MGG Legal reports that for the vast majority of French companies with 50 or more employees the new rules bring significant change, both legal and in terms of management culture. In addition there are deadlines to note: Companies employing 300+ employees in France must comply by June 15th, 2014.
Smaller companies have one more year to comply.
- For the vast majority of French companies with 50 or more employees the new rules bring significant change, both legal and in terms of management culture.
- Companies employing 300+ employees in France must comply by 15 June 2014. Smaller companies have one more year to comply.
Introduction
On 15 June 2013, legislation took effect that I anticipate will have deep impact on labour relations in France. The legislation is one of the fruits of the Accord National of 11 January 2013. That agreement paved the way for reforms in a number of fields. One of those reforms resulted in new rules on collective redundancies, on which I wrote in EELC 2013/33. This article deals with another set of new rules, in the field of consultation between management and works council (comité d’entreprise).
France has had works council legislation ever since 1945, long before the adoption of Directive 2012/14 on information and consultation of employees. That legislation was amended several times with a view to increasing the level of consultation between management and staff representatives. In 1982, an obligation on employers was created to consult with their works council prior to implementing a decision that leads to substantial changes in the workforce, the organisation of the company or the content of the work. In 2005, an obligation was introduced for large companies (300+ employees) to consult with their works council with respect to staff planning and training. Moreover, in the course of time, a second employee representative body, the health & safety council (comité d’hygiène, de sécurité et des conditions de travail), was empowered.
Despite all these legislative changes, works councils widely considered the law insufficient to enable them to perform their tasks adequately. Although works councils had to be informed and consulted on a wide range of topics, and although the law provided for an annual meeting on such matters as the company’s economic and financial situation (basically, its profit and loss account), R&D, health and safety, training, etc., this merely allowed the works council to be informed on, and to consult with respect to decisions that were already made. Except in the event of major reorganisations, works councils were not involved in the decision-making process. In other words, until now, works councils were consulted in a “dotted” manner. They had difficulty connecting the dots and often could not see changes coming that they could have seen had they been informed and consulted on the company’s future strategy.
Following his election, President Hollande launched negotiations between the social partners that eventually led to the Accord National, which in turn led to the adoption, on 14 June 2013, of the Loi relative à la sécurisation de l’emploi (in English the ‘Law to Secure Employment’) and an implementing Decree of 27 December 2013. This legislation brings two significant changes:
- 1° an obligation for management to consult with the works council at least once every year regarding the company’s strategy;
- 2° a restriction on works councils’ ability to delay the consultation process.
Annual Consultation
As of 2014, the employer must consult with the works council at least once a year regarding the company’s strategy – that is to say, its strategy going forward, i.e. for the coming years – and its anticipated impact on the business, on headcount, on job content and skills, on the way the work is organised and on the use of contractor personnel, temporary agency workers and short-term employment contracts. The purpose of the consultation is to explain to the works council, and to listen to its views on, how the company’s added-value is created and shared between shareholders, management, staff and creditors. For international companies with a French subsidiary this will entail discussing such matters as the French entity’s contribution to the group results and the group strategy in as much as it is relevant to the French subsidiary (business development, hiring and firing, management compensation, real estate, etc.). This is likely to form a real challenge for many companies. Works councils will demand detailed information in writing.
Database
Under the new rules, information provided to the works council must be entered into a computerised data base that is accessible on a confidential basis to the works council as well as the health & safety council and the relevant unions. The database must be permanently updated to reflect the current situation. Information may not be removed from the data base within two years and it must cover the company’s strategy for the coming three years. The database must include information on at least the following subjects:
- equity capital, bank loans, other debt
- mergers, acquisitions, divestments
- shareholder remuneration
- outsourcing
- government subsidies and tax breaks
- significant transfers of capital between group entities
- (planned) investments in material and immaterial assets
- fluctuations in headcount developments
- fluctuations in percentages of staff on short-term contracts, traineeships, part-time contracts and temporary agency assignments
- compensation, broken down as to qualifications and gender and specifying total earnings of the five highest paid individuals in the company (ten in companies with 200+ employees)
- works council’s “social and cultural activities”
- working conditions
- professional training
Most of this information is already required to be provided to the works council under existing law. What is new is that the works council will have continuously updated information available at all times, as it were with one mouse click.
Companies employing 300+ employees in France must have the data base in place by 15 June 2014. Smaller companies have one more year to comply.
Limitation on consultations’ duration
Until the Loi relative à la sécurisation de l’emploi and its implementing Decree of 27 December 2013, there was no firm time limit within which the works council had to complete the consultation process. By law, the consultation had to continue until the works council considered itself to be fully informed. Depending on the complexity of a topic, the works council could delay the consultation process for weeks or months, arguing that it had not been fully informed yet.
Under the new law, the works council’s consultation is limited in time thanks to two new mechanisms:
- the consultation is limited, either by agreement or by the Decree of 27 December 2013;
- at the end of the allotted time, the consultation stops, whether or not the works council has given its opinion.
No later than at the outset of the consultation, management and the works council must negotiate the maximum duration of the consultation process. This duration may not be less than 15 days. It should be long enough to allow for a meaningful exchange of information and views, depending on the complexity of the subject matter. In the event no agreement is reached, the Decree of 27 December 2013 provides for a cut-off date that is (i) one month after the start of the process, (ii) two months if the works council appoints an expert or (iii) three months if the health & safety council is also involved.
In the event the works council considers that management has failed to provide sufficient information, it can apply to the court for an injunctive order to submit the missing information. The new law provides that the court must issue such an order within eight days. Whether the courts will be able to meet this ambitious deadline has yet to be seen.
Although works council members enjoy strong statutory protection against dismissal and other forms of retaliation, most works councils will be reluctant to start proceedings against their management, certainly in small companies, where union influence tends to be small and works council members tend to be inexperienced in legal matters. Given that out of a total of 34,800 companies in France with 50 or more employees, no more than 2,600 can be considered “large” (500+ employees), I do not anticipate much litigation in this area.
In theory, failure by management to comply with the law is a criminal offence. However, unless it has blatantly provided insufficient information, management is unlikely to be prosecuted for failure to provide a works council with sufficient information.
Flaws in the new legislation
I see three major shortcomings in the new legislation (law and decree). First, it does not put a cap on the duration of consultations with the health & safety council. This means that this council still has the ability to delay consultations. As most large reorganisations require both the works council and the health & safety council to be consulted, this omission in the rules can defeat the purpose of the new law.
Another shortcoming is that the new law is unclear on when the time limits on consultation start to run. Do these time limits start to run when the works council has received all the information it reasonably needs to render its opinion, as some works councils will be bound to argue? If so, that could also frustrate the purpose of the new law.
Thirdly, the time limits themselves are not logical. The basic period of one month is too long for simple matters. This period jumps to two months as soon as the works council decides to engage an outside expert. This will surely tempt many a works council to appoint an expert, if only to unilaterally extend its time for rendering an opinion. In cases where the health & safety council also needs to be consulted, which is the case whenever a major reorganisation is planned, the time limit goes up to three months, which in many cases in my opinion is excessively long.
Conclusion
The new rules will not change much for the largest French companies, which already have a well-defined strategy in writing and which are used to consulting with a professional works council. For the vast majority of French companies with 50 or more employees, however, the new rules bring significant change, both legal and in terms of management culture. For the first time, works councils must be consulted prior to the implementation of strategy going forward. Instead of informing the works council after strategic decisions – in some cases, mistakes – have been made, the works council has a say before these decisions are made. In my opinion, this represents a major shift, in that this new type of communication will become the source of all other consultations on specific or recurring matters. It will put those other consultations in perspective and make them more meaningful.
In companies with a tradition of good social relations, the new legislation has been well received. It is certainly an improvement for works councils. Many French companies, on the other hand, will experience the new legislation as an additional burden. They will need to get used to spelling out a clear strategy in writing for the benefit of others than management and shareholders. This certainly also applies for many subsidiaries of international companies.
A trend seems to be emerging where management negotiates a framework agreement with the works council and the health & safety council in order to determine and organise the duration of all consultations per matter and type of project. Such a framework agreement brings predictability to all parties.
Written by
Sèbastien Le Coeur
MGG Legal
This article was originally published in the official journal of the European Employment Lawyers Association (EELA) Issue 1 of 2014
