France Unemployment Near 10%

Tired of waits to fill orders and lack of control over his Asian factories, Pierrick Haan, chief executive officer of Dupont Medical, decided last year to return production of some wheelchairs and medical equipment to France.

The 150-year-old Dupont Medical created 20 jobs making custom devices at a plant in central France -- and will stop there. Faced with France’s stifling labor code, Haan probably will send any additional production of standard equipment to what he calls “Near France:” Tunisia, Bulgaria or Romania.

“The cost of labor isn’t the main problem, it’s the rigidities,” Haan said in an interview. “If you make a mistake in your hiring plans, you can’t correct it.”

While polls show job creation and the economic crisis are the top issues for French voters in next month’s second-round election, neither President Nicolas Sarkozy nor Socialist Francois Hollande are focusing on Haan’s concern. Companies say the biggest obstacle to hiring is the “Code du Travail,” a 3,200-page labor rulebook that dictates everything from job classifications to leave for training to the ability to fire.

The difficulty of complying results in minimal hiring, economists say. There are now 2.9 million people out of work in France, almost 10 percent of the workforce and the most in 12 years. France has lost more industrial jobs than any European country over the past decade and risks falling further behind as countries including Italy and Spain loosen their own rules.

‘Exorbitant Costs’

“For the 100 employees we have in France, we have 10 employee representatives, for whom we have to organize weekly meetings even when there is nothing to discuss,” Haan said. “Every time a social security contribution changes, which is frequently, we have to update software and send our HR people for training. We can’t fire anyone without exorbitant costs and procedures.”

Sarkozy and Hollande face off May 6 after Hollande won 28.6 percent and the president 27.2 percent in a 10-candidate first round of voting on April 22. In Frouard, the town in eastern France where Dupont Medical is based, Hollande won 32.9 percent while Sarkozy was backed by 19.4 percent of voters. Anti-immigrant candidate Marine Le Pen had 22.6 percent.

The code sets hurdles for any company that seeks to shed jobs when it’s turning a profit, dictates the terms of parental leave and forces employers with more than 50 workers to organize worker committees, provide lunch subsidies and organize annual medical check-ups. It also offers judges scope to reverse staff cuts years after they’re initiated if they don’t meet the rules and makes some violations a criminal offense that could put executives in jail.

Software Job Cuts

One such legal battle is being waged by software maker Viveo Group, an arm of Geneva-based Temenos Group AG. (TEMN) Having started required talks with the workers’ council in February 2010 to cut about a third of its 180-member staff, court records show Viveo offered employees a voluntary departure plan in June of that year as the council dragged its feet on evaluating it.

The workers’ council then went to court to block the cuts. It won a ruling against the original plan in January 2011 on the grounds that Viveo was forecasting an 18 percent increase in sales, meaning its future didn’t depend on the cuts. France’s highest appeals court is reviewing the decision and rules May 3.

“What holds back hiring in France is the lack of clarity on how to legally cut jobs,” said Deborah David, a labor lawyer at Jeantet Associes in Paris who has followed the case. If the decision is upheld, Viveo will have to have to take back the workers and hand over 2 1/2 years in back pay, she said.

Lingerie Layoffs

When courts don’t intervene, politicians often do. After the owners of the Lejaby SAS lingerie factory in Yssingeaux, eastern France, won court approval to fire about half their 450 employees in January and shift production to Tunisia, they found themselves thrust into the center of this year’s campaign.

Sent by Hollande to visit the plant, Socialist legislator Arnaud Montebourg told the workers they “symbolized the situation of the country.” He promised his party would work to bring back jobs that have gone abroad over the past decade if it won power.

Sarkozy vowed to save the plant and took credit for orchestrating its takeover by Paris-based LVMH Moet Hennessey Louis Vuitton SA (MC), which is converting it to leather goods production.

“Nothing would have been possible without the president,” Higher Education Minister Laurent Wauquiez said Feb. 2. “He used our employment and training policies, notably the training and professional conversion plans, and his work was critical.” Saving the factory was a “symbol of how we can succeed in France,” he added.

Hiring Harder

The costs imposed by French regulation can even make hiring difficult.

“The legal code is extremely complex and companies often don’t know how to employ people and create jobs quickly,” said Ludovic Subran, head of economic research at credit insurer Euler Hermes SA (ELE) in Paris. “What they need is to hire easily and temporarily. Once they have someone in the door on that basis, they’re more likely to keep them on for the long term.”

Hollande makes no mention of labor regulations in his platform, which seeks to generate jobs through increased government hiring, such as creating 60,000 new teacher posts, and tax incentives for companies. He said on April 25 that he would act to counter “a parade of firings” expected after the election if he wins office, adding that he understands the need to make the labor market “more fluid” to revive growth.

Worker groups say the code itself isn’t the issue.

Complicated Cars

“If the code is complicated, it’s because our society is complicated,” said Bernard Vivier, director of the Higher Institute of Labor in Paris, which studies labor relations for unions and companies. “The growing complexity represents a society that is increasingly structured and organized. Cars are much more complicated today than they were 40 years ago. Why shouldn’t the labor code be?”

As president, Sarkozy sought to free up job creation by cutting social charges and pushing companies to reach labor accords outside of national contracts. But he rarely mentioned those efforts in his re-election campaign, which focused on immigration and security. Economic issues were largely framed as pledges to cut France’s debt.

Sarkozy argued that French unemployment has risen less than in many other European countries. France’s unemployment rate was 9.8 percent in the last quarter of 2011, up from a 25-year low of 7.5 percent in the first quarter of 2008. That’s comparable to Italy, where joblessness rose to 8.8 percent from 6.0 percent, while better than Spain, where it’s jumped to 22.9 percent from 8 percent.

The only major economy in Western Europe to buck the trend is Germany, where joblessness fell to 6.7 percent from a peak of 8.3 percent at the worst of the crisis in mid-2009.

German Labor Law

German unemployment reached a postwar high of 12.1 percent in March 2005, prompting street protests against then-Chancellor Gerhard Schroeder’s package of labor-rule changes that included limits on welfare payments and easier rules on firing.

And new governments in Spain and Italy have launched overhauls of their labor markets, making it easier to hire and fire workers.

“We have something in France that destroys work, and that is the labor code,” said Jean-Francois Roubaud, head of medium- sized-company lobbying group CGPME in Paris. “Companies don’t want to hire because they can’t get rid of workers if things don’t work out as planned.”

The restraints also have created distortions. France has 2.4 times as many companies with 49 employees as with 50, the threshold at which firms must create three different worker councils, introduce profit sharing and submit a restructuring plan if they fire workers for economic reasons.

Creating Companies

France has about 1,500 companies with 48 employees and about 1,600 companies with 49 employees, but only 660 with 50 and 500 with 51, according to a December 2011 report from state statistical unit Insee.

French businesspeople often get around restraints by creating new companies, rather than expanding existing ones.

“I can’t tell you how many times when I was minister I’d meet an entrepreneur who would tell me about his companies,” Thierry Breton, CEO of Atos Origin SA (ATO) and finance minister from 2005 to 2007, said at a Paris conference pm April 4. “I’d ask, ‘Why companies?’ He’d say, ‘Oh, I have several so that I can keep them under 50.’ We have to review our labor code.”

To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net. Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Jim Hertling in Paris at jhertling@bloomberg.net.

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