Paris, France

France has long been a challenging place in which to do business. The historically left-leaning country’s high taxes and tough labor laws often have made it a frustrating market for international investors—and their lawyers.

The situation in recent years has been particularly difficult. Big Law firms have had less work in France, thanks to a combination of the global financial crisis and the stifling actions of former President François Hollande, a dyed-in-the-wool socialist who ran on an anti-business ticket and made good on his promise with a series of tax hikes and new regulation.

“Even if the entire European economy was going downhill [during the financial crisis], Hollande was pushing the accelerator,” said one international law firm partner in France, speaking on the condition of anonymity.

Hollande’s tenure was perhaps best illustrated by his repeated attempts to introduce a brutal 75 percent “supertax” on high-earners, which was then amended to a 50 percent levy on companies before being ultimately dropped after the country’s economy minister described the resulting environment as being like “Cuba, without the sun.”

That minister was Emmanuel Macron, who in May was elected to replace Hollande as the country’s new president in one of the most unpredictable elections in years. The landslide victory was made all the more remarkable by the fact that Macron, a former investment banker, only created his centrist, pro-business En Marche! party—literally meaning “Onward!”—the previous year. At just 39 years of age, he is the youngest president in France’s history.

French lawyers are now licking their lips at what looks set to be a far more stable and favorable—and pardon the pun—”Macron-economic” environment for their clients.

Macron last week initiated a reform of France’s labor laws in an attempt to add some much-needed flexibility and balance, introducing a cap on damages for terminations and allowing small companies to negotiate their own internal rules with their workers, for example. He has also outlined plans to reduce corporate taxes from 33.3 percent to 25 percent. In addition to easing any strain on business, such changes would put France in a better position to capitalize on any Brexit-related fallout from London.There are some concerns in France about how Macron will manage the country’s historically high public spending and debt levels in light of the proposed tax cuts, but the overall mood among lawyers is one of newfound optimism.

“It sends a signal that France is finally out of the fog and going in the right direction,” says Bernard Grinspan, the head of Gibson, Dunn & Crutcher’s Paris office and chairman of the firm’s international management committee. “A very big part of business is driven by perception, not just facts or figures. We’re already seeing more interest from investors and companies.”

Lawyers say they expect to see a pickup in transactional activity, particularly in high-end M&A and private equity, which have remained depressed since the recession. While leading firms in these areas—such as France’s Bredin Prat for M&A and Weil, Gotshal & Manges in private equity—have remained busy, many deal lawyers in France have had to spend the last few years practicing in other areas, such as compliance and restructuring. It would be reasonable to expect that the changes will result in increased levels of overall investment by international law firms in France. The French legal market has already seen a number of major moves over the past year or so, with Gibson Dunn, Goodwin Procter and Orrick, Herrington & Sutcliffe among those to have made splashy hires.

But most international firms already have a sizable presence in France. U.S. law firms currently employ more than 1,900 lawyers in the country, according to the latest NLJ500 data. And many firms have been operating with excess capacity over the past five years as a result of leaner market conditions, with 2015 a particularly challenging year for those more reliant on inbound transactional work. Those firms will no doubt want to wait until their utilization rates improve before expanding further.This struggle with overstaffing has been exacerbated by the fact that layoffs remain extremely rare among law firms in France. This actually has nothing to do with France’s labor laws, as the vast majority of lawyers in France, including those at international law firms, are technically self-employed, meaning the strict rules and protections do not apply. It is instead largely down to what Grinspan describes as a “philosophical” aversion to firing employees. It is entirely possible that a long-overdue upswing in M&A and private equity could see firms bolstering their teams in those areas over the next 12 months, however. It will be interesting to see if Kirkland & Ellis, which has been sniffing around the French market for a long time, finally takes the plunge, particularly if key clients such as Bain get involved in a meaningful way. Kirkland declined to comment.That said, France’s mature and highly competitive market represents a daunting prospect for any new entrant or for any firm seeking to expand an existing presence, for that matter. But that hasn’t stopped Big Law bucks from flowing into London and New York, and it’s not likely to be an insurmountable hurdle in France, either.

As Patrick Hubert, an antitrust partner in Orrick’s Paris office, says: “It is natural that if the pie grows, there will be more people wanting to eat it.”

Global Firms in Focus is a weekly column about international law firm business by chief global correspondent Chris Johnson. Reach him at cjohnson@alm.com. On Twitter: @chris_t_johnson.