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French parliament passes law punishing plant closures

A car factory in France
AFP | AFP | Getty Images

France's parliament passed a law on Tuesday imposing tough penalties on companies that shut down operations deemed economically viable, as President Francois Hollande struggles to save jobs in a declining industrial sector.

The law has drawn sharp criticism from business leaders who say it will hit investment in France by adding to the cost and legal complexity of winding down operations.

It is dubbed the "Florange" law after a steelworks in northern France where Hollande, then campaigning for president, told workers in 2012 he would pass legislation to protect their jobs in case of a shutdown.

The law, passed by a center-left majority in the lower house, came too late to stop steelmaker ArcelorMittal shutting two blast furnaces at Florange in July.

(Read more: Fears France'sbudget will hit its economy)

But the Socialist leader has pushed it through as part of efforts to regain support from blue-collar workers, disappointed by what many perceive to be market-friendly economic reforms, ahead of municipal and European elections next year.

The law requires firms with more than 1,000 employees to prove they have exhausted options for selling a plant before closing it. A commercial court can fine firms up to 20 times the minimum wage (1,430 euros or $1,900) per employee laid off if it is judged not to have done enough to find a buyer.

In a Sept. 18 letter to Finance Minister Pierre Moscovici, the head ofFrance's AMF market watchdog warned that the law might delay or impede takeover efforts because potential acquirers would want to ensure prior approval from unions.

Anne Grommerlich, a lawmaker with the centre-right UMP party, said the law might "awaken false hopes" among workers.

(Read more: French businesschief slams 2014 budget)

The law also includes a measure to curb attempts to take over a company by gradually building up a dominant position in its shares. It would lower the threshold at which a predator would have to make a public buy-out bid for all of its target's capital to 25 percent from 30 percent currently.

The law still has to be examined in the Senate, but the Socialist-controlled lower house has final say on the text.

Hollande, with an approval rating near all time lows and unemployment above 10 percent, returned to Florange this week to face workers angry over the furnace closures.

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