The EU’s European Works Council directive
Decisions affecting employees in multinational companies are very often taken by management in a different country to where the employees are based. Local works councils or consultation bodies therefore may not be the best place to consult workers on the impact of these decisions. With company restructuring across borders, mergers, acquisitions, disposals and plant closures becoming an everyday feature of corporate life, the European Union decided in the 1990s to adopt legislation requiring larger multinationals to consult worker representatives on decisions affecting employees in more than one country.
The European Works Council directive was originally adopted in 1994 and came into force in the EU member states in September 1996 (2000 in the UK, and later in the newer member states). It requires companies in scope, if requested, to set up a European Works Council (French – Comité d’Entreprise Européen; German – Europäischen Betriebsrat) comprising representatives of employees from across the EU. The EWC is a permanent body which senior management must inform and consult on a regular basis about transnational issues affecting employment.
The directive was amended in 2009 to improve the rights for EWC members and to encourage more companies to set up a European Works Council. The new directive is known as the “recast” EWC directive, and came into force in the member states in June 2011.
Each member state has adopted its own laws implementing the directive in their country, and a European Works Council will be established under the law of one of the member states. We have information on the laws in each member state, so please contact us if you need help finding the right law.
Companies in scope of the directive
The directive applies to companies that have 1,000 or more employees in the European Economic Area (EEA) and 150 or more employees in each of at least two member states. It applies whether the company is based in Europe, the US, Japan or wherever.
Around 2,800 companies are thought to be within scope of the directive, but in practice fewer than half have established a European Works Council. This is because employees must request the establishment of an EWC. 100 employees – or their representatives, such as a works council or trade union – in two different member states must ask their employer for a European Works Council, but once they do so, the employer cannot get out of having to set up an EWC. For example, they cannot claim that there are no transnational issues to discuss, or that employees or local works councils do not want a European Works Council.
There are now over 1,100 European Works Councils in more than 1,000 multinationals across a wide range of sectors – from manufacturing to banking, airlines to IT, and retailing to logistics. EWCs range in size from as few as 3 members to as many as 70, but typically have between 10 and 20 members. There are thought to be around 20,000 EWC members throughout Europe.
How to request a European Works Council
A request to establish a European Works Council must be made by 100 employees from two different EEA member states, or from their representatives, such as a national or local works council, a consultation forum or a recognised trade union.
You may not be sure if your company meets the thresholds for having a European Works Council, or you may need information about where employees are based around Europe, and who the local works council or trade unions reps are in other countries. The directive requires management to provide you with this information. Please contact us if you would like help with this.
Once a valid request has been made, the company must start negotiations with representatives of its employees throughout the European Economic Area, with the aim of reaching an agreement setting out all the details of how the European Works Council will operate. These representatives form what the directive calls a “Special Negotiating Body”.
The Special Negotiating Body
The Special Negotiating Body (French – Groupe Spécial de Négociation; German – Besonderes Verhandlungsgremium) is made up of representatives of employees in all EEA member states where the company has employees. There are rules in the directive for determining how many representatives each country is entitled to. The rules for determining how representatives are selected in each country are set by national law, not by the directive. They vary from country to country, but usually say that either national/local works councils or recognised trade unions appoint the SNB members for their country, or elections must be held. Please contact us for details of the rules in each country.
It is the responsibility of management to ensure that employees in each country are aware that a Special Negotiating Body is to be set up, and that the representatives in each country are selected in the correct way.
Once the Special Negotiating Body has been set up, central management is required to convene a meeting with the SNB, and to conduct negotiations with it, with a view to concluding an agreement. The first meeting should take place within 6 months of the formal request having been made, and negotiations can last up to 3 years from the date of the request. The agreement should set out the scope, composition, functions, and term of office of the European Works Council, and other details – see below.
European Works Council agreements
The aim of negotiations between central management and the Special Negotiating Body is to conclude an agreement establishing a European Works Council. The directive lists the topics that should be covered in this agreement, but does not go into detail on the contents of the agreement – this is a matter for the negotiations.
The topics that should be covered in the EWC agreement are:
(1) the undertakings (subsidiaries) of the group which are covered by the agreement, or the establishments (factories, offices etc) if it is a single company;
(2) the composition of the European Works Council – the number of members, the allocation of seats (between member states, locations, business units etc), and the term of office;
(3) the functions and the procedure for information and consultation of the European Works Council (subjects within scope, provision of information, timescales etc);
(4) the arrangements for linking information and consultation of the European Works Council with that of national employee representation bodies (national/local works councils or trade unions);
(5) the venue, frequency and duration of meetings of the European Works Council;
(6) the composition, appointment procedure, functions and procedural rules of the select committee (if there is one). Many EWCs have a smaller select committee with whom management liaises on a more regular basis;
(7) the financial and material resources to be allocated to the European Works Council (eg budget, access to expert advice and training, use of IT equipment etc);
(8) the date of entry into force of the agreement and its duration;
(9) the arrangements for amending or terminating the agreement, and the circumstances in which the agreement is to be renegotiated and the procedure for its renegotiation.
In practice, many agreements also cover other points such as definitions of “information”, “consultation”, and “transnational issues”, the handling of confidential information, access to interpretation and translation of documents, protections for EWC members, governing law, and dispute resolution.
Please contact us for examples of other EWC agreements.
What happens if no agreement is reached – the Subsidiary Requirements
If no agreement is reached by the end of the 3 years – or if the employer fails to start SNB negotiations within 6 months – fallback rules apply, contained in the annex to the Directive. The fallback rules – known as the Subsidiary Requirements (French: Prescriptions Subsidiaires; German – Subsidiäre Vorschriften) – require a European Works Council to be established representing all EEA employees, and set out how it must be informed and consulted. The number and allocation of members is determined according to the same rules as for the Special Negotiating Body. The EWC must meet at least once a year with central management, to be informed and consulted on a list of issues detailed in the Subsidiary Requirements.
In the great majority of cases, central management and the SNB reach an EWC agreement within the 3 year deadline. Fewer than 30 companies are thought to be subject to the Subsidiary Requirements.
In effect, the Subsidiary Requirements act as a “backstop” during the SNB negotiations – both central management and the SNB know that if no agreement is reached, the rules in the Subsidiary Requirements will apply. Negotiations therefore seek an agreement that is tailored to the individual circumstances of the company, and which, for both sides, improves on the rules in the Subsidiary Requirements.
Other rules that apply
The directive contains further rules that apply to many, but not all EWCs, whether established by agreement or under the Subsidiary Requirements. These include the right for EWC members to receive training, to be protected from detrimental treatment in carrying out their role, and to have the “means required” to apply their rights.
There are also rules concerning the information to be provided, how consultation should take place, the handling of confidential information, and adaptation of the agreement in the event of significant corporate restructuring or merger.
There are special rules that apply to old agreements put in place before September 1996 (so-called “Article 13” agreements), and agreements signed or revised in the two-year period before the “recast” directive came into force in June 2011 (known as “Article 14.1b” agreements). Please contact us if you want to know what type of agreement you have, and what the implications are.
Enforcement and penalties
Most EWC agreements are enforceable at law against the company, as are the Subsidiary Requirements. If a company does not set up a European Works Council, or does not inform and consult it in the way set out in the agreement (or the Subsidiary Requirements, if they apply), it can be taken to a court or tribunal for enforcement of the provisions.
Each member state decides how enforcement of the rules will take place in its own country, and what penalties apply for breaches of the rules. In many countries, enforcement is through a Labour Court, or in the UK through the Central Arbitration Committee.
The directive requires that penalties for breaches of the rules are “effective, proportionate and dissuasive”. In most countries, the penalty is a fine, but in some countries – notably France and Belgium – the courts can order a company not to implement a decision until it has consulted properly.
Implementation in the member states
Each EEA member state has implemented the Directive into national law. There is much similarity between the different member states’ laws, being closely based on the rules in the Directive. But there are also some important differences, especially with regard to enforcement and penalties (see above).
As a general rule, the law of the country where the company has its headquarters is the one that will apply to the company when setting up and running its EWC. However, US, Japanese and other non-EEA headquartered companies can choose which Member State’s law will apply.