Law firms in France can look forward to greater flexibility in employment conditions

Employment law reforms are currently taking place in France ?that could affect law firms’ ?strategic plans.

At this stage, the main changes have involved increases in social security contributions and, as a result, of employment costs.

However, several other reforms, many of which have been heightened in the media as a result of various protests taking place across France, are also in discussion. These reforms, which have ?the objective of creating a certain level ?of flexibility in employment, are on track and should become effective in the ?coming months.

As in other European states grappling with a changing labour market as a result of pressure on their domestic economies, the general employment provisions that apply to law firms are the same as those applying to any other French business.

However, in France, unusually, both law firm partners and associates are considered autonomous self-employed workers who are not subject to French employment law. In most EU countries this would only apply to partners. In some, only salaried partners with defined working hours are considered employees. For law firms in France, it is only the administrative personnel who are subject to domestic employment legislation.

Employment costs

One of the main reforms introduced in the past 12 months concerns how damages for dismissal are treated with respect to social security contributions. Historically, these have always benefited from a favourable treatment because they were considered as indemnification of the damage suffered by the dismissed employee. However, over the past decade, and especially since the recent reforms were introduced, several laws have limited this favourable treatment.

As a result of these various reforms, damages for dismissal are now only exempt from social security contributions within certain limits, with the most important threshold having been decreased from six times the annual value of the so-called social security ceiling to just twice this ceiling, which corresponds to €72,744 (£58,500) in 2012.

In addition, since the law of 31 July 2012 came into force, any indemnity ?which exceeds ten times the annual value of the social security ceiling (€363,720 ?for 2012) is subject in total to social security contributions.

These exemption thresholds are applied taking into account the aggregate amount of all the damages due to the employee including, for example, any severance payment due through a collective bargaining agreement.

Consequently, it is now more common for firms to pay higher social security contributions on dismissal damages, although the net amount being paid to the employee is actually smaller.

Further social charges have also been increased recently. Overtime hours are now considered to be normal salary for the purposes of social security contributions and income tax. This means that they are now treated as gross with social security contributions and income tax, where previously they had been exempt.

In addition, various social charges paid by both employers and employees have been increased, such as the forfait social, which is typically due on sums paid on application for mandatory and voluntary profit-sharing schemes.

Mass redundancies

On 7 September 2012, the government sent a list of items for consideration to the trade unions for both employers and employees, and on which negotiations have to be launched. The government’s approach is to give the unions the chance to reach negotiated agreements in advance and, only if they fail to do so, the government can go ahead and legislate.

One the main items to be negotiated concerns national legislation on mass redundancies. This is not yet an area that has significantly impacted on French law firms. However, in light of increasing pressure on cost reductions, managing partners should be aware of the French government’s possible legislation in this area when looking at their own possible redundancy programmes, planning to merge with other firms or planning to ?close offices, as has now become commonplace in France.

A series of factory closures over recent months, including one by Unilever subsidiary Fralib, has generated intense debate about the reform of France’s labour market, with trade unions resisting businesses’ demands for greater flexibility to hire and fire.

One of the government’s objectives in the negotiation on mass redundancies is to provide more support to employees as well as greater legal certainty for employers. The government has, for example, asked unions and employers to negotiate solutions to situations in which a company which plans to close a site refuses to consider a valid offer from a purchaser that would save jobs.

In a continuing flat economy with uncertain prospects, law firm managers in France will welcome an increased degree of flexibility available to make changes to staffing and remuneration levels among their directly-employed staff.

Thomas Lestavel is an employment law partner at French law firm Capstan ?(www.capstan.fr/en/), a founding member of employment law alliance Ius Laboris.