Representatives from France’s biggest companies and the country’s powerful trade unions have been in tense talks in recent days to try and thrash out an agreement aimed at streamlining the labour market and tackling unemployment in the country, which is at its highest level in 15 years.

On Friday French media reported that the two sides were close to a deal that would see companies financially penalised for hiring people on a temporary contract, known in France as a CDD (contrat à durée déterminée).

Companies in France often prefer to offer CDDs rather than permanent contracts known as CDIs (contrat a durée indéterminée) partly because of the high rates of employer charges on CDIs.

A source told French radio Europe1 the penalty ‘tax’ would be brought in, “in exchange for a reduction in employers' charges to encourage the hiring of young people on long term contracts”.

Seasonal contracts and short fixed term contracts will not be included in the deal.

The French government has kept a close eye on the discussions, which began back in October last year and made it clear it would intervene unless the two sides came to an agreement.

In his New Year's Day public address French President François Hollande vowed to stem the rise in unemployment by the end of 2013.

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