The final form of Brexit remains uncertain, as does its impact on European works councils governed by UK law.
This article discusses what course of action businesses should take as the United Kingdom approaches its (projected) departure from the European Union.(1)
Changes to United Kingdom's European works council legislation Parliament has now approved the Employment Rights (Amendment) (EU Exit) Regulations 2019, which amend the United Kingdom's European works council legislation in the event of a no-deal Brexit.
In summary, and contrary to the government's commitments to preserve all UK employees' rights, the regulations will:
- end employees' right to request information on whether their employer falls within the scope of the European Works Council Directive and, if so, request the establishment of a European works council; and
- end the application of the United Kingdom's European works council legislation to UK-based businesses or non-EU-based businesses that had designated a representative agent in the United Kingdom before Brexit (the regulations nonetheless preserve protections from detrimental and unfair dismissal for UK representatives participating in bodies operating under other member states' laws).
The regulations preserve the application of the United Kingdom's European works council legislation only to employers that:
- are not based in the United Kingdom;
- are not based in the European Union; and
- have a UK undertaking that employs more employees than any other group undertaking in the European Union when Brexit takes effect, provided that said undertaking was already responsible for operating their European works council other than as a result of it being designated to do so.
As far as is known, no business meets these criteria. In short, the regulations end the United Kingdom's legal framework for operating European works councils.
Brexit likely to frustrate existing Article 6 European works council agreements The ending of the United Kingdom's legal framework for operating European works councils and the United Kingdom's withdrawal from the European Union's legal framework lead to the question of what will happen to existing UK law-governed Article 6 European works council agreements.
Arguably, the UK law doctrine of frustration provides the answer. This applies where a supervening event occurs that is neither party's fault and significantly changes the nature of a party's obligations from what they could reasonably have contemplated when reaching the agreement. In this situation, the agreement is treated as frustrated and both parties are discharged from further performance of their obligations.
The High Court's recent decision in Canary Wharf (BP4) T1 Ltd v European Medicine Agency indicates that Brexit is likely to frustrate UK law-governed Article 6 European works council agreements (even though the European Medicine Agency's lease at Canary Wharf will not be frustrated on the facts of this case) for the following reasons:
- Unlike for the European Medicine Agency, it is conceptually impossible for undertakings with responsibilities arising from the European Works Council Directive to be located outside the European Union.
- Also unlike for the European Medicine Agency, undertakings in the United Kingdom may be unable to perform their responsibilities arising from the European Works Council Directive after Brexit if they rely on cross-border cooperation mechanisms available only through EU law.
- Most importantly, the High Court held that the United Kingdom's withdrawal from the European Union pursuant to Article 50 was not a foreseeable event until significantly after 2011.
But even if a UK law-governed European works council agreement is frustrated, then – unless the exclusion of UK employees removes a business from the scope of the European Works Council Directive – Brexit should not be treated as a basis for ending other non-UK European employees' European works council rights. A new representative agent should be appointed to take over responsibility for operating the European works council once Brexit is effected and they should be instructed to continue providing information and consultation on the same basis as before Brexit, insofar as this is possible.
How to appoint a new representative agent Employers with European works councils currently governed by the United Kingdom's European works council legislation are strongly advised to conditionally appoint a new representative agent in a state that will remain in the European Union. This will avoid the application of default rules for determining the governing law of a European works council arrangement based on which undertaking in a member state happens to employ the most employees. Ireland is the almost exclusive destination of choice given its:
- common law legal system;
- use of the English language; and
- business-friendly environment.
Some businesses have already designated new representative agents in Ireland in light of Brexit. Some of these designations have gone unchallenged; however, in HPE (EWC/19/2018), Unite the Union is questioning the right of non-EU-based companies to re-designate. Unite has hinted that UK-based companies conditionally designating might also be challenged in due course. The decision in HPE will provide critical guidance on avoiding legal challenges to relocating a representative agent.
The best approach for businesses will depend on their exact circumstances. Specialist advice should be obtained given the potential criminal penalties, including imprisonment, for individuals who are responsible for their business failing to comply with its legal obligations.
UK law-governed Article 6 European works council agreements should, if possible, be novated with the European works councils' consent from the existing UK entity to a new chosen representative agent with immediate and unconditional effect from Brexit, in order to minimise the risk of future disputes.
Nonetheless, the following general approach could be adopted in the event of a no-deal Brexit. Notably, each suggestion can be implemented unilaterally without employee representatives' consent:
- A business operating under an old UK law-governed Article 13 or Article 3 European works council agreement, to the effect that it is exempt from complying with the European Works Council Directive, is unlikely to need to act, as there is no requirement for such agreements to be governed by the law of an EU member state. However, Brexit is unprecedented and may affect that status given the desire of many employee representatives to end such agreements if at all possible. Thus, conditional designation of an Irish or other representative agent is suggested in order to protect businesses if Brexit is ultimately found to have undermined its status.
- A business with no European works council agreement that is not in a special negotiating body process should designate or conditionally designate an Irish or other representative agent.
- A business in a special negotiating body process should conditionally designate an Irish or other representative agent to take over responsibility with immediate and unconditional effect from Brexit. Any agreement entered into before Brexit should detail what will happen post-Brexit.
- A business currently operating a European works council under the United Kingdom's subsidiary requirements should conditionally designate an Irish (or other) representative agent to take responsibility for operating the European works council under the subsidiary requirements of Ireland (or other country) with immediate and unconditional effect from Brexit.
- A business currently operating a European works council under a UK law-governed Article 6 agreement should:
- document why it considers that its existing European works council agreement will be frustrated;
- duly appoint an Irish or other representative agent to take responsibility for its trans-national information and consultation obligations with immediate and unconditional effect from Brexit; and
- instruct the representative to continue providing information and consultation on the same basis as before Brexit insofar as that is possible.
Employers should immediately take advice and start preparing the above documentation given the high-risk of a no-deal Brexit.
(1) More information on Brexit and European works councils is available here.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.