The European Commission has published proposals for revisions to the European Works Councils Directive. This briefing analyses the proposed changes and their possible effect on businesses.

Introduction

The Commission’s objective in proposing the revisions is to increase the number of European Works Councils (EWCs) established within corporate groups of the requisite size and to ensure that employees’ transnational information and consultation rights are effective (notwithstanding that many employers will have taken the view that there are sufficient consultation rights under the existing legislation). The proposal is also intended to increase legal certainty and bring the EWC Directive in line with other directives dealing with information and consultation processes (such as the Works Councils Directive and the legislation relating to employee participation in European companies).

The current EWC rules

Under the current law, EU member states must provide for the right for EWCs to be established in companies or groups of companies employing at least 1,000 employees in the EU and the other countries of the European Economic Area (Norway, Iceland and Liechtenstein), with at least 150 employees in each of two EU member states. The process for creating an EWC is triggered by a request of 100 employees from two countries (or by the unilateral initiative of the employer). The composition and functioning of each EWC is governed by an agreement between the management and employees’ representatives of the different countries involved. If an agreement cannot be reached statutory subsidiary requirements apply.

The EWC Directive does not apply to agreements providing for transnational information and consultation of employees that were signed before 22 September 1996 (the end of the transposition period for the EWC Directive – there was an extended transposition period in the UK but this expired on 15 December 1999). This exclusion is laid down in article 13 of the EWC Directive. Almost 50 per cent of existing EWCs are based on ‘article 13 agreements’. Because they fall outside the scope of the EWC Directive and its subsidiary requirements, article 13 agreements are generally more flexible from an employer’s perspective.

The principal proposed changes to the EWC Directive

Concepts of information and consultation

The proposal introduces a definition of ‘information’ and amends the existing definition of ‘consultation’, bringing these into line with definitions used in other more recent EU directives.

Information will need to be given at such time, in such fashion and with such content that enables employees’ representatives to acquaint themselves with the subject matter and to carry out an appropriate examination.

The new definition of ‘consultation’ extends the current requirements of establishing a dialogue and exchanging views between management and employees’ representatives. Consultations must take place at such time and in such a way that enables employees’ representatives to express an opinion to the management before a decision is taken. This additional feature may therefore require companies to start consultations earlier to enable the EWC to form and express its opinion at a time when it can be taken into account in the decisionmaking process.

Involvement of trade unions

Under this proposal there will be an obligation to inform European trade union and employers’ organisations of the start of the negotiations. In addition, employees may request assistance from representatives of trade union organisations during the negotiations and those representatives may be present at negotiation meetings in an advisory capacity.

Adaptation clause

The amended EWC Directive will not trigger a general obligation to renegotiate existing agreements. However, the proposal provides for existing agreements to be adapted where the structure of the company or group of companies changes significantly. The modifications are to be carried out in accordance with the provisions of the applicable agreement or, in the absence of such provisions and if a request is made by either 100 employees or the management, in accordance with the negotiation procedure for a new agreement laid down in the EWC Directive.

The proposal does not define the concept of ‘significant structural changes’ but the recitals (introductory language) to the amended Directive refers to mergers, acquisitions and creation of subdivisions of the company or group of companies as examples of such changes.

The adaptation clause also applies to article 13 agreements that were signed before 22 September 1996 (in the UK: before 15 December 1999) and that do not therefore fall within the scope of the EWC Directive. Adapting these agreements in accordance with the negotiation procedure laid down in the EWC Directive means that the companies concerned will lose their tried and tested article 13 agreements and they will from then on be subject to the EWC Directive and, where a new agreement is not reached, its subsidiary requirements.

How EWC consultation interacts with local law obligations

The current EWC Directive does not address how national and transnational consultations interrelate. The proposed amendment specifies that the sequencing of information and consultation obligations can be established by the EWC agreement itself, which must comply with the provisions of national laws on information and consultation of employees. Where the EWC agreement is silent, the proposed new Directive provides that national and pan-European processes shall start at the same time if decisions likely to lead to substantial changes in work organisation or contractual relations are envisaged.

Competence of the EWC

The EWC’s competence is limited to transnational matters that are defined as those concerning the company or group of companies as a whole, or at least two companies or establishments of the company or group in two different EU member states. This re-confirms the position in the current EWC Directive.

Other changes

The subsidiary requirements (which govern the EWC’s composition and competence where agreement cannot be reached between employer and negotiating representatives) are modified to provide for the establishment of a select committee, consisting of up to five EWC members, that is to co-ordinate and increase the effectiveness of the EWC’s activities (this essentially just encodes a structure reflected in most negotiated EWC agreements).

Also, under the subsidiary requirements consultation is required to be undertaken in such a way that the employees’ representatives receive a reasoned response to any opinion they express.

Effect of the changes

Negotiations to become more complex

Establishing appropriate links in the EWC agreement between the information and consultation of the EWC and the national representative bodies will require a review of the relevant laws in all EU member states in which the company or group of companies has (or may in the future have) employees, as such provisions must comply with the national laws on information and consultation of employees. This, in addition to the possibility of increased trade union involvement in the negotiation process, is likely to result in more complex and longer negotiations.

Adaptation requests

Employees are likely to request renegotiations of existing agreements, based on the adaptation clause. The concept of ‘significant structural changes’ is not defined and will give rise to uncertainties in practice. While the examples of mergers, acquisitions and divisions are helpful relating to a single company, they are ambiguous in the context of a group of companies (which is the more common structure for entities falling within the scope of the EWC Directive). Does the acquisition of another subsidiary by the parent company or the merger of a subsidiary with another company trigger adaptation obligations? The better view is that such changes at subsidiary level do not constitute significant structural changes but without a clear statutory definition this conclusion is open to debate. The lack of legal certainty is likely to give rise to disputes as management and employees may disagree as to whether a transaction results in structural changes requiring an adaptation of existing agreements.

Review of existing agreements

Renegotiations in accordance with the statutory procedure are only required if the agreement in question does not provide for its modification in cases of structural change. Many more recent EWC agreements already contain such provision. Companies should therefore check whether their EWC agreements contain language addressing the effect of structural change. In the absence of such language, companies may consider amending their agreements before the proposal enters into force and the period for its transposition has elapsed. This applies in particular to companies with article 13 agreements that would otherwise be at risk of becoming subject to the EWC Directive. EWCs may be willing to agree to such amendments where management and EWC have collaborated well in the past and both sides wish to continue on this basis (rather than rely on adaptation rules imposed by law).

Next steps

The Commission’s proposal has to be approved by the EU Council and it will then be sent to the EU Parliament for further debate (co-decision process). The Commission is keen to have the new directive published by the end of 2008. It remains to be seen whether this timetable can be adhered to.

What you should be doing now

  • Check whether your EWC agreement is an article 13 agreement that was signed before 22 September 1996 (in the UK: before 15 December 1999).
  • If so, check whether the EWC agreement contains provisions addressing the effect of structural changes.
  • In the absence of such provisions, consider amending the EWC agreement before the revised EWC Directive enters into force (and the transposition period expires). Would the EWC be willing to agree to such amendments?
  • Check whether the EWC agreement addresses how EWC and national consultations interrelate. Do the provisions comply with national laws on information and consultation?