European Commission proposes significant revisions to the European Works Council Directive

Background

A European Works Council (EWC) is a body that facilitates information and consultation with European employees on transnational issues. EWCs are composed of employees’ representatives 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). Despite the revisions, the fundamental rights of management to run their businesses remained unchanged (much to the disappointment of the European trade union movement).

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 called for fundamental and profound amendments to the current legal framework on EWCs. Its most significant proposals included:

• for matters to be considered as transnational where 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;
• 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; and
• 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 fines on businesses of up to 4% of the total worldwide annual turnover of the business for failures adequately to inform and consult.

The European Commission’s consultations

On 11 April 2023, the European Commission launched a first-stage consultation of European social partners on a revision of Directive 2009/38/EC. 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.

Then on 26 July 2023, the European Commission launched a second-stage consultation of European social partners on a revision of Directive 2009/38/EC. This reflected that it concluded after its first-stage consultation that there was scope for further EU action to improve Directive 2009/38/EC, meaning that it was appropriate for it to consult European social partners on the possible content of this action, based on the potential areas for reform already identified.

The European Commission’s proposed revisions to Directive 2009/38/EC

On 24 January 2024, the European Commission published its proposed revisions to Directive 2009/38/EC. Although its proposals do not go as far as the Radtke Report’s suggestions, they would still represent a very significant revision to the current legal framework governing EWCs.

The changes being proposed by the European Commission include:

• expanding the definition of what counts as a ‘transnational’ matter. In future, these would include not only situations where proposed measures can reasonably be expected to affect employees in more than one country but also situations where employees in one country can reasonably be expected to be affected by the consequences of proposed measures in another country (such as through consequential changes to supply chains);
• elections and appointments to a Special Negotiating Body (SNB), which negotiates an EWC agreement within a business, must strive to achieve a gender-balanced representation of workers;
• the financial resources to be afforded to SNBs will include the reasonable and necessary costs of legal assistance and legal representation in judicial proceedings. However, such expenses must be notified to management before they are incurred;
• EWC agreements will be required to specify the format of meetings, such as them taking place in-person or virtually;
• EWC agreements will be required to specify the financial resources to be afforded to EWCs, including in respect of legal assistance and legal representation in judicial proceedings;
• EWC agreements will be required to agree arrangements for attaining, as far as possible, the objective of gender balance whereby men and women each comprise at least 40% of the members of EWCs;
• the legal default rules will apply automatically if there is no meeting of a SNB within six months of a valid request;
• managements will be required to justify why any information that they provide on terms of confidence is confidential or why they are withholding any information altogether on the basis that to do so would seriously harm them;
• managements will be required to wait until after they have responded to any opinion which they receive from their EWCs before they may proceed with decision-making on their proposals;
• members of EWCs will be entitled to engage with employees or their representatives on the content of an information and consultation process before the EWC meets with management to be consulted on the proposed measures;
• the ending of the exemption for businesses with an old-style “Article 13” EWC agreement, meaning that their employees or their employees’ representatives may request the establishment of a new EWC operating fully in accordance with the revised EWC Directive;
• EWCs operating under the default legal rules in the absence of an EWC agreement having been concluded will, so far as possible, have to comprise of at least 40% men and 40% women;
• EWCs operating under the default legal rules in the absence of an EWC agreement will be entitled to meet with management at least twice each year;
• EWCs operating under the default legal rules in the absence of an EWC agreement will only be entitled to an exceptional information and consultation meeting if the proposed measures in question are so urgent that information and consultation cannot take place at the next scheduled meeting;
• experts assisting EWCs operating under the default legal rules will be entitled to be present during meetings between the EWCs and management in an advisory capacity; and
• the financial resources to be afforded to EWCs operating under the default legal rules will include the reasonable and necessary costs of legal assistance and legal representation in judicial proceedings. However, such expenses must be notified to management before they are incurred.

In addition to the above reforms to the operation of SNBs and EWCs, EU countries will also need to strengthen their frameworks on dispute resolution, including to ensure that fines reflect the gravity, duration, consequences, the intentional or negligent nature of the offence, and the size and financial situation of the business.

Implications for businesses

At this stage, it remains unclear whether the European Commission’s proposals will be enacted in their current form. On the one hand, the proposals do not go as far as the European Parliament had sought as, for example, they neither provide for injunctive relief for EWCs nor fines of up to 4% of a business’s global turnover. It is therefore possible that the European Parliament may seek to add such provisions to the draft legislation before it is enacted. On the other hand, many European governments represented in the Council of Ministers may be concerned about the threat to European competitiveness that these proposals might cause, such as by allowing EWCs to slow down decision-making by withholding their opinions, without which management cannot prepare a response and make decisions on its proposals.

Nonetheless, the key implications for businesses of the current proposals would be as follows:

• No more “Article 13” exemptions: Almost 400 businesses that currently have “Article 13” EWC agreements would lose their status as being exempt from the EWC Directive. Instead of having to comply with an agreement that must merely provide for information and consultation in respect of all employees in member states of either or both of the European Union and the European Economic Area, these businesses would, upon receipt of a valid request, have to comply with the EWC Directive in full. This might not only be more onerous for these businesses but, to avoid unwelcome duplication, it might also lead to the end of arrangements for information and consultation that have worked well for over 30 years.
• Renegotiating agreements: Businesses which currently have an EWC agreement that does not conform to the new standards may be requested to renegotiate it. If such negotiations fail to lead to the conclusion of a new EWC agreement then the default legal rules will apply after a period of two years. For this reason most business will need to consider how to seek to amend their existing agreements as it is likely that many if not most existing EWCs will seek to renegotiate their agreements in order to benefit from the proposed revisions to the EWC Directive.
• Enhanced rights: Once EWCs are operating in line with the proposed revisions to the EWC Directive, they will enjoy greater rights than they currently do, in particular in respect of their ability to access justice and in respect of the penalties that might be imposed on management once they have done so.

We will publish a further article if and when revisions to the EWC Directive are ultimately enacted.