* Draft agreement aims to make labour rules more flexible
* Govt to present labour reform law 'without delay'
* Two hardline unions refuse to sign
By Nicholas Vinocur and Yann Le Guernigou
PARIS, Jan 11 France's employer groups and main unions agreed on a deal on Friday to overhaul rigid labour rules, paving the way for new legislation early in 2013 and bolstering President Francois Hollande's credibility as a reformer.
The agreement is well-timed for Hollande, who has been struggling with low approval ratings linked to perceptions that he is powerless to reverse a rising trend in unemployment, now close to a 15-year high.
It will form the basis for legislation to reform the labour market early in 2013 that should help firms adjust to downturns in demand and limit costs in the event of layoffs, while offering more job security to workers on short-term contracts.
"Tonight social partners have placed France at the top of European standards in terms of labour market and social relations. The deal they have struck is anything but short-sighted," the Medef employers union said in a statement.
Three of the five major unions represented at the talks said they would recommend signing the deal. Two hardline unions, the CGT and FO, denounced the draft as a step backward for workers' rights and said they would not sign.
In order for an accord to be considered valid nationally, a majority of the five unions must sign it. A formal accord is to be signed next week by the groups' executive boards.
However, economists commenting on previous drafts of the deal said its impact would be less profound than the Hartz 4 reforms launched by former German Chancellor Gerhard Schroeder, and it was unlikely to bring about a swift reversal in the unemployment trend.
"Will this be sufficient to ensure a turnaround in the unemployment trend by end-2013 as promised by President Hollande? We think not," Societe Generale economist Michel Martinez wrote in a research note before the deal was struck.
REFORM LAW 'WITHOUT DELAY'
Hollande, who announced earlier on Friday he was launching a military operation in Mali to help the government there stem an uprising by Islamist rebels, hailed the accord as a breakthrough for all sections of the workforce.
"I have asked the government to prepare, without delay, a draft law in order to transcribe accurately the legal changes foreseen in the accord," he said in a statement.
With his approval ratings mired at about 37 percent and jobless claims at a 15-year high, the deal boosts the Socialist president's economic reputation as he leads a broad effort to improve competitiveness.
Reforms will help address concerns often cited by credit ratings agencies that France's labour market is split in two, with "insiders" on long-term CDI job contracts enjoying too much job security while "outsiders" have too little.
Employers obtained concessions capping compensation for layoffs, limiting the amount of time workers can dispute unfair layoffs to 24 months from five years currently, and allowing companies to cut wages and work time temporarily in a downturn.
For unions, the deal brings broader rights to complementary healthcare insurance, more seats for worker representatives on company boards as well as an increase in welfare charges paid by employers on short-term contracts.
Eight out of ten new hires are on contracts of less than a month and, nearly 25 percent of people aged 18 to 25 have no job - compared with an overall unemployment rate above 10 percent.
The moderate CFDT union said the deal, which came after three months of wrangling and two marathon negotiating sessions, had brought "substantial" advances on its key demands.
However, the CGT and FO unions said they would inform lawmakers about the deal's shortcomings and seek to prevent it from becoming a law, raising the prospect of street protests.
"This deal effectively prevents workers from protecting their rights ... It's entirely unacceptable and we'll do our best to stop it," said CGT negotiator Agnes Le Bot.