European Union: Second-Stage Consultation Launched On Significant Reforms To European Works Councils

The European Commission has published a second-stage consultation of the European social partners on strengthening social dialogue through a revision of the European Works Council Directive. Whilst draft legislation has still not been published, the reforms being contemplated would have profound implications for all businesses with a European Works Council.

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 an 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). To the frustration of the European trade union movement, however, those revisions did not alter managers' fundamental prerogative 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 fundamental and profound amendments to the current legal framework on EWCs. Its most significant suggestions include:

• 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. 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. In practice, the ability for an EWC to apply for an injunction 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 rather than face the risk of an injunction; 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 to inform and consult adequately.

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 the Directive. 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 examining "whether there is a case for EU action", the European Commissioner for Jobs and Social Rights had already indicated that unless the European social partners (BusinessEurope on the employer side and the European Trade Union Confederation on the employee side) indicate that they will negotiate changes to the Directive between them, he will bring forward new legislation by the end of 2023.

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

• amending the notion of a 'transnational matter', as detailed above;
• amending the definition of 'consultation', to the effect that an EWC's opinion must be taken into account;
• restricting management's ability to classify information as 'confidential', with a view to preventing possible misuse of confidentiality restrictions by management;
• 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 period of three years;
• improving EWCs' and their members' ability to enforce their legal rights, as detailed above; and
• ensuring that all EWCs are subject to the EU's legal framework in full, ending the current exemption for businesses with so-called "Article 13" EWC agreements.

The consultation further drew 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 to enable them to enforce their rights in practice;
• entitling EWCs operating under the default rules set out in legislation rather than a 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; and
• ensuring gender balance on EWCs.

Together, such a broad package of reforms would have profound implications for businesses. The Financial Times has recently called the proposed fines for failing adequately to inform and consult "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 accepted was an "unintentional" breach of a process that, if done correctly, could have resulted in Amazon lawfully deciding to reject the EWC's opinion in any event.

The European Commission's second-stage consultation

On 26 July 2023, the European Commission launched a second-stage consultation of European social partners on a revision of the Directive. This reflected that it concluded after its first-stage consultation that there is scope for further EU action to improve the Directive, meaning that it is appropriate for it to consult European social partners on the potential areas for reform already identified.

The second-stage consultation will be open until 4 October 2023. Following this, European social partners may enter into negotiations to conclude an agreement between themselves for legislative approval or, alternatively, and noting that the prospects of agreement between the European social partners is low given their responses to the first-stage consultation, the European Commission may itself propose draft legislation.

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, and as noted above, it might reasonably be considered to be unlikely that the European social partners 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 proposing new legislation in due course.

If and when any new legislation is proposed, we will publish a further client update. In the meantime, businesses with concerns about these proposals may wish to consider seeking to engage with BusinessEurope before the second-stage consultation closes.

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