The Enterprise Chamber of the Court of Appeal has recently ruled that when a business is required to consult a Works Council about a decision under article 24 of the Works Council Act, in principle consultation should start when internal discussions within the business begin and not just once the business plan is final. As a result of involving the Works Council in the underlying matter too late, the business concerned was ordered to withdraw the decision.

Legal background

Pursuant to the Works Council Act, employers are required to hold at least two meetings a year with the Works Council to discuss the general operation of the business. The business has to inform the Works Council in these meetings about any decision that is being considered relating to matters about which the Act requires the advice or consent of the Works Council to be sought.

In this regard, a Works Council has the power to advise on a range of financial, economic and/or organizational contemplated decisions. When the advice of the Works Council is required, it should be requested in writing at such a time that the advice can still have meaningful influence on the decision to be taken by the business.

The Works Council can appeal a decision taken by a business in court proceedings before the Enterprise Chamber if the business does not seek the Works Council’s advice in good time or at all or if the business does not follow the Works Council’s advice.

Recent case

The recent decision of the Enterprise Chamber concerned a Dutch subsidiary of a global organization. The company requested the advice of the Works Council regarding a proposed decision to close the company’s Research, Development & Engineering (RD&E) facility and to transfer the activities to other locations outside Europe, which would lead to the redundancy of 26 employees.

The company informed the Works Council that the proposal had been formulated at an international level and was part of an international strategic review with implications in various countries. The Dutch management sought the advice of the Works Council after having been informed of the proposal by the group. The company said it had not been possible to inform the Works Council during a consultation meeting as referred to in article 24 of the Works Council Act.

The Works Council, however, was of the opinion that it had been involved at too late a stage in the process to be able to influence the contemplated decision. According to Article 24 of the Works Council Act such a significant proposal should have been announced in a consultation meeting at an appropriate time. Furthermore, the Works Council considered that it could not provide positive advice until an agreement had been reached on severance terms - the company had put forward a social plan that included a statutory severance payment, which the Works Council felt was too low. Nonetheless, the company made the decision to close the RD&E facility and informed the Works Council that it would apply the social plan it had originally proposed. Although the company was prepared to discuss the social plan with the unions, it felt it could not delay the decision to close the facility.

The Enterprise Chamber noted the complexities, given that the proposal was part of an international strategy. That being the case, and considering the drastic nature of the contemplated decision, it ruled that the business had an obligation to act with due care and therefore to involve the Works Council under article 24 of the Works Council Act as soon as closure became a likely scenario, rather than when the business case was finalized. The Enterprise Chamber ruled that the business had not acted reasonably in deciding to close the RD&E facility and ordered it to withdraw the decision. The Enterprise Chamber’s decision seems also to have been influenced by the fact that the company was not willing to pay more than the statutory severance payment.

In most multi-nationals decisions are often made at group level. Nevertheless, the management of the Dutch subsidiary is obliged to make its own decision and involve the Works Council at an appropriate time. This judgment shows that it is essential to involve the Works Council in a timely manner and, moreover, to inform the Works Council of potential alternative options.