Changes Afoot for European Works Councils

February 10, 2009
Works councils have been a fact of life for many employers in Europe for over a decade now. TheEU requiring larger multinational employers to create, upon request, a works council representing employees from across Europe became law in 1996. To date, approximately 850European councils have been set up. Members of a European works council have the right to meet with senior management in order to be informed and consulted on "transnational issues" affecting employees.

Many companies have excellent working relationships with their councils, fostered by sound planning and good process, and see them as a useful and positive means of two-way communication with their European workforce.

Yet, trade unions—and some politicians in Brussels, Belgium—believe works councils are too often ignored when it comes to big decisions, such as plant closures and restructuring. In recent years, they have been demanding changes to the law that would boost the role and powers of European works councils, and give trade unions more influence over them. In 2008 they got their way, to a degree.

New rules, new powers

In July 2008, the European Commission came forward with a proposal to revise the works council directive. After negotiations between the EU "social partners"—BusinessEurope representing employers and the European Trade Union Confederation representing trade unions—a number of changes were agreed to the commission proposal. The new directive will be formally adopted early in 2009, and comes into force in 2011.

Many of the legal changes give European works councils new powers that have the potential to cause difficulty for employers that are unprepared. In essence, the most significant changes will:

1. Require management to provide earlier and more complete information to their council.

2. Give trade unions a stronger role within works councils as "expert advisers."

3. Boost the powers of European works council members looking to assert their legal rights. They will also oblige companies to co-ordinate consultation of their European and national works councils, and force them to renegotiate their European works council agreements in many situations of corporate restructuring, including mergers.

What will it mean in practice?
One of the key revisions to the directive will give European works councils the right to demand information from management that enables them to undertake an "in-depth assessment" of the possible impact of a business decision.

Another change gives the councils the right to "express an opinion on the basis of the information provided about the proposed measures … which may be taken into account" within the company.

Although there are references in the text for these new provisions, stating that they are not designed to slow down decision making, it remains to be seen how these new rights will be wielded in practice. The stated purpose is to provide "better anticipation and management of change." While there may be little disagreement with that as an objective, in reality, the new rights could be used to pursue the sort of tactics seen with French works councils.

In France, management cannot go ahead with certain business decisions, including planned measures that significantly affect the size and structure of the workforce and working conditions, until it has had a formal opinion from the works council. This gives the employee body the opportunity to hold back its opinion while it demands more information. This can be used by a determined employee group to delay the decision and extract concessions from management to benefit the employees.

This tactic was seen on a colossal scale recently with the merger of French utilities Gaz de France and Suez. The biggest obstacle to the deal was not obtaining competition clearance for what would create the largest gas producer in Europe and the third-largest energy company in the world. It was not even securing a politically controversial change in French law to allow privatization of Gaz de France. What took the most time—over two years, in fact—was wringing opinions out of the two companies’ various European and national works councils. This was after the merger was initially stopped because of a failure to properly consult the works councils in conformity with the process required under the French company’s works council agreement.

There is legitimate concern among employers that this sort of tactic could spread to works councils outside France, based on the new powers in the revised EU directive.

This concern is compounded by the fact that another change to the directive will mean employee representatives on a European works council must be given "the means required to apply the rights stemming from the directive to collectively represent the interests of the employees" of the company.

What this will mean in practice is not clear. Some have suggested it implies employee representatives must have sufficient time off from their normal jobs to carry out their representation role effectively, together with the sort of resources and facilities enjoyed by works councils in Germany. This could mean the employee representatives have a right to travel around Europe visiting employer locations at employer expense to gather views from employees. Others believe employee representatives could use this language to demand hiring of an "expert" (at employer expense) to carry out the "in-depth assessment" they are entitled to but which they would not be able to do themselves. At its worst, it could even mean the company having to pay the European works council’s costs in bringing legal challenges against it for failing to consult properly.

Corporate restructuring could mean renegotiation of the works council agreement
    For employers engaged in restructuring—which means virtually every multinational employer today, whether through merger, acquisitions, disposals or large-scale redundancies—one clause in the new directive is of particular concern. The clause stipulates that where the structure of the company "changes significantly," the agreement setting up the European works council must be renegotiated. There is an exception: where the agreement contains unspecified "provisions." This could mean an "adaptation clause," setting out how representation on the European works council will be reorganized to reflect changes in the workforce flowing from the restructuring. Thus, if an employer anticipates a restructuring and provides a mechanism within its agreement to deal with it, it may be able to avoid a full-scale renegotiation of the agreement.

The renegotiation obligation also applies where two companies with European works councils are merging and there are "conflicts" between the respective EWC agreements. In the past when two companies with their own European works councils merged, management had the option to keep running them separately or assimilate one council into the other. The new directive will give the European works council members the right to demand a full-blown renegotiation, not just of the composition of the new works council, but of the entire agreement. The obligation would not apply when an agreement already contains a suitable adaptation clause.

How should companies respond?

  • Be proactive: The new directive will not be turned into domestic law until sometime early in 2011. In the interim, there is a window of opportunity for employers to review and revise existing agreements to protect themselves from some of the potentially more restrictive elements of the new law.

  • Consider the impact of the changes on mergers, acquisitions and restructuring now: While the new directive will not be law for two years, employers should anticipate that employee representatives and their trade union advisors will immediately seek to implement these changes, especially when they are faced with restructuring, mergers or acquisitions. While they may not legally be entitled to these remedies, this could prove difficult for employers that are not prepared to respond. Delay, as in the Gaz de France situation mentioned previously, can be very expensive and time-consuming, even if the employer ultimately prevails. Knowledgeable employers will prepare for major changes as if these new provisions were in effect now.

  • Share best practices: Over the 15 years since the directive first came into being, many employers have benefited from learning from other companies that have European works councils. There are employer networking groups that share best practices among their members, and this often proves to be an ideal vehicle for anticipating change and preparing to respond proactively to it.

      Employers that are well-prepared for the new directive will be able to minimize the uncertainties created by these changes. Those that ignore them until they become law run the risk of being forced into an unpleasant confrontation with their works councils—and that benefits neither the employer nor the employees.