Emmanuel Macron made a promise during the French presidential campaign. Once elected, he would introduce a whole new set of reforms aimed at making the country's labour market more flexible. Four months into his presidency the reforms are well under way. In total, five executive orders were introduced at a council of ministers and signed by the president on September 22.

The purpose of these orders is clear. They aim to fast-track the labour reforms through parliament in a country that is “unreformable”, as Mr Macron claimed during a meeting in Bucharest in August 2016. 


A salvation for SMEs?

But while the orders avoid the lengthy debates at the Assembly and the Senate, they still need to be approved by parliament within the next three months to become applicable. And, if the government fails to receive a majority of votes, the labour reforms will, once again, fall into oblivion (at least, until the next government proposes similar changes).

So what are the reforms about? 

As Jean-Hervé Lorenzi, head of the Cercle des Économistes think-tank, points out, although the reforms target all companies, they will mostly help organisations with less than 50 employees, because the government believes “this is where the economic growth comes from”.

It is easy to see why the government is taking this stance. A recent poll, conducted by market research company Ipsos on behalf of recruitment firm Randstad, shows France currently has 3.1 million SMEs. This represents 99.8% of the total companies registered in the country. Among those SMEs responding, 64% had difficulties hiring new staff in 2016, partly due to the heavy legal and administrative burden imposed by French labour laws. 

François Asselin, head of the Confédération des Petites et Moyennes Entreprises (CPME), which represents French SMEs, supports these findings. “Labour laws have become increasingly complex over time and they actually appear as a threat for some CEOs,” he says. “This needs to change. And part of the solution is to smooth relations between employers and employees.”

Ease of doing business

Several measures are designed to achieve this. One, for instance, consists of introducing a cap on the financial compensation employees can claim from their employers in an unfair dismissal case. At the moment, the amount is set by each court and can vary from one jurisdiction to another, according to Mr Asselin. With the reform, employers will have more visibility on the time and cost of disputed dismissals and will be less reticent to recruit, the CPME argues. 

“The reform also means that the employer and the employee will be more inclined to reach an agreement before even going to court, because they will know exactly what to expect,” says Mr Asselin.

Other measures include the right for CEOs of companies with less than 50 employees to negotiate directly with staff without going through trade unions. In addition, by the end of 2019, these companies will see three of their main bodies for employee representation – the staff delegates, the works council and the health and safety committee – merge into one single body, the Social and Economic Council. This package of reforms should help facilitate negotiations at the company level.

Can Macron deliver? 

But these proposed changes are not new. Parts of the current proposals were actually presented by former president François Hollande’s team in 2016, but faced with growing opposition on the street, the previous government only introduced a limited number of reforms.

So what is different this time around? According to Mr Lorenzi, the main difference lies in the fact that Mr Macron was elected on the idea that France needs to change. “What emerges from the reforms actually comes from the president himself,” he says. “He carries the image of a young and dynamic president who has a high propensity towards business, shows a clear interest in new technologies and is also looking beyond our own borders to find out what’s happening abroad.”

Technology is crucial for France. In recent years, the country has tried to position itself as one of the key innovative countries in Europe and has encouraged the development of start-ups through different initiatives.

In 2012, for example, the previous government launched a new public investment bank, the Banque Publique d’Investissement (Bpifrance). Its remit consists of partnering with French and foreign investors, as well as local institutions, to support the development of French SMEs, especially those focusing on new technologies. Today, the bank supports 80,000 firms, thanks partly to capital from foreign investors. 

“When we look at the volume of investments made in French start-ups, for instance, we see more and more capital invested by foreign venture capitalists, including US firms,” says Benjamin Paternot, head of funds of funds investments at Bpifrance. 

The figures speak for themselves. According to CB Insights, France is now the second largest destination in Europe after the UK for start-up capital, securing 486 new deals in 2016. Bpifrance also claims that, in terms of volumes, the average size of its French venture capital portfolio funds has jumped from €80m to €180m over the past three years.

This trend can be attributed to several factors, according to Mr Paternot. First, the high valuations in the US start-up sector mean foreign funds are often looking for a market where investments are more affordable. Second, the current labour reforms and the “fertile French entrepreneurship ecosystem” with thousands of new entrepreneurs contribute to making France a popular destination for foreign capital. And with Mr Macron coming into power, Mr Paternot is confident that new investors will continue to eye France.

Future reforms

Mr Asselin at the CPME says the current proposals are going in the right direction but believes that further changes would be welcome. “[If it has more than] 50 employees, for instance, a company must comply with additional legal and admin obligations,” he says. “This often prevents CEOs from expanding their activities. Softening the rules associated with this threshold would help.”

In May 2016, a report published by BPCE l’Observatoire (part of banking group BPCE) found small companies exhibiting strong future growth prospects had difficulty exceeding the 50-employee threshold. 

But not everyone sees this as a constraint. Mr Paternot says: “We have seen a few start-ups developing fast in France. There is the case of Criteo and Blablacar, for instance. These companies now employ thousands of people and the thresholds have never prevented foreign investors from participating in their successive rounds of funding.”

Whatever stance is taken, reforming the employee thresholds is not a priority. For now, the government is focusing its attention on revamping unemployment insurance and professional training schemes, new proposals for which should be unveiled before the end of 2017.