On 2 February 2023, the European Parliament issued a legislative proposal for the revision of Directive 2009/38/EC on the establishment of a European Works Council or a procedure in community-scale undertakings and community-scale groups of undertakings for the purposes of informing and consulting employees (Recast) (the “EWC-Directive”). The proposal (2019/2183(INL) (the “Proposal”), also known as the “Radtke-report”, calls for a revision of the EWC-Directive which would significantly change the ER/LR-landscape in Europe.
Based on the Proposal, on 11 April 2023, the EU Commission launched the first phase of consultation of a possible change of the EWC-Directive – the second phase should have been launched by the end of July. The following text is meant to highlight two of the relevant problem statements of the Proposal and to analyze differences between the Proposal and the current EWC-Directive, while it also asks for more clarity.
The (non-existing) problems
Amongst other arguments, the Proposal focuses on two main issues to be solved: the lack of representation of EWCs even though the “the number of multinational undertakings with assets or plants in several countries in 2015 was around 45 times higher than during the 1990s” (Lit. A of the Proposal) and “litigation remains limited at national level due to the difficulties in accessing justice (…)” (Lit. O of the Proposal).
Lack of representation
The Proposal, as well as the Commission Staff Working Document from 14 May 2018 (SWD) about the impact of the new rules of the recast of the EWC-Directive in 2009, refer to the ETUI-study on EWCs from 2015. Analysis of the data of the study shows that after a huge increase in 1996, when the original EWC-Directive was launched, the number of EWCs increased until 2008 by some 50 new EWCs per year. From 2009 the increase slowed down to 25, basically cut by half. Irrespective of the slow-down, the number of EWCs established has reached its highest volume in 2015 with 1,071 EWCs in the study. Is this increase too slow, as Lit A of the Proposal indicates? It depends on how one defines the “1990s”. Starting with 1990, the number of EWCs has also increased by nearly 45 times (23 EWCs in 1990 compared to 1071 in June 2015 – (see page 14, Stan de Spiegelaere and Romuald Jadogzinski, European Works Councils and SE Work Councils in 2015, ETUI).
The SWD has also addressed the slowing down of establishments of new EWCs. The report states: “The evaluation concludes that the Recast Directive did not lead to an increase in the rate of creation of EWCs. The reasons for this are complex and multiple (…)” (SWD, page 21f.). The reason listed refers indeed to several factors, amongst ten other possible reasons including “lack of appropriate enforcement measures in some member states when the obligations arising from the Recast Directive are not met” (SWD, page 22). However, one should not forget that the establishment of an EWC is not mandatory, but rather the responsibiltiy to determine whether an EWC would make sense or not rests with both parties. Even more so, number 31 of the reasonings for the Recast EWC-Directive states explicitly: “(31) Employees’ representatives may decide not to seek the setting up of an EWC or the parties concerned may decide on other procedures for the transnational information and consultation of employees.”
Thus, there is not even a conflict with the wording of the EWC-Directive associated to the creation of EWCs nor can it be expected that all or most multinational companies subject to the Directive would have an EWC. In the SWD the Commission estimates that as of 2018 roughly 2,400 companies would fall under the EWC-Directive whereas around 1,060 have an EWC (SWD, page 19), which results in a coverage of 44%. According to the WSI (Wirtschafts- und Sozialwissenschaftliches Institut) of Hans Boeckler Stiftung, in Germany in 2010 the coverage of local works councils (which shall be established in companies with 5 or more electable employees if (only) 3 employees request so, § !7 para. 3, § 1 BetrVG) was about 44% and decreased to 38% in 2021. The notion of a problem with the current coverage of EWCs at European level at 44% might be disputable compared to a country like Germany with even less coverage at local level. In addition, any activity on behalf of the legislator should take into consideration the slowed increase after the last revision of the EWC-Directive in 2009.
Litigation remains limited
The first question to be answered would be – why is this a problem at all? The Proposal considers this to be one due to difficult access to justice. This may be – but shouldn’t be – considered as such.
The SWD states on page 16 that “At national level, the number of court cases challenging provisions of the Directive is low or very low.” and, further on, on page 18 “The low number of cases at national and EU level tends to indicate that there is not much litigation over implementation of the Recast Directive and that it does not generate issues that cannot be resolved through legal interpretation using the existing systems.”
This would indeed be the obvious explanation. There is no problem and if there are issues, these can be resolved internally. If one wants to find a problem, one can also come up with the “however” statement of the SWD on the same page: “…it could also be linked to problems with access to enforcement and capacity to act in justice.” If one looks further into the analysis on what these issues could be, one will not find very much. The arguments brought up by the Proposal – a) in some countries an EWC has no legal personality which restricts it from enforcing its legal right and b) there are no explicit regulations about cost coverage.
As to a) one finds indeed some restriction regarding the legal personality of the EWC as such, but these are in line with the national court practice in the countries. No country excludes the EWC from going to court, either as respected legal person or through its members and/or trade unions. There is no limitation of access to courts other than for any national representation body.
Regarding b) cost coverages, nearly all countries consider litigation costs at least a growing concern of business costs to be carried by the company. And especially the countries with the highest coverage of EWCs like Germany, France, Belgium, Netherlands, and Sweden have respective court practices and or rulings in place (e.g., Sec. 52 of the Swedish implementation Law of European Works Councils – 2011:427).
Instead of speculations to create an issue, the Proposal might also investigate the first, obvious interpretation of this situation by the SWD that any issues seem to be solvable and solved amongst the parties.
Interesting solutions
To analyze the solutions brought forward with the Proposal, it might be helpful to remember the leading principles of the existing, Recast EWC-Directive.
Autonomy of the parties
Number 19 of the reasoning of the EWC-Directive reads: “(19) In accordance with the principle of autonomy of the parties, it is for the representatives of employees and the management of the undertaking (…) to determine by agreement the nature, composition, the function, mode of operation, procedures and financial resources of EWC or other information and consultation procedures so as to suit their own particular circumstances”. It is up to the parties to decide what is best for their company. And rightfully so. The ER/LR-landscape in Europe is fragmented. One finds countries with the need to come to agreements with employee representatives (e.g., Germany, Netherlands) and countries where one “only” must inform and consult via well-defined processes (e.g., France, Italy, Spain). Employees are either represented by works councils and/or by unions, based on the country system. In addition, no multinational company group is composed equally – they act in different countries, they have their own cultures. The obvious, effective way to find a consultation body at European level is by agreement, taking the individual situation of the employees in the respective company group into account. It is not that the Proposal excludes the autonomy of the parties, but it will restrict it significantly.
Irrespective of the existence of an agreement, the extended subsidiary requirements shall apply: “Art. 14 (1), Points (a) and (b) of the first subparagraph shall apply only in so far as the obligations arising from this Directive have already been fully complied with.” Thus, it will no longer be the parties who shall decide what is best for them, it must be the Directive and its extended subsidiary requirements which sets the mandatory standard. And the Proposal goes even further. Number 20 of the reasoning of the Proposal asked for the ending of exceptions of pre-Directive agreements. Given the fact that the EWC-Directive Recast in its reasoning expressly accepts other means of transnational consultation: “(31) Employees’ representatives may decide not to seek the setting-up of an EWC or the parties concerned may decide on other procedures for the transnational information and consultation of employees.”, the Proposal tries to replace the autonomy of the parties by strict compliance of the enhanced subsidiary requirements, a completely new game.
Subsidiary of EWC Directive and preceding of national laws
When it comes to implementation of structural changes up to restructuring, it is not a non-existent European employer who implements these changes, it is the employing entity in the member state. The focus on how to deal with these situations lies on national level. This is accepted by the EWC-Directive Recast in number 37 of the reasoning: “…the process must be conducted at both national and European level in such a way that it respects the competences and areas of action of the employee representation bodies. Opinions expressed by the European Works Council should be without prejudice to the competence of the central management to carry out the necessary consultations in accordance with the schedules provided for in national legislation and/or practice.”
In contrast to this, the Proposal tries moving the consultation on European level by various means. With the proposed change of the definition of transnational as “indirectly affecting” irrespective of the “number of Member States” involved (proposed changes in Art. 1 para 4 and 4a), every matter could potentially fall under the proposed changed Directive. A Euro spent in member state A cannot be spent in member state B, and, therefore, indirectly affects the investment in member state B. This example may appear extreme, but considering that the Proposal wants to apply the fine regime of the GDPR with a fine for unintentional violations of up to 4% of the yearly turnover of the company group: Would anyone risk arguing that there is no indirect effect in the above example? And – to pose a follow up-question – are such penalties “proportionate” as labelled in the Proposal under number 17 of its reasoning? The above illustrates that instead of strengthening rights on the ground in the countries, where decisions must be implemented and where a balance of power between employee representative and employers exists, the Proposal tries to implement additional rights up the ladder to Europe. But there is no “European Employer”. Especially multinational companies with headquarters outside the EU often do not even have a European Management as counterpart, but a formally appointed agent acting on their behalf. A lack of balance of power comparted to the single employing legal entity in the member state.
Having (potentially) everything consulted on European level, the Proposal can be considered as rather disregarding and weakening the power of the employee representative in the member states. These representatives are the ones to be consulted. Consequently, the reasoning of EWC-Directive expressly stressed the fact that even the European Works Council ‘s opinion shall not preclude the necessary consultation required by national legislation and/or practice. The Proposal leads a different way.
Strengthening or weakening the competitiveness of Europe?
The motivation for the Proposal under X cites as follows: “…with the aim of enhancing social dialogue and supporting the strengthening of the competitiveness and resilience of the Union’s economy, paying particular attention to small and medium-sized enterprises and competitiveness checks…”
The Proposal has to be measured against its own target. Only an economy which is competitive and resilient can create and protect workplaces. One of the most important factors to be competitive is the ability to act fast, especially in a fast-changing environment. Reference can be found on various studies (e.g. Samual Adomako and others, Strategic decision speed and international performance: the roles of competitive intensity, resource flexibility, and structural organicity. In: Management International Review, page 27-55, Vol. 61 (2021).
The Proposal leads to a different path and asks for an enhanced formal process. It starts with extended scope which would require a regular involvement of the European Works Council in “potential”, direct or “indirect” matters. In addition, it is no longer the EWC claiming that they must be consulted because of a transnational matter – the Proposal shifts the burden of proof that no transnational matter is at hand on the management (Art. 9 of the Proposal).
This – together with the proposed sanction in case of non-compliance – will most likely result in the involvement of the EWC in an extensive number of cases compared to the current EWC-Directive, which by nature of the process, will slow down any decision.
As the EWC shall be informed and consulted before any national consultation takes place (Art. 9 of the Proposal), this will further delay the process.
In view of this increase in complexity, it is difficult to argue that the proposed changes would strengthen the competitiveness of EU member states.
Strengthening the rights of the European Works Council
And finally – strengthening the right of European Works Councils to stop implementation of (what the Proposal deemed as) “transnational” matters (see above), would be at least a challenging task. How should an injunction (as proposed by the Proposal) in the member state by the appointed agent of central management be enforced in another member state where the action will be implemented? Civil procedures simply do not foresee such cross-border enforcement against another legal party, e.g. against the national employing legal entity which runs (as example) the restructuring process.
Is there nevertheless a need for a reform of the EWC Directive Recast?
Indeed, there is. One of the most important factors for both sides of such consultation processes is clarity. It should be clearly defined when and how the EWC must be informed and consulted. Such clarity would reduce disputes and, with that, strengthen the rights of the parties.
The fact that the current Proposal adds in necessary clarity can be disputed; examples have been listed above. But clarity will both serve the rights of the European Works Council and strengthen the competitiveness of companies acting in the EU member states. This observation is accurate.
The current EWC-Directive still uses some ambiguous wordings which lead to uncertainties and corresponding disputes. What “transnational” means has not been answered entirely in the EWC-Directive. When an exceptional circumstance would call for an extraordinary meeting is not clear – “affecting the employees’ interests to a considerable extent” – is vague and could easily be specified by e.g. including a percentual threshold.
On these exceptional circumstances, Annex 1 grants the EWC, and/or its select committee, the right to meet not only with the central management but “…at its request, (…) any other more appropriate level of management within the Union-scale undertaking or group of undertakings having its own powers of decision, …” in order to be informed and consulted. What this other, more appropriate, level of management would be, is not defined in the subsidiary requirements and might lead to an extension of the counterparts the EWC asks to consult with.
Even though the last two examples are linked to the subsidiary requirements and can be specified by clearer definition in the preferred solution of an EWC by agreement, specifying the relevant key components in the EWC-Directive would increase clarity also for setting up such an Agreement.
Thus, there is room for a revision, and this revision should bring more clarity to the parties which would enhance the acceptance on both sides, the employer and employee representatives.