Labour and Employment Law: The Difficulty of Reforming

In its April issue, the journal Droit social (Dalloz Edition) reports on the major debate it organized in early December - well before the presentation of the draft labour law. The dossier compares the points of view of jurists and economists in order to point out and put into perspective some of the main issues of the reform.

 

OLivier Favereau, who signed the penultimate and richest contribution, exposes the point of view of "institutionalist economy". Rather than a response to Pierre Cahuc - a summary of whose contribution will be read below - Olivier Favereau's article could be seen as an anticipated response to the column recently published by François Bourguignon in Le Monde on March 24. He explained that the link between the higher unemployment observed in France over the last thirty years compared to other European countries (excluding Eastern European countries and Spain) and the rigidity, stronger than elsewhere, of the labour market should be considered as established. It also pointed out that this rigidity was incompatible with future economic and technological changes, which would on the contrary require greater flexibility in the labour market (while also calling for additional measures to be taken to ensure a better match between the qualifications demanded and offered).

To say the least, economists' positions on the subject continue to diverge. If one adds to this the differences in the lawyers' assessments of the advisability of developing company negotiation or reducing the protection offered by the law to the weaker party to the contract - to confine oneself to these two themes - one may wonder whether a debate in which positions would seriously clash is still possible, or whether it is just a matter of drawing the curtain.

The contributions that follow one another in this dossier provide several interesting insights into the terms and issues of labour law reform.

Cyril Cosme, Director of the International Labour Organization (ILO) Office for France, recalls how the structure and organization of labour law - beyond the protection of the weaker party to the contract, which is found everywhere - varies from one country to another, depending on history, legal traditions and cultures, the degree of cooperation between economic and social actors, but also on collective preferences and political choices. This makes it difficult to transpose laws from one country to another, especially when effects on employment are expected. Irrespective of the source of the law (the judge and his case law, the contract, the collective agreement and the law) on which the debate tends to focus in France, the essential element may well be the way in which the social actors and partners deal with the legal frameworks, when changes are needed - although they must be willing and able to do so.

 

The former Deputy Head of Unit of the Directorate General Employment of the European Commission, Fernando Vasquez, questions the dominant political orientation in Europe. Indeed, for the last ten years or so, there seems to be a consensus that the search for competitiveness and the increase in employment levels requires a lowering of costs and social standards, which the author questions. He also highlights the problematic way in which intra-Community mobility is now perceived and the growing divergence of EU countries, which have ceased to cooperate and have established between them only relations of pure competition.

 

Marie-Claire Carrère-Gée, President of the Conseil d'orientation pour l'emploi, presented the recent report of the Conseil d'orientation pour l'emploi, which provides a detailed overview of the labour market reforms implemented in Europe in recent years, based on data prepared by the European Commission or the International Labour Office. The initial effects of these reforms are analysed using three criteria: employment, competitiveness, and inequality and poverty. However, the report does not succeed in establishing that the developments observed are actually the consequence of the reforms implemented.

 

The following two contributions are signed by law professors. Pascal Lokiec argues that the assertion of a causal link between labour law and unemployment - on which there is no consensus on the side of economists, he recalls - should not be taken as a fact established by the jurist (i.e. also the members of the Constitutional Council, when this is under its control). Conversely, he warns against an economic analysis that does not take into account subordination and fundamental rights. Next, he recalls the main tools that are already available to employers to allow flexibility of work. He also evokes the different modes of legal regulation existing in labour law: regulation, the requirement of justification, delegation to actors and incentive (in the sense of a rule likely to guide behaviour). He thus explains that these modes are intended to coexist, each of them serving different purposes, and are certainly not intended to replace each other. This need for legal regulation, he explains, is currently being felt more particularly because of two factors: on the one hand, the rise of "non-wage labour" or, internally, the questioning of subordination and associated protection (on the grounds of increasing employee autonomy, which is sometimes rather ambiguous); on the other hand, the adaptation of employees to changes in employment, both inside and outside the company, and the responsibility of the State in this area.

 

Arnaud Martinon, also a professor of law, gives a brief overview of the law on dismissal for economic reasons. He thus points out the legal tensions on the control of the reason for dismissal (the causes of dismissal, the scope of assessment, the debtor of the obligations) or sometimes on its margin (the modification of the employment contract neither personal nor economic, the scope of reclassification or the definition of the reclassification group or substitutable jobs). It then explores possible changes, from the most radical, such as self-regulation or taxation, to the most trivial. It considers, for example, the possibility of neutralising cases of invalidity of redundancies and/or reducing the amount of damages, strengthening and securing voluntary redundancy plans, or authorising PES agreements to include proposals for individual transactions, or even authorising collective termination agreements, along the lines of job maintenance agreements (if employers find trade unions to sign them).

 

Jean-Denis Combrexelle, President of the Social Section of the Conseil d'Etat, pleads, as in his report submitted in September, for collective bargaining, highlighting the success of the PES agreements, born of the law to secure employment, as well as (but can it be considered a success?) the obligation to negotiate at branch level the employment counterparts to the Competitiveness and Employment Tax Credit (CICE) within the framework of the Responsibility Pact. But it also underlines, more generally, the increase in the theme of employment in collective agreements at all levels. Admittedly, neither collective bargaining nor any other labour law mechanism directly creates jobs, he concedes. But collective bargaining can be a powerful lever for economic and social performance, which in turn creates jobs. This is particularly true for company bargaining, he adds, because it is closer to both the economic choices of the company and the individual choices of employees. However, the burden of proof lies with the players themselves. A way of saying that without a reciprocal commitment on their part, nothing will happen... or perhaps anything other than what was planned, if one party dominates the other (but this Jean-Denis Combrexelle does not say). 

 

Christophe Radé, also a professor of law, gives a brief overview of collective bargaining on employment. At company level, the implementation of the 35-hour working week has sounded the death knell for offensive agreements, he explains, to the exclusive benefit of negotiations to safeguard employment, which itself has a mixed record. And trade unions may now feel that their agreement is being sought, especially when it comes to legitimising job cuts or settling the consequences. In this context, the author wonders whether it would not be better, once the inevitability of restructuring has been accepted, to switch more clearly to an economic logic by allowing companies to determine the number of jobs lost and by requiring them to finance vocational retraining schemes. This would make it possible to do away with the internal discussion phases that often lead, rather than to a strengthening of redeployment measures, to a financial outbidding for severance pay.

 

The following two contributions are signed by professors of economics. Pierre Cahuc explains how it is possible, in some cases, to establish a causal relationship between legal rules and employment. One strategy consists - in the absence of experimentation, which is often difficult to implement - in identifying, for example, regulatory changes that differentially affect similar individuals or companies. Thus, for example, in the case of a burden-reduction scheme that concerns companies up to a certain number of employees, it is possible to compare changes in employment on either side of this threshold and then to attribute (or not) to this scheme an employment boosting effect. Beyond this example, a large number of empirical studies using these same methods show that the cost of labour has a negative impact on employment, and that the same is true of legal rules that increase this cost. However, a rule that increases the cost of dismissals a priori has an ambiguous effect on employment, because if it increases the cost of labour, it also discourages dismissals. The same analytical methods can then be used to disentangle these effects. They thus highlight the negative effects of employment protection on employment. They also show that it contributes to increasing inequalities by protecting employees with access to stable jobs to the detriment of others. Two avenues are thus worth considering in order to break the deadlock, explains the author. Firstly, the possibility of reducing the minimum wage and entrusting taxation with the task of redistributing income more effectively, by targeting transfers to lower-income households according to family situation, with less damaging effects on employment than downwardly rigid wages. Secondly, to make redundancies more flexible by combining them with the mutualisation of the costs of redeploying employees. This could be financed by a modulation of unemployment insurance contributions, depending on the history of employment contract terminations in the firm (i.e. a firm with a higher redundancy rate would pay more). This assumes, however, that redistribution works well and does not run up against other impediments. 

Olivier Favereau makes an effort in its contribution to respond to a good part of the previous communications, by explaining the point of view of institutional economics, for which, it explains, economics does not precede institutions. The law in particular thus has its own legitimacy, which is not limited to economic efficiency, even if this can be defined in a single way. Law is thus seen as a "resource" before being a constraint and/or a modification of incentives.

Moreover, a rule cannot be considered in isolation, disregarding a larger whole with which it is a system. The broad trends that can nevertheless be identified by zones or sets of countries do not show any "magic bullet" for employment. However, the type of "common world" that the law will create will determine the form of relations between collective and individual actors.

On the issue of competitiveness, the author stresses that the cost of labour alone does not determine the competitiveness of a product. A company that would only be able to compete by paying low wages would simply not be competitive. Finally, at the level of a nation, competitiveness results from a mixture of competitive and non-competitive firm positions and ultimately refers to the set of institutions that ensure collective performance, i.e. labour productivity sufficient to ensure the sustainability of the national social model. Labour mobility in the European Union is low, problematic and a source of perverse effects - when it is a pretext for putting national models in competition with each other. This, he explains, suggests the hypothesis that the European Union is not sufficiently "equipped" at the institutional level to produce all its positive effects. But this is also true, more generally, for the project of a Union centred on an economy entirely devoted to free competition.

For the same reasons, the economist should make a point, explains the author, of specifying the type of service expected from the employee before talking about the type of employment contract desired. Indeed, a personal contribution to a collective learning process is obviously not ordered in the same way as participation in a production chain. To illustrate the precautions to be taken when drawing conclusions from a particular measure to make employment relations more flexible, the author refers to the German case. However, the additional job creation for which the Hartz reforms are generally credited raises further questions when one considers that, while jobs have indeed increased, the number of working hours, on the other hand, has remained surprisingly stable.

Based on the theory of organizations, institutional economics, the author continues, sees the firm as an organizational learning device, embedded in a "private" power relationship - between employer and employee - whose economic efficiency depends on its ability to generate trust from the weak party. The obligation to motivate the dismissal and the possibility of a control by the judge, to respond to Arnaud Martinon, both contribute then to establish this confidence. Moreover, because it distinguishes between the status of company and the enterprise, institutional economics would readily suggest, he explains, that the obligation to reclassify be borne by the group (where it exists), rather than by the legal company.

Social relations in our country are characterized by an instinctive distrust of business. The poor quality of labour relations has a negative impact on the employment rate, as demonstrated by T. Philippon. If mistrust is fed by asymmetry of power, as one might think, it is logical to seek to regain confidence through a genuine rebalancing of power, and therefore in particular by expanding the mechanisms for establishing employee directors. This would make it possible to move towards German or Swedish-style co-determination, for which the means, no doubt constitutional, would also have to be found to extend them to SMEs and VSEs.

 

Finally, Nicole Belloudet, professor of law, member of the Constitutional Council, analyses the control exercised by the latter over labour legislation, particularly for the benefit of legislators. The control of the Constitutional Council is not extremely intrusive. It is a balanced control which in the current situation pays attention to full employment but ensures guarantees of protection for employees, she writes. It is therefore unlikely that any progress or simply real answers on the subject can come from the Constitutional Council.

 

The issue of employment and the race for competitiveness to which most economists have subscribed poses a formidable challenge to labour law today, whose foundations and legitimacy are being undermined. This would require a much stronger clarification and reaffirmation than that proposed by this dossier, even if the latter allows a start to be made on raising awareness.

 

Jean BASTIEN, consultant to works councils.

Its areas of interest include the economy, business organisation and labour issues.

 

This article previously appeared in nonfiction.fr