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French bosses hope to hire 50th worker

Of all the decisions Dominique Goubault says have helped to keep his 117-year-old family business alive, one in particular raises eyebrows: limiting his staff numbers to 49 or fewer.

The CEO is among many bosses in France who won’t hire a 50th worker to avoid the subsequent obligation to run and pay for an in-house works council – which Goubault says is costly, time-consuming, and “entirely useless”. His frustration is shared by bosses of small and medium-sized businesses across France, who say their growth is stifled by bureaucratic demands regulating everything from worker representatives to office space to healthcare.

It is a cry that President Francois Hollande is finally heeding as the country’s economy stagnates and its unemployment levels stick above 10 per cent. While all of Europe is grappling with poor growth and the threat of deflation, France is one of its weakest members – and under pressure from its euro zone partners to take action to halt the drag.

Though Hollande is now pushing through market reforms such as limited deregulation of protected jobs and more Sunday opening times in order to get more people into work and jumpstart the economy, Goubault says it may be too late. Bosses have been for so long cowed by high taxes, punitive workforce rules and worries about the wider European economy that, even unshackled, they may still baulk at hiring.

“It’s great that they are finally doing something about these idiotic rules,” says Goubault, 49, the fourth generation of printers to run Goubault Imprimeur in western France. “But in the current context, with all the other issues we have, I don’t think we should expect companies to start recruiting aggressively overnight.”

Hollande has asked managers and unions to strike a deal by year end to work around rules mandating escalating bureaucratic obligations that kick in at 10, 50 and 300 employees.

France’s Ifrap think tank wrote in a recent study that removing thresholds could create 140,000 jobs and more than 22,500 firms would be likely to grow. In 2012, France had 1,600 companies with 49 employees, which fell abruptly to 600 firms with 50 employees, according to SME lobby group CGPME. “Companies just don’t try to expand, which means they don’t have enough critical mass to export their products,” says Genevieve Roy, CGPME’s vice-president of social affairs.

This lack of export capacity has hurt the French economy and set its firms at a disadvantage to competitors in Germany,which are helped by more flexible worker-representation thresholds. 

In 2013, Germany had 55,510 SMEs with more than 250 workers, versus 21,418 in France, according to European Commission data. Medium-sized firms accounted for 2.6 per cent of all firms in Germany, versus 0.9 per cent in France.

Among French law’s most irksome features for managers are rules requiring them to set aside designated office space, create permanent health and wellness committees, set up profit-sharing schemes and, in the case of downsizing, strike collective severance deals – all of which drain resources.

Hiring a 50th staffer increases the amount of paperwork companies must file to the state. That extra head means companies have to apply a further 30 legal norms, including obligations to maintain detailed records of their hiring activity to ensure gender equality.
The rules are so off-putting that many small-business owners simply prefer to start new satellite firms rather than hire a 50th worker. 

“I’ve been tempted at various points to hire a 50th worker,” Goubault says. “But when you look at the costs – 3.5 per cent of my total salary costs – and all the obligations, you think, what’s the point? It bothers me and doesn’t help my workers. I also explored putting workers into a holding company and all sorts of acrobatics to get around the rules. But at the end of the day all of it was more complicated than just keeping our current, close-knit structure.”

The Organisation for Economic Co-operation and Development says that if France implements the reforms, growth could improve by 0.3 percentage points annually. Labour market moves alone would account for a total 0.4 percentage points over five years.

But implementing those reforms may prove tricky. Relations between employer and union groups are at a low ebb and neither side is in the mood to make concessions.

However, Hollande has said he could implement the reform by decree – a risky move for a government whose unpopularity is already at record levels. 

One manager participating in talks on thresholds was sceptical about the chances of a deal.

“In France, when you have given something, unions consider it given for life. You can’t go back on it, or with enormous difficulty.”