PARIS—President François Hollande is winning the praise of business leaders like Jean-Marc Rieger for the first time in years with a recipe to fix France’s anemic economy: make it easier to hire and fire.

“You can’t recruit when things are going well if you can’t lay off when things are going badly,” said Mr. Rieger, chief executive of Chimirec, an industrial waste-management company.

By the end of March, Mr. Hollande’s government plans to introduce legislation that would create clearer, simpler rules for cutting staff in difficult times while capping court-ordered severance pay. Under the plan, firms would also have more flexibility to negotiate lower overtime pay and other workarounds to France’s hallowed 35-hour workweek.

The proposals aim to loosen the regulatory straitjacket that many businesses leaders, economists and officials in other European capitals blame for choking growth in the eurozone’s second-biggest economy.

In recent years, Spain and Italy have both taken steps to follow Germany in making their economies more competitive by loosening labor restrictions. But in France, the threat of paralyzing street protests has made a revamp of labor rules a taboo for successive governments, despite an unemployment rate that stubbornly remains above 10%.

With the end of his term approaching in 2017, Mr. Hollande is charting a path similar to Gerhard Schröder, the center-left former German chancellor who, about a dozen years ago, pushed through unpopular overhauls that many now credit with transforming Germany into Europe’s economic powerhouse. While the moves ultimately cost Mr. Schröder re-election, Mr. Hollande is hoping his plan will do the opposite. “I’ve made employment my priority,” Mr. Hollande said last week. “Action is the only possible path.”

The hurdles to carrying out the plan are high.

The strategy places Mr. Hollande on a crash course with his leftist base. Fractious student organizations have united with labor unions to call for demonstrations, beginning on Wednesday—the first time in Mr. Hollande’s presidency. That raises the specter of protests similar to those that forced the government of former President Jacques Chirac to back down on labor overhauls in 2006.

“This labor law is the final straw,” said Carole Couvert, the head of the white-collar CFE-CGC union that until now backed Mr. Hollande’s pro-business overhauls.

Mr. Hollande is also facing strong resistance from the left wing of his own Socialist Party, which has cast the labor overhaul as an existential threat to its political identity.

“Enough is enough,” Martine Aubry and other Socialist Party heavyweights recently wrote in French daily Le Monde. “It’s no longer simply a question of the failure of the five-year presidential term, but the preparation of a long-lasting weakening of France, and of course the Left.”

In an attempt to quell the criticism, Mr. Hollande’s government agreed last week to consult with unions and left-wing lawmakers on how to make the overhaul more palatable to the Socialist base.

In its draft form, the bill is designed to allay the fears of employers that have left France’s labor market split in a two-tier system. Afraid to hire under permanent contracts loaded with benefits and job protections, many companies have resorted to using temporary contracts, creating a constant churn of job seekers.

More than 80% of new recruits are on temporary contracts, making it harder for those workers—often young people—to take out loans or rent homes.

“This is what’s at stake: The capacity of our country to create jobs,” said Pierre Gattaz, the head of France’s largest business lobby, Medef, and chairman of French electronic equipment maker Radiall SA .

A key plank of the bill would cap the amount labor tribunals can order companies to pay people who are deemed unfairly fired. Baudoin de Moucheron, a lawyer specializing in labor litigation, said he has seen companies ordered to pay as much as seven times an annual salary.

“This law goes further than others,” Mr. de Moucheron said. “These are measures that will reassure business.”

The bill also seeks to rectify previous attempts to give businesses more say in when their employees work and how long.

The government passed measures in 2013 and 2015 aimed at allowing distressed companies to negotiate cost-cutting measures as part of special “job preservation” agreements. The initiative flopped, though, because it was too complex and forced companies to prove to their employee councils that their economic situation was sufficiently dire. The new bill would allow healthy firms to adopt the agreements.

At Chimirec, Mr. Rieger said he stands to benefit from all of the proposed measures. Every summer, the manager faces spikes in demand for the company’s services when industrial plants shut down. Mr. Rieger tends to hire temporary staff to handle the extra work or decline extra business when he can’t.

More flexibility on working hours, he said, would allow Chimirec to hire and train more staff on permanent contracts. But Mr. Rieger is concerned political wrangling will leave the bill toothless.

Already, the draft includes sweeteners such as a proposal to introduce special accounts in which workers can clock up rights to training and vacation. The government also plans to create a “right to disconnect” from electronic devices outside of working hours.

“I’m worried the bill will be picked apart,” Mr. Rieger said.