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British retailer Marks and Spencer p.l.c. asked managers at its stores across France to arrive at work earlier than usual on March 29 of last year. And on that day, at 7:55 a.m. Paris time the managers received e-mails announcing that the company was refocusing on its home market. All M&S stores on the continent were to be shuttered by year’s end — including 18 French branches. That meant 1,700 workers would be out of work. At M&S’ flagship French store on Paris’ elegant Boulevard Haussmann, where shoppers purchase British delicacies such as orange marmalade, the staff locked the doors for the day and talked about what they might do. They were furious. Outrage over the M&S news spread. The Brits had flouted a French law requiring companies planning mass layoffs to first consult the business’s works council before making the cuts. M&S notified the works council on March 29, but hadn’t asked for the group’s input on the layoffs. (Works councils are an integral part of French business life. These worker-elected employee groups have authority over vacations, layoffs and other business policy decisions; every business in France with more than 50 employees is required to have one). M&S’ defense: It had no choice. The company’s new strategy was market-sensitive information, explains company spokesman Louis Hill; British law therefore required M&S to immediately notify the London Stock Exchange. If M&S had first had lengthy negotiations with its workers, Hill says, word could have leaked and investors “could have traded on the information. So we briefed the [French M&S managers at the same time as the] works council … but only five minutes before the market announcement” on the London Stock Exchange’s online news service. M&S’ reasoning didn’t suit French government officials. Finance minister Laurent Fabius called the layoffs “brutal.” Socialist Prime Minister Lionel Jospin, getting ready for a run against conservative Jacques Chirac for the presidency this spring, stepped into the controversy, saying, “The employees who enriched Marks and Spencer shareholders should be better treated.” And they were. Eleven days after the layoff announcement, the Tribunal de Grand Instance in Paris, the equivalent of a U.S. federal district court, brushed aside M&S’ argument that it had adequately served its two legal masters. The court found the layoffs “manifestly illegal,” and ordered the 17 stores to stay open, consultations with workers to start from scratch, and the payroll to continue. In December M&S sold its French operation to French retailer Galeries Lafayette, after lengthy discussions with the works council. All M&S workers in the country were asked to stay on, though most opted for severance packages. THE FRENCH ARE DIFFERENT Welcome to paternalistic France, where the government for decades has fiercely guarded workers’ many privileges — long lunches, long vacations and long discussions with management over companies’ strategic plans. Five years of socialist rule has given employees even greater power. A host of new laws make it much more difficult for businesses to acquire companies, lay off workers and make strategic decisions without a works council’s involvement. French and foreign executives alike are finding these new laws to be a major inconvenience. Specifically, they dislike the country’s 35-hour workweek, which now extends to all businesses, no matter how small. They groan about the recently enacted New Economic Regulation Act, which asks acquiring companies to state in advance what, generally, will happen to workers at businesses that they plan to buy. But the French law that most riles employers is the sweeping Social Modernization Act, which will make mass layoffs even more time-consuming and costly. “The basic notion of at-will employment does not exist in France,” says Denise Broussal, labor lawyer at Baker & McKenzie in Paris. Employees can be dismissed only for proven nonperformance, or when a company can demonstrate that it has severe economic difficulties. But despite the labor woes, many U.S. companies are still setting up shop in France. According to the Invest In France Agency (which reports to the Ministry of the Economy, Finance and Industry) U.S. companies were the leading foreign investors in France in 2000: They invested in 178 projects that created 11,661 jobs. There were about 1,250 U.S.-based companies doing business in France in 2001, according to the American Chamber of Commerce in France, a nonprofit trade organization based in Paris. Together they employ some 458,000 workers directly and another 1.6 million indirectly, through subcontractors who work exclusively for U.S. companies. American businesses are in France because the country has 20 percent of Europe’s GDP, and “if you are a global company, you have to be in France,” says Steve Raymund, CEO of Clearwater, Fla.-based Tech Data Corp. His computer equipment distribution company (with annual revenues of $20.5 billion) has been doing business in the country since the mid-1990s. American businesses are also drawn to France’s relatively low labor costs and educated workforce. Figures supplied by economist Christoph Schroeder at the Cologne-based Institute for the German Economy show that the average cost of employing a French manufacturing worker was $15.89 per hour in 2000. That’s far below the $22.45 average in West Germany and $18.97 in the United States. “On the cost side France has no handicap,” says Fabrice Hatem, chief analyst of foreign investment for the Invest In France Agency. Because the government pays for education, health and retirement, he says, companies “don’t have to pay so much in direct salaries.” ON A RAMPAGE But what happens when you have to lay off those workers? Marks and Spencer suffered a bruising public relations battle, but that’s nothing compared to what happened to Moulinex S.A., the Paris-based appliance manufacturer. When Moulinex filed for bankruptcy last November, workers who lost their jobs revolted. They rampaged through the company’s Normandy property, setting fire to factory buildings, shouting “Du fric ou boum!” (“Some money or boom!”) and threatening to explode the entire factory with acetylene gas. The protests worked. The Moulinex workers were ultimately awarded 30,000-80,000 francs per worker (U.S.$5,000-$12,000) more than the law demanded. (French law establishes a minimum severance based on a workers’ category, industry, etc.; then works councils push for more.) Sipping coffee in his office off fashionable Avenue Montaigne in Paris, Gerard Tavernier, senior partner at Gide Loyrette Nouel, one of France’s largest law firms, says, “Some of our U.S. clients have called on me and our partners and asked: “What is going on?” Photos of the Moulinex uprising were published in the States, and Tavernier says that his American clients were “experiencing concern that France may stop being a civilized country.” But even without pillaging factory workers, U.S. employers in France have reason for concern. The new economic regulation legislation, enacted last May, requires companies that intend to acquire a business listed on the French stock exchange to state in a prospectus what the acquiring company intends to do with the other business’s workers. Legal observers say that this rule creates a classic “damned if you do, damned if you don’t” dilemma. Acquiring companies that announce that most employees will be laid off risk upsetting workers. But buyers who overestimate the number of workers they will keep may be pressured by the government to stick to their original plan and suffer bad publicity if they don’t. CONTROVERSIAL ACT Far more problematic, though, is the Social Modernization Act — which the conservative opposition party has vowed to overturn if it wins the presidential election. Passed in the wave of anger against Marks and Spencer, the act strengthens the works councils’ authority in several areas. French law has long allowed workers the right to detailed, confidential information about their employers’ financial situation. Additionally, French management must discuss proposed mergers with the workers. Endless consultations between management and employees give workers the power to delay, although not prevent, mass layoffs through debate and protests. The modernization act seeks to give workers even greater muscle — and to cost companies even more. It requires businesses to reveal and discuss their economic reasons for layoffs, as well as their plans for the future. Companies that close plants must work with local authorities to devise redevelopment plans for any industrial area they leave. Penalties can be stiff for companies that fail to live up to their end of a redevelopment deal: a maximum indemnity of four times the minimum wage of all laid-off workers in the area. Much to corporate France’s relief, though, a court decision knocked out the most onerous provision in the modernization act. On Jan. 12, 2002, France’s Constitutional Council (which automatically vets the constitutionality of laws passed by the French National Assembly) rejected a measure that prohibited companies from enacting mass layoffs unless their business’ very survival was at stake. The council decided that the rule interfered with France’s constitutional liberty “to have a business.” The decision, says Joel Grang�, a labor partner at Gide Loyrette, was “un souffle d’oxygen” (a breath of fresh air) in an otherwise suffocatingly pro-worker environment. FRENCH ALLURE These restrictions are so stifling that they hurt France’s place in the global economy, according to Ernest-Antoine Seilli�re, head of MEDEF, the French employers’ federation, a union of employers that helps administer social security benefits. Seilli�re says that the country’s restrictive labor laws are driving investors and jobs away. But as the continuing influx of American-based businesses makes clear, those fears are generally unfounded. However, the labyrinthine regulations do have a serious financial impact. Jean Cazade, director general for France of Delphi Automotive Systems Corporation, knows that all too well. Today, the Troy, Mich.-based Delphi, the world’s largest auto parts maker with $26 billion in worldwide sales, employs 8,000 workers in France, where it generates $2 billion in revenue. Two and a half years ago, the company underwent a costly restructuring process when it decided to close a shock absorber factory in Normandy. Closing the plant was expensive and laborious. Cazade says restructuring costs put Delphi France in the red in 2000 and 2001. To lay off the plant’s 700 employees, Cazade spent two and a half years talking with workers and reporting on those discussions to the government. But his experience suggests that, in the end, works councils may be little more than paper tigers. After all, Cazade says: “If they vote yes, we do it. But if they vote no, we do it anyway. You just have to record their advice.” Related chart: Ten Largest U.S. Employers in France

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