Business

French small businesses face job-creation hurdles

Wednesday, September 19, 2012    

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PARIS, France - EUROPE needs jobs, and French entrepreneur Daniel Joutard wants to create them, hiring more employees for his skincare products company. Yet he can't take the risk - in large part because of France's inflexible workplace protections.

The 37-year-old is among thousands of small- and medium-size business owners who will be crucial to helping France - like other countries in Europe - reduce a double-digit jobless rate, and ultimately shrink its hefty state budget deficit by bringing in more tax revenues.

Small- and medium-size companies made up over 99 per cent of enterprises both in France and the EU more broadly, providing for about two-thirds of all employment, according to a study published in January for the European Commission. Crucially, across the bloc, these companies created about 85 per cent of net new jobs from 2002 to 2010. France alone counts more than 3.4 million small- to medium-sized companies, defined as having up to 250 employees.

But businesses like Joutard's three-year-old venture, Ainy, say it's costly and complex to hire when times are good, and costly and complex to lay employees off when times are tough. And so they're staying small, and not taking on any workers at all.

Ainy's New-Age creams, hydration treatments and lip balms have gotten solid press reviews. Top-tier retailers have offered up prime shelf space. A former R&D chief at Chanel has joined up - lured in part by the fair trade ethos of the trans-Atlantic startup and curiosity about the plants it uses. Ainy also eschews patents, insisting that it is unfair to trademark the expertise and knowledge of the indigenous South American peoples that the company collaborates with.

It's a formula that has struck a chord with the French public - and business is good, with revenues doubling in 2011.

Joutard now has six employees, and half of his revenues come from outsourcing research for customers. In his lab, a white-smocked chemist blends creams containing extracts from exotic Andean plants like Sacha Inchi, whose seeds have anti-aging properties and high concentrations of Omega-3 and Omega-6.

"We could hire two or three more workers," Joutard said, but adds: "Hiring becomes a risk - because once you have hired someone, if the business is not there, it's complicated to keep that person busy."

And even more complicated to let that person go.

"So we'll only hire someone when we're 100 per cent sure."

In France, which takes pride in its revolutionary past, labor reform is a tall order: Strikes are common and workers even occasionally take their bosses hostage - in "bossnappings" - as a form of protest. The last big government effort to make it easier to hire and fire in 2006, during President Jacques Chirac's tenure, resulted in weeks of protests that shut down universities nationwide - and was eventually scrapped.

French governments for years enshrined workplace protections to ensure job security, limit worker exploitation and abuse, and protect the French way of life. That fabled lifestyle includes generous holiday packages, state-sponsored health care, and - since the late 1990s - the controversial 35-hour work week.

These days, entrepreneurs like Joutard say the laws should adapt to the times.

"What I want is greater flexibility, to be able to hire. But for that we must be sure that if the economic situation changes, we can let somebody go in a simple way, without any drama," he said. "In return, employees must be able to keep their employability, and get trained during these times."

Under French law, employers must pay at least some severance - at the very least, one-fifth of their monthly salaries per number of years employed, though it can go much higher depending on labour accords. Then there's the risk that a fired employee will seek redress in one of France's labour courts - something that Joutard has experienced first hand.

"In general when you hire someone in France, it's impossible to get rid of them, or at least only at a prohibitive cost," said Francois Derrien, a professor of finance at the HEC business school south-west of Paris. "In sum, when you hire someone in France, it's for life."

In recent weeks, France's new President Francois Hollande has sought to show his Socialist-led government is working to reduce France's 10-per cent jobless rate and rein in state spending. He made often-combative labour and employers' unions sit down together last week, ordering them to devise reforms to underpin new legislation to be passed by year-end. He's also commissioned a report - to be published next month - on ways of making French business more competitive.

Lurking behind Hollande's push is concern that France could slide into a crisis like the ones faced by other European Union partners, including Greece, Italy, Ireland, and Spain.

The French economy, Europe's second-largest after Germany, is in a rut. In an analysis in May, BNP Paribas economist Helene Baudchon noted that France's growth rate averaged one percent a year from 2001 to 2011 - a full percentage point less than in the previous decade, and down from the long-term average of 3.3 per cent since 1950.

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