The European Company – or Societas Europaea – is a unique type of company, existing since 2004. The legislation establishing it consists of an EU Regulation – mainly covering company law issues – which is directly applicable throughout the European Economic Area (EEA), plus an EU directive on employee involvement which has been implemented by national laws in each of the EEA member states. There is also national legislation covering some of the company law aspects, including registration of the SE and enforcement of company law rules.
Airbus, Allianz, Atos, BASF, CapGemini, E.ON, Eurotunnel, LVMH, SAP, Sixt, and UBS Europe are all European Companies.
Formation of a European Company
A company may be set up within the European Economic Area in the form of a European public limited-liability company (Societas Europaea or SE) on the conditions and in the manner laid down in the Regulation.
There are four methods of formation:
(1) By merger
(2) By formation of a holding company
(3) By formation of a subsidiary
(4) By transformation of a public limited-liability company (eg a PLC, SA or AG).
The SE must be incorporated in an EEA member state, with head office in the same member state. All the laws of that member state which apply to a public limited-liability company will apply to the SE, unless the Regulation provides otherwise.
Employee involvement in a European Company
Unlike European Works Councils, which are only required to be set up where employees request it, a European Company must establish a body representing its workforce in the EEA and inform and consult it on transnational issues (unless the Special Negotiating Body decides otherwise – see below).
As a general rule, a European Company may not be registered unless an agreement on employee involvement has been concluded (subject to two exceptions – see below). Public authorities in the member state where the SE is to be registered are required to check that arrangements for employee involvement have been determined before they can register the SE.
Negotiations for an employee involvement agreement
As with the European Works Council directive, management must arrange for the establishment of a Special Negotiating Body of employee representatives from each EEA country in which it has employees. The same rules for the number and allocation of seats on the SNB apply as in the EWC directive (ie one rep per ten percent of the workforce, or a fraction thereof), with the exception that additional SNB seats are allocated where the SE is to be formed by merger.
Once the SNB has been set up, management must keep it informed of “the plan and the actual process of establishing the SE, up to its registration”.
Management and the SNB must negotiate “in a spirit of co-operation” with the aim of agreeing arrangements for the involvement of employees within the SE. Negotiations can last for up to 6 months, but this can be extended up to 12 months in total, by agreement between management and the SNB (the SNB takes a decision by a majority of reps who represent a majority of employees). An extension must be agreed before the end of the first 6 months.
By way of exception, the SNB may decide by a two-thirds majority vote (ie two-thirds of reps who represent two-thirds of employees from at least 2 Member States) not to open negotiations or to terminate negotiations, and to rely instead on national information & consultation rules. 10% of employees or their reps may request SNB negotiations to (re)start after 2 years (or earlier by agreement). With this option (but not others), employees or their reps could at any time request the establishment of a European Works Council within the SE, if the relevant employee thresholds are met – 1000+ employees in the EEA, and 150+ employees in each of at least two EEA member states.
Employee involvement agreement
An agreement on employee involvement must be in writing and must specify at least the following:
(a) the scope of the agreement (ie the parts of the business covered);
(b) the composition, number of members and allocation of seats on the representative body ;
(c) the functions and the procedure for the information and consultation of the representative body;
(d) the frequency of meetings of the representative body;
(e) the financial and material resources to be allocated to the representative body;
(f) if, during negotiations, the parties decide to establish one or more information and consultation procedures instead of a representative body, the arrangements for implementing those procedures [these are rare, but typically they consist of informing and consulting at the national level];
(g) if, during negotiations, the parties decide to establish arrangements for participation [ie workers on the board], the substance of those arrangements including (if applicable) the number of members in the SE’s administrative or supervisory body which the employees will be entitled to elect, appoint, recommend or oppose, the procedures as to how these members may be elected, appointed, recommended or opposed by the employees, and their rights;
(h) the date of entry into force of the agreement and its duration, the circumstances, if any, in which the agreement is required to be re-negotiated and the procedure for its renegotiation.
Beyond these points, the parties are free to include what they want in the agreement.
The SNB can be assisted by experts of its choice.
Management must pay for any reasonable expenses of the functioning of the SNB, and any reasonable expenses relating to the negotiations that are necessary to enable the SNB to carry out its functions in an appropriate manner, but they are only required to pay the expenses of one expert.
The standard rules on employee involvement
As with European Works Councils, the standard rules apply where the parties so agree or where the negotiation period expires without an agreement. They are therefore the default position if negotiations fail.
Under the standard rules, a representative body composed of employees of the SE and its subsidiaries or establishments must be set up. The same formula for the composition of the SNB applies (and for an EWC under the Subsidiary Requirements) – one rep per 10% of EEA employees, or a fraction thereof. The SNB appoints the first set of reps by whatever method it decides. A select committee of up to 3 reps can be set up where the size of the representative body so warrants.
The competence of the representative body is limited to:
(a) questions which concern the SE itself and any of its subsidiaries or establishments in another EEA state; and
(b) questions which exceed the powers of the decision-making organ in a single EEA state [eg decisions taken by the board or at group level].
Management must provide the representative body with:
(a) regular reports on the progress and prospects of the SE’s business [similar to an EWC];
(b) the agenda for board meetings and copies of documents for shareholder meetings; and
(c) information on “exceptional circumstances affecting the employees’ interests to a considerable extent, particularly in the event of relocations, transfers, the closure of establishments or undertakings or collective redundancies” [similar to an EWC].
Management must meet with the representative body if requested at least once a year [as with an EWC under the Subsidiary Requirements] to discuss the reports at (a) above. Again, the subject matter is very similar to an EWC under the Subsidiary Requirements: “the structure, economic and financial situation, the probable development of business and of production and sales, the situation and probable trend of employment, investments and substantial changes concerning organisation, introduction of new working methods or production processes, transfers of production, mergers, cut-backs or closures of undertakings or establishments, or important parts of undertakings or establishments, and collective redundancies.”
Information must be provided to the representative body “in a manner and with a content which allows the employees’ representatives to undertake an in-depth assessment of the possible impact and, where appropriate, prepare [for] consultations with the competent organ of the SE” [ this is very similar to the definition of “information” in the recast EWC directive].
Consultation with the representative body means “the establishment of dialogue and exchange of views … at a time, in a manner and with a content which allows the employees’ representatives, on the basis of information provided, to express an opinion on measures envisaged by the competent organ which may be taken into account in the decision-making process within the SE” [ this is also very similar to the definition of “consultation” in the recast EWC directive].
In exceptional circumstances (as defined above) the representative body may allow the select committee to meet with management (plus reps of employees directly affected). Reps have the right to meet with a “more appropriate level of management” (this means management with decision-making power in relation to the issue being consulted on).
Unlike the fallback rules in the EWC directive, if management does not follow the opinion of the representative body, there is a right to a second meeting “to seek an agreement”. But ultimately, management has the right to take the final decision.
The representative body has the tight to a pre-meeting without management before an exceptional meeting.
The representative body must inform employee reps (or employees where there are no reps) of the content and outcome of information and consultation procedures.
The representative body and the select committee may be assisted by experts of its choice. The SE must bear all the costs, but only has to pay for one expert.
As with an EWC under the Subsidiary Requirements, after 4 years the representative body must decide whether to request to negotiate an employee involvement agreement or to continue with the standard rules. The rules on SNB negotiations (above) would apply to these negotiations.
Workers on the board
One of the issues that held up negotiations in Brussels over the European Company for many years was the question of “worker participation”, meaning worker representation on the board of the SE. This is an important feature of corporate life in several European countries, including Germany, Austria and Sweden. In Germany and Austria this is combined with a two-tier board structure, with a management or executive board and a supervisory or non-executive board on which employee representatives sit.
There are quite complicated rules on employee participation in the European Company employee involvement directive. A decision to reduce participation rights (ie a lower proportion of employee reps on the SE’s board than in the companies forming the SE) requires a two-thirds majority of the SNB. There are special provisions in the standard rules governing participation rights.
Please contact us if you would like any advice, support or training in relation to European Companies. We have unique experience in this area having been involved in the negotiations in Brussels on both the company law Regulation and the employee involvement Directive.