Government adopts new law on distribution of profits

Following on from a pre-election promise in 2007, President Nicolas Sarkozy has launched a new law that would oblige larger companies – both private and some in the public sector – to distribute more company profits among workers. The text, adopted by the Council of Ministers on 25 May, had to be voted upon by parliament in July. The companies concerned must negotiate the conditions of the distribution of this additional money to an estimated four million workers by autumn 2012.

Background

French President Nicolas Sarkozy promised during his election in 2007 to ‘give back purchasing power to the French’, in particular through better distribution of company profits. As a result of that promise, a new law is to be put before parliament that would oblige larger private sector companies, and certain public sector companies, to establish a provision for distributing profits to employees.

Which companies are eligible?

The companies within the scope of this law are those that employ at least 50 people, and that last paid a higher dividend to shareholders than the average amount paid on the two previous occasions.

Companies can avoid this obligation if they already have some provision for profit-sharing among employees, for example if they offer them free shares. Companies employing fewer than 50 people are not bound by this law, but can voluntarily choose to introduce such a provision.

The government estimated recently that this measure should benefit four million workers, to the value of €700 per person, on average. Overall it is estimated that €2.4 billion could be paid to employees in this way through 2011.

Negotiating a collective agreement

The law stipulates that the measure must be put in place within three months of the company deciding at its General Meeting to pay dividends to shareholders.

In order to do this, the employer must negotiate an agreement with the representative trade unions within the company or, in their absence, with the Works Council or, in the absence of any worker representation, with the entire workforce. In this case, ratification of the agreement can be achieved by a two-thirds majority of the workforce.

If negotiations fail, the employer can unilaterally decide to introduce this measure and set the value of the amount to be distributed, after having canvassed the opinion of staff representatives. The amount of money set aside must be shared among the entire workforce, although individual payments can vary according to salary level and seniority.

The amount paid through this scheme cannot replace pay increases, nor can it act as a substitute for any of the other contractual elements of an employee’s remuneration, and it cannot become obligatory under the terms of legal, conventional or contractual regulations. These caveats are justified by the fact that the amount paid under this measure is exempt from the usual rules concerning social contributions, as long as payments do not exceed €1,200 per employee per year.

A unanimous rejection by the social partners

Employers and trade unions have condemned this measure, on which they were not consulted, as contravening the law of 31 January 2007 – the so-called Larcher law. The Larcher law states that social dialogue (Article L . 101.1 of the Labour Code) gives social partners the option to negotiate on all employment-related issues prior to a new law being introduced by the government.

The Minister of Labour Xavier Bertrand replied that ‘two years has passed since this issue was placed on the table’, since the publication by the National Institute for Statistics and Economic Studies (INSEE) of the Cotis report (in French, 444Kb PDF).

‘The ball has been in the camp of the social partners and the situation has not advanced,’ he said, and the government has stressed that the bill owes its existence to collective bargaining.

In addition, the social partners held negotiations on the methodology for distributing money through the scheme on 27 May. They reached agreement on the principles of improving the process for informing and consulting workers, both about the amount of money set aside and the method by which it will be distributed by companies. A new meeting was planned for 1 July.

Commentary

This new measure comes in addition to two profit-sharing and financial participation measures already in existence.

It would have been simpler to invite the social partners to consider reforming these existing measures within the framework of the Larcher law. However, the new scheme is different due to the fact that, among other things, it is not a worker’s saving scheme.

In the two existing schemes, workers do not have to pay any social contributions or income tax on the money they are awarded, if it remains untouched for a period of time. Immediate withdrawal by a worker will result in them paying higher social contributions and taxes. The new scheme, however, exempts workers from social contributions and income taxes altogether, even if they access the money instantly.

Despite the recommendations of the text, it is probable that, just as with the participation and profit-sharing measures (as several studies have revealed), this new scheme will end up partly acting as a substitute for pay increases. In addition, it is important to stress that this scheme deepens existing inequalities, by varying the amounts given to different workers and by the fact that companies with fewer than 50 workers will avoid this legal obligation.

Gilbert Cette, Université de Méditerranée, HERA

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