Consultation launched on significant reforms to European Works Councils

Background

A European Works Council (EWC) is a standing body that facilitates the information and consultation of employees on transnational issues. EWCs are composed of employees’ representatives (normally one or two) from each country that is a member of either or both of the European Union and the European Economic Area, in which a business has employees. They operate separately from national information and consultation bodies.

The concept of a EWC dates from the early 1990s, when the first EU legislation on EWCs was enacted (Directive 94/45/EC). That legislation was revised in 2009 to strengthen the rights of EWCs and their members (with Directive 94/45/EC being recast as Directive 2009/38/EC and is now referred to as the “Recast Directive”). However, and to the frustration of the European trade union movement, those revisions did not materially alter the fundamental prerogative of management to manage their businesses.

The Radtke Report

On 2 February 2023, the European Parliament adopted a resolution approving a report drawn up by the German MEP and former trade union official, Denis Radtke (‘the Radtke Report’). The Radtke Report calls for potentially fundamental and profound amendments to the current legal framework on EWCs. Its most significant suggested amendments include:

• For matters to be considered as transnational, it will only be necessary to show that their potential effects concern, directly or indirectly, employees in two different countries, with employees deemed to be concerned where it can be reasonably expected that a matter in one country may entail in the foreseeable future an impact in a second country. These include matters which, regardless of the number of countries involved, are of importance for the European workforce in terms of the scope of their potential effects, or which involve transfers of activities between countries. In practice, this might make everything that takes place within a multinational organisation a transnational matter. For example, a decision to invest EUR 10 million to upgrade plant and machinery in France could be construed as a decision to deprioritise future investment in, for example, Germany.
• For national Labour Courts to have the power to grant preliminary injunctions to suspend management’s decisions and their effects, such as the termination of contracts of employment, if an EWC asserts that it has not yet been adequately informed and consulted. This would significantly improve enforcement in a system which currently provides very limited scope for EWCs to enforce their right to be informed and consulted on important issues. In practice, the ability for an EWC to apply for an injunction if it considers that the business has not complied with its obligations would give it significant leverage. If a business feels that it needs to implement its proposals quickly then, although its EWC would not formally enjoy co-determination powers, it might feel that it would be better to modify its proposals in order to come to an agreement with its EWC than to face the risk of being injuncted.
• Adding to that new risk, and again incentivising businesses to come to an agreement with their EWCs, for national Labour Courts to have the power to impose substantial financial penalties on businesses at the levels that apply for breaches of the GDPR (of up to 4% of the total worldwide annual turnover of the business) for failures to adequately inform and consult.

The European Commission’s first-stage consultation

On 11 April 2023, the European Commission launched a first-stage consultation of European social partners on a revision of Directive 2009/38/EC, which will be open for six weeks. It did so in line with President von der Leyen’s commitment that the European Commission would follow up on any resolution by the European Parliament calling for legislative reform.

However, and despite the first-stage consultation purportedly taking place to examine “whether there is a case for EU action”, the European Commissioner for Jobs and Social Rights, Nicolas Schmit, has already indicated that unless the European social partners indicate that they will negotiate changes to Directive 2009/38/EC between them, he will step in to bring forward new legislation to amend the Directive by the end of 2023.

Potential reforms

The first-stage consultation highlights six main areas for potential reform, all of which are contextualised by reference to the relevant parts of the Radtke Report:

• Broadening and clarifying the notion of a ‘transnational matter’, as detailed above.
• Strengthening consultation rights by amending the definition of ‘consultation’, to the effect that EWCs are given a ‘prior’ opportunity to express an opinion on a proposed measure which must be taken into account. (The Directive currently only provides that management ‘may’ take the EWC’s opinion into account and there is no express requirement on the point in the decision-making process at which their opinion should be sought.)
• Restricting management’s ability to classify information as ‘confidential’, so as to prevent possible misuse of confidentiality restrictions by management, with a greater focus on requiring management to justify the reason for confidentiality.
• Shortening the timeframe for the establishment of EWCs, to the effect that negotiations could only last for 18 months before an EWC must come into existence, instead of the current negotiation period of three years.
• Improving EWCs’ and their members’ ability to enforce their legal rights by way of improved redress and sanctions, as detailed above.
• Ensuring that all EWCs are subject to and required to meet the standards of the EU’s legal framework for EWCs in full, with the effect of ending the current exemptions for businesses with so-called “Article 13” EWC agreements.

The consultation further draws out a range of other areas for potential reform, again based on the Radtke report:

• Increasing financial resources for EWCs, including an entitlement to legal fees so as to be able to enforce their rights in practice.
• Entitling EWCs operating under the default rules set out in legislation (rather than a negotiated and tailored EWC agreement) to meet with management twice each year instead of once each year.
• Strengthening protections for members of EWCs against retaliation by management.
• Ensuring gender balance on EWCs.

Together, such a broad package of reforms would have profound implications for businesses. For example, the Financial Times has recently called the proposed fines for failing adequately to inform and consult that are set out in the Radtke Report “staggering” and “preposterous”. It also noted that a company such as Amazon could face a fine of EUR 7.3 billion for what a court would have accepted was an “unintentional” breach of a process that, at the end of which, Amazon could otherwise have lawfully decided to reject the opinion of its EWC in any event.

Implications for businesses

The European Commission must consult with the European social partners before bringing forward any legislative proposals in the field of social policy. However, it’s reasonable to expect it to be unlikely that they will be able to agree reforms between them, especially given the immediate union-side reaction to the consultation. As such, it appears likely that the European Commission will proceed with a second-phase consultation of the European social partners in due course.

If and when a second-phase consultation proceeds, we will be publishing a further client update. In the meantime, businesses with concerns about these proposals may wish to consider seeking to engage with BusinessEurope before the first-stage consultation closes.

For further information, please contact David Hopper or Siobhra Rush.