President Emmanuel Macron on Thursday unveiled the ambitious labor overhaul at the center of his drive to revive France's economy, drawing muted criticism from traditionally combative unions that have stymied such efforts in the past.
The changes, which the government plans to pass by decree later this month, revise a thicket of rules and worker protections that businesses say discourage hiring and complicate negotiating work conditions with employees.
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Their unveiling marks a moment of truth for Mr. Macron, who has swiftly lost public support since sweeping into office four months ago. He has been consulting with France's unions for months in a bid to contain street protests that undermined previous efforts to lower France's chronically high unemployment.
Union leaders who met with the government Thursday were critical of the overhaul but stopped short of all-out opposition. Laurent Berger, secretary-general of France's largest union, CFDT, said he was "disappointed" with the changes and vowed to "remain extremely vigilant in the months to come." In a victory for the government, however, he said the CFDT wouldn't join a street protest planned by the far-left CGT union on Sept. 12.
The most contentious measures include a provision that allows small companies to negotiate directly with nonunionized workers and a cap on court-ordered fines employers can face for layoffs.
Some 150,000 cases of allegedly unjustified dismissals are brought before employment tribunals every year in France, and the government says that complex process -- and the wildly varying fines levied -- are factors dissuading foreign companies from investing in France.
"The cap would put an end to these crazy requests and claims," said Fabienne Haas, a partner at law firm August Debouzy who advises foreign companies on French employment law.
Mr. Macron has made changing labor rules a condition for reaching a "new deal" with Germany and other European Union countries to revamp the bloc's economic architecture and equip it with shared financial backstops to resist economic shocks.
The labor overhaul is also a starting point for his plans to reboot France's sclerotic economy, including revamping the welfare and pension systems and spending more on housing and jobs training.
"My wish isn't for this to be easy, but for it to be effective. The reform of the labor market is a reform of deep transformation," Mr. Macron said in an interview published Thursday in French magazine Le Point.
Europe is watching closely. Over the last decade, France has slipped behind other major economies in the currency bloc, racking up big trade and budget deficits and high long-term unemployment. Mr. Macron blames successive French leaders for failing to emulate Germany's shift to become more competitive with changes to its welfare and labor rules in the early 2000s.
Economists say that making hiring and firing less risky will encourage employers to take on longer-term workers and invest more in new projects. That in turn could boost productivity and fuel economic growth.
French unemployment stands at 9.5% -- more than twice the rate in Germany. The French government and economists haven't forecast the impact of the labor overhauls, but Mr. Macron has set an objective of bringing unemployment down to 7% by the end of his five-year term in 2022.
"It is clearly a package that can help France catch up," said Stéphane Carcillo, an economist at the Organization for Economic Cooperation and Development, which has long called on France to change its labor system.
Pierre Gattaz, leader of France's largest business lobby, Medef, described the changes as "an important first step...that allows companies and their employees to adapt, especially for development and expansion."
A more competitive French economy, Mr. Macron says, would help convince Germany and other wealthy eurozone economies to boost spending and better shelter the currency union from a repeat of the debt crisis that has hammered southern European countries in the last seven years.
Getting France's labor leaders on board with the plans -- or at least persuading them not to stand in the way -- has been a high priority for Mr. Macron. Since taking office in May, he and his aides have held 40 separate meetings with union leaders. Of the main unions, only the far-left CGT is calling for strikes and demonstrations.
In recent months, however, Mr. Macron has lost support after adopting what his critics say is an authoritative and aloof governing style. Unpopular budget cuts combined with tax cuts for the rich have sent his approval rating spiraling down further and faster than that of previous presidents, and the French are becoming more critical of the labor overhaul.
A survey by polling company Odoxa Aug. 24 and 25 showed most French people agree the current labor code discourages companies from hiring, but 63% don't trust Mr. Macron and the government to change it and 80% expect widespread resistance in September.
Mr. Macron's popularity slump is worrying lawmakers who came to power in June's legislative election under the banner of his upstart centrist party République en Marche, or Republic on the move.
Mr. Macron and his party campaigned on a promise to transcend partisanship. If unions dig in for a fight, however, the left-right divide could deepen, fueling public frustration and support for politicians like the far-right National Front's Marine Le Pen, whom Mr. Macron defeated in a presidential runoff. Jean-Luc Mélenchon, the far-left firebrand who leads one of the biggest opposition parties in parliament, has called for a protest on Sept. 23.
"It would be awful to lose the public-opinion battle on the labor reform because it is an important political marker for us, it is part of our philosophy," said Aurélien Taché, a 33-year-old lawmaker in Mr. Macron's party.
French unions have historically wielded strikes to paralyze the country and mobilize tens of thousands of workers in protest. Massive demonstrations have often led to violent clashes with police, causing Mr. Macron's predecessors -- from conservative Jacques Chirac to socialist François Hollande -- to back down from changes.
On Thursday, Prime Minister Édouard Philippe described the union response as "nuanced," saying: "There would be nothing worse than to sum up a position as disappointment while there are also positives."
This time, a hot-button issue for labor and business groups alike is the plan to enable employers to bargain directly with nonunionized workers on work conditions, such as seniority bonuses. Currently, nonunionized workers benefit from contracts that are collectively bargained with unionized workers in their sector.
Business leaders called on the government to allow companies with up to 300 employees to bargain directly with nonunionized workers, awakening union fears of being sidelined.
Mr. Macron's government sought a balance by allowing companies with fewer than 50 workers to negotiate with a representative elected by employees if no union official is on their staff. Companies with fewer than 20 employees will be allowed to negotiate directly with any workers.
Jean-Claude Mailly, head of the leftist Force Ouvrière union, said he opposed the change for the smallest companies, while reiterating that his union wasn't joining the Sept. 12 protest. Mr. Berger of CFDT was also critical of that measure, but praised the government for maintaining some safeguards for collective bargaining.
Mr. Gattaz of the Medef business, meanwhile, expressed "deep regret that the rules on labor negotiations without unions haven't been made more flexible."
Unions also continued to criticize the planned cap on court-ordered fines for dismissals. Business leaders say the threat of nearly limitless fines for companies that run afoul of firing procedures discourages them from hiring people on stable, long-term contracts. Instead, employers have relied on short fixed-term contracts that result in a lot of churn among new employees, particularly the young.
Write to William Horobin at William.Horobin@wsj.com and Noemie Bisserbe at firstname.lastname@example.org
(END) Dow Jones Newswires
August 31, 2017 18:25 ET (22:25 GMT)