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What You Need To Know About Works Councils

July 1, 1997
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Related Topics: Global Employment Law, Featured Article
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On September 22, 1996, 17 European nations implemented the European Works Council Directive (Directive 94/95/EC). This is the first piece of pan-European legislation designed to regulate collective relationships—as opposed to individual relationships—between companies and employees.

The only countries of consequence in western Europe remaining outside the legal scope of the directive at that time were the United Kingdom and Switzerland. On May 1, 1997 (appropriately Labour Day), the Labour Party won a landslide election victory in the United Kingdom, making inevitable the subsequent inclusion of the United Kingdom in the directive.

Now, more than one thousand multinationals, including approximately 200 U.S. corporations, are affected by this directive.

The origin and purpose of the directive.
Works councils are a common form of ensuring, by law, a voice for the workforce in company deliberations in many European countries. In particular, in Germany and the Netherlands, works councils have rights to prior consultation (and, in some cases, agreement) over a wide range of employment issues.these rights to multinational corporations that have been perceived as being able to ignore the country-level requirements through multinational action. (Most recently, in 1996, the French car maker Renault is alleged to have ignored consultation requirements in closing a plant in Belgium.)

After years of employer opposition, often led by U.S. multinationals, the European Works Council (EWC) Directive was approved in 1994 and implemented two years later. This directive ensures that employees and their representatives are properly informed about and consulted on any major transnational issue that affects them.

Any multinational or controlling undertaking with at least 1,000 employees in the countries covered by the EWC Directive—and with at least 150 employees in each of two or more countries —falls under the directive’s influence. A "controlling organization" has ultimate ownership, and only genuine 50/50 joint ventures and companies in bankruptcy escape this provision.

Voluntary agreements.
Until September 1996, companies were able to make voluntary arrangements with their work forces to meet the requirements of the directive in the manner most suitable to the corporation. There were only two requirements of such a voluntary agreement: It should cover the entire workforce, and it should stipulate that employees should be informed and consulted on transnational issues.

The greater flexibility this allowed encouraged many companies to attempt this route, including a number of major U.S. corporations such as PepsiCo, based in Purchase, New York, and Exxon, based in Irving, Texas. It’s likely that following the U.K. elections, an amendment to the directive will provide another window of opportunity for those companies newly affected to reach these agreements.

Special negotiating body.
If a company chooses not to form a voluntary agreement, or is unsuccessful in establishing one, the directive provides for a procedure to be initiated when 100 or more employees, or their representatives, from two or more countries request it.

Then management must begin negotiations with a special negotiating body (SNB) made up of employee representatives and formed for that specific purpose. The SNB will have at least three and no more than 17 (soon to be 18, once the U.K. amendment is official) employee representatives, including at least one from each country in which the company operates.

The detailed rules are set by the country in which the multinational is based. When this location is outside the countries affected (such as the United States) the company can nominate a nation as its representative agent, and the managers in that country will be regarded as the central management. There are four possible outcomes of the negotiating process with the SNB.

  1. Conclusion of an EWC agreement. A written agreement is made to set up an EWC or an information and consultation procedure.
  2. No negotiations take place. The SNB decides by two-thirds majority not to open negotiations or to stop negotiations. In this case, no further request can be made for two years.
  3. No agreement is reached. If after three years no agreement is reached, the directive lists a set of minimum requirements that must be applied.
  4. Managers refuse to negotiate. The minimum requirements apply after six months.

The procedure option.
The directive offers an alternative to creating an EWC: a procedure for informing and consulting employees on transnational matters. For companies that have decentralized business visits or substantial geographic divisions, this can be a more sensible approach than a structured EWC. A small number of companies have adopted this approach in their pre-directive voluntary agreements—most notably, Exxon.

For those companies that may have the opportunity because of the U.K. amendment to use voluntary agreements, this is an approach well worth considering. Equally, it can be used within the directive, but this scenario depends on the cooperation of employee representatives which may be difficult to achieve if trade unions are involved.

Trade unions.
Using an approach like the procedure option is at odds with the expressed desires of the European trade unions to use EWCs to hold central managers accountable.

The directive doesn’t give rights to trade unions to manage the EWC process; indeed it’s specifically designed to ensure that all employees are covered. Fewer than 56 percent of employees are unionized in Europe. When trade unions are present within an organization, however, these unions tend to produce the EWC employee representatives. Also, the directive allows EWCs to make use of expert advisers who often will be union officials.

Fundamentally, the European trade union movement sees EWCs as an aid to entrench its position as a counterweight to multinational corporate power, as a means to encourage recruitment and, ultimately, as a step along the road to transnational collective bargaining of pay and benefits structures.

Employer attitudes.
Employers are united in opposition to transnational collective bargaining, hence their opposition to transnational consultation procedures like EWCs.

Now that EWCs are a reality (nearly 200 companies introduced voluntary arrangements prior to the implementation of the legal right), employer attitudes appear to fall into three groups. First, those companies that are heavily unionized and have a history of antagonistic relationships remain opposed to the principle and are delaying implementation for as long as possible. Ultimately, the last possible date is September 21, 1999.

The second group is those originating from business cultures used to the operation (largely successful in their eyes) of national works councils. In these cases (principally Germany, the Netherlands and, to a lesser degree, France), companies have viewed EWCs as an adjunct to the existing system, and their main concern has been to avoid damage to the smooth operation of the existing arrangements.

The third group are those employers who, having little experience with works councils, have attempted to address EWCs in a positive manner. Competitiveness in global markets isn’t simply about cost containment. It’s about research and development, education and training, and teams working toward common goals. Some employers believe properly structured and managed information and consultation processes can make a significant contribution to international competitiveness.

The EWC Directive is a unique development in transnational labor relations. Initial experiences for companies that have adopted the voluntary approach have been positive, or at worst neutral, in terms of labor relations and operational needs. But the aims of organized labor go beyond information and consultation to co-determination and international collective bargaining. Employers need to manage the process effectively to obtain the highest value.

Global Workforce, July 1997, Vol. 2, No. 3, pp. 22-23.

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