and therefore the date of implementation of the outsourcing.

It must however be stressed that the new law has no impact on the Transfer of Undertakings rules which result from the European Directive of 12 March 2001 and from article L. 1224-1 of the French Labour Code. The question of whether these rules are applicable to a given outsourcing project therefore remains fundamental. Indeed, if the conditions for their application are met, the transfer of the contracts of employment to the transferee occurs automatically, as soon as the operation occurs. The transfer is then obligatory for both the new employer, and the employees, who cannot refuse the change of employer.

Therefore, any thinking on an outsourcing operation must start by determining whether the operation falls within the provisions of the transfer of undertakings, as defined by French case law. This will be the case if there is an autonomous economic entity (i.e. an organized series of means with a view to carrying out an economic activity, whether this activity is essential or accessory), which is transferred in identical form to the new owner who continues the same activity. This condition of continuation of the identity of the activity is considered to be met if the economic entity which is transferred keeps its purpose, i.e. its assignment to the same activity or similar activities

If the operation constitutes a Transfer of Undertakings within the meaning of the law, the employer cannot avoid the imperative nature of these provisions by proceeding with dismissals before the transfer of the employees to the new employer is effective. Indeed, article L.1224-1 of the labour code is a public policy provision, which cannot be set aside, so that any dismissals before the transfer could be judged ineffective.

If an outsourcing project generates a transfer of the employment contracts of the employees concerned, the works council must be consulted. Until now, there has been no limit to the duration of the consultation process, but here again, the new law makes a significant change. While it provides for a minimum duration of 15 days for the consultation process, it also specifies that a maximum duration will be defined by decree to be published in the coming weeks. Once again, this new provision will make the consultation process quicker and more predictable than today.

The signatories of the national collective bargaining agreement of 11th January 2013, on which the new law is based, defined fundamentally new approaches to flexibility and change which should facilitate an increased level of interest in doing business in France amongst the best and brightest international companies. The coming months will certainly demonstrate to what extent management, unions and employees, but also the French administration and courts, are prepared to turn the page of past practice and use the opportunities afforded by the new law to ensure “flexi-security” in French workplaces.

About the AuthorThomas-Lestavel

Thomas Lestavel is an employment law specialist at Capstan, a founding member of Ius Laboris, the world’s largest alliance of law firms specialised in human resources law. His expertise spans all aspects of employment law and social protection, offering both counsel and litigation services. He advises on collective industrial relations and the employment law aspects of restructuring in particular, working in close collaboration with Ius Laboris.

This article was co-written by Judith Adams-Biron, an associate at Capstan.

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