France labor law: the cliff of 50

Jun 13, 2015
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People that read this space regularly know that I’m not one to shy away from criticizing the French government’s policies when I believe they’re anti-startup or anti-innovation.

So it’s only fair that I applaud the government when it acts to reform antiquated rules. In my opinion, Prime Minister Manuel Valls’ announcement this week of some labor law reforms in order to encourage more employment in small and medium enterprises is such an occasion.

Among the 18 measures announced — ranging from tax cuts for first hires to extending the renewals of flexible fixed term contracts — the one that struck me most is the government’s intention to relax the infamous threshold requirements. Current employment law in France sets arbitrary headcount thresholds which trigger additional social charges and administrative burdens for companies the moment they surpass the staff levels of 10, 20, and 50 employees.

Investing in growing startups gives me a catbird seat to witness the contortions firm go through to avoid tripping these thresholds. Crossing the 50-employee threshold, for instance, requires a French startup to:

  • establish a comité d’entreprise (or personnel committee) with an allocated budget
  • allow for employees to unionize and nominate a representative (who then accrues near-impunity from dismissal)
  • establish a mandatory annual compensation negotiation process for all employees
  • pay additional social charges
  • assume other time-consuming administrative obligations

The graph below tells it all. Interesting how many more 49-person companies exist than those with 50 or 51, isn’t it ?

headcount_france_threshold_50

Back to the good news: the French government has declared that it will grant a 3-year grace period, and hence freeze the new burdens, to a company from the moment it surpasses a threshold. Although I’d prefer a more radical simplification of the employment law for startups, this measure strikes me as a step in the right direction within the constraints of what is politically feasible.