Time is running out for France's SMEs

Jacques Freidel is not a man to mince his words. As far as the president of France's largest small business lobby is concerned, the French government's move to introduce a statutory 35-hour working week are quite simply insane.

It is totally crazy to ask a small business to work for 35 hours a week, especially a small business that has fewer than 50 employees,he insists. When it comes to small business concerns, Freidel is in a position to know what he's talking about. Aside from the fact that he runs his own firm - a medical equipment company based in the city of Tours - he heads the Confédération Générale des Petities et Moyennes Entrprises (CGPME), which represents over one and a half million small- and medium-sized enterprises across France.

The 35-hour week law entered into force at the beginning of this year for firms employing more than 20 people and will apply to France's smallest companies from 1 January 2002.

It was conceived as a job creation measure in the dark days of the mid-nineties when French unemployment was running at over 12% of the potential labour force. The law is designed to encourage companies to take on new staff by making overtime payments for employees working more than 35 hours prohibitively expensive.

The French business community has always been hostile to the plan, but Freidel argues that today more than ever the 35-hour week rule is quite simply unworkable.

We are no longer in a situation of economic crisis,he explains. Strong growth has returned and the positive side of that is that many SMEs now have full order books. But we are also facing a serious labour shortage. It is proving incredibly difficult for us to find qualified staff.

In practice, this means that SMEs either have to pay their existing employees at the new higher overtime rates or risk losing orders because they are understaffed, Freidel says.

Former Labour Minister Martine Aubry's prediction that the 35-hour week would lead to a recruitment bonanza appears to have been proved wrong, he insists.

That was her argument when she was elected in 1997. But today she has no argument,he says.

The government rejects the CGPME chief's analysis, pointing to the fact that unemployment has fallen significantly over the past three years - it is now running at around 9%.

But even within government circles, people are beginning to recognise that the labour shortage currently affecting the country's SMEs is a very real problem and that the 35-hour week is not helping things.

The clearest indication yet that Prime Minister Lionel Jospin's administration may be planning new measures to help SMEs cope with the new working time rules came in an article by Finance Minister Laurent Fabius in the daily newspaper Le Monde at the end of August.

Fabius said he recognised the labour shortage problem and argued that the 35-hour week should be treated with "flexibility" when it came to SMEs. Freidel sees the finance minister's comments as offering a glimmer of hope for France's small businesses.

The message does at least seem to have got through, he says although he holds little hope of a change of heart at the labour ministry following Aubry's departure last week and her replacement by former Justice Minister Elizabeth Guigou. As far as Martine Guigou or Elisabeth Aubry, or whatever her name is, is concerned, I'm not expecting much change there.Nevertheless, in a bid to build on some of these positive developments, the CGPME organised a major demonstration at the French parliament last week, where it demanded five key modifications to the 35-hour week legislation. Firstly, the organisation called on the government to scrap altogether plans to extend the new working week to SMEs employing fewer than 20 people.

For those firms it's just not possible. Take a restaurant or a hotel for example. If you oblige them to work 35 hours a week you might as well close the business,Freidel argues.

For firms that will be covered by the 35-hour rule, the CGPME wants the maximum number of overtime hours that an employee can work to be doubled. At present, this upper limit stands at 130 hours. The CGPME wants it to be increased to 260.

Thirdly, the small business lobby wants to be able to pay employees for working overtime instead of granting them time off in lieu, which is the normal way the rules are applied at the moment.

If we ask someone to work 39 hours one week, it's not so that he can stay at home for four extra hours the following week,says Freidel. The CGPME chief insists that most employees in the small firms his organisation represents would also prefer this cash option.

The lobby's fourth demand is also linked to the question of overtime. At present firms covered by the 35-hour week rules have to pay overtime at a transitional rate of 10%. But from 1 January next year, this will increase to 25%.

That's when the problems with the 35-hour week for SMEs will really start to show themselves and that's why we want to see the 10% overtime kept in place for several more years at least,explains Freidel.

The CGPME's final demand is for the new working time rules to be applied annually rather than weekly.

When companies have a large number of orders they should be allowed to work 42 or 43 hours a week, for example. Then when things slacken off they could work for just 25 hours. It seems logical to give SMEs the possibility to organise their working time according to their order books,says Freidel.

The current 35-hour legislation does allow for this sort of approach in certain specific cases, for seasonal agricultural work for example, but most firms must apply the rules on a weekly basis.

It remains to be seen whether the government will heed Freidel's calls and modify the 35-hour week law. Despite the fact that the legislation certainly seems less popular and less appropriate today than it did during the recession of the mid-1990s, the law formed a central plank of Jospin's 1997 election campaign. To be seen to abandon it today could be interpreted as another sign of weakness in a government that is already reeling from the multiple blows of last month's fuel protests, the resignation of the interior minister and a major political scandal involving the former finance minister.

In such circumstances, Jospin may well decide to tough it out and stick to his guns over the working time issue.

If, for what Freidel argues are political reasons, he does opt for such an approach, the CGPME chief predicts tough times ahead for France's small businesses.

It would be terrible for the economy and terrible for SMEs, he warns.