France unveils labor reforms in first step to re-shaping economy

PARIS (Reuters) - French President Emmanuel Macron’s government announced reforms to loosen labor regulations and drive down unemployment, drawing criticism from unions but limited support for the street protests that have hindered previous reform bids.

After weeks of negotiations with unions over the summer, the centrist government revealed measures including a cap on payouts for dismissals adjudged unfair and greater freedom to hire and fire. The plan would also give companies more flexibility to adapt pay and working hours to market conditions.

The labor code reform is the first big test of Macron’s drive to re-shape the euro zone’s second biggest economy with its near double-digit jobless rate, double that in Britain and markedly higher than Germany. He also seeks a “grand bargain” with Germany over broader reforms of the euro zone.

For decades, governments of the left and right have tried to reform France’s strict labor rules, but have always diluted them in the face of street protests.

The reform makes no direct reference to France’s 35-hour week but gives employers more flexibility to negotiate deals with employees to work around it.

Labour Minister Muriel Penicaud described the five decrees laying out the reforms as “a transformation of labor rules on an unprecedented scale”.

Prime Minister Edouard Philippe said they were necessary to fight France’s stubbornly high unemployment.

“The truth is that for bosses, especially of small companies, and foreign investors, the existing labor law is seen as a brake on hiring and investment,” Philippe said.

Trade unions were less upbeat at what they perceived as the loss of long-cherished workers’ rights.

“All of our fears have been confirmed,” said Philippe Martinez, head of the hard-left CGT union, after the government presented the decrees to unions and employers.

He said the union would press ahead with its plan for a protest on Sept. 12.

But Macron’s assiduous courting of the unions over the summer appeared to have born fruit.

France’s biggest union, the reformist CFDT, said it was disappointed with what amounted to a missed opportunity to improve labor relations. But both the CFDT and the smaller Force Ouvriere, one of the spearheads of last year’s anti-reform protests, said they would not be joining the CGT’s protest.

“This reform does not rise to the occasion”, CFDT leader Laurent Berger told reporters, but he added: “Taking to the streets is not the only mode of action for unions.”

It sets a cap on compensation for a dismissal judged in a labor court to be unfair. This will be set at three months of wages for two years in the company with the amount rising progressively depending on how long a worker was with the firm.

In a concession to unions, normal severance pay would be increased from 20 percent of one month’s wage for each year in a company to 25 percent.

Economists drew parallels with Germany and Spain.

“This very much resembles the labor reform carried out in Germany in 2004-2005,” said Florian Hense, European economist at Berenberg Bank. “This could very well propel France to a golden decade like Germany had.”

Dutch bank ING said: “The ceiling on dismissal compensation is a milestone in labor flexibility and a real positive for permanent contract creation. In Spain, a similar reform kick-started an unprecedented labor market recovery.”

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Pierre Gattaz, the head of the MEDEF employers federation, described the reforms as an important first step which would boost confidence within companies.

The CPME, a small business lobby, was even more positive. “At last!,” it said in a statement. “After months of negotiations, we got results. The reform we had been waiting for so long is there.”

The labor reforms comes as the 39-year-old president suffers a steep drop in popularity ratings. Early policy announcements including an overhaul of the wealth tax and cuts to housing assistance have left a swathe of voters feeling his policies favor the rich, pollsters say.

The government plans to start talks on overhauling unemployment benefits in October before tackling pension reform next year.

Parliament, where Macron’s Republic on the Move party has a commanding majority, has already voted to allow the government to issue the decrees without a vote in the assembly. The government plans to adopt the decrees on Sept. 22.