EWCs in depth

The EU European Works Council Directive applies to companies or groups with 1,000 or more employees in the European Economic Area (EEA) and at least 150 employees in each of two or more Member States. It applies whether the company is based in Europe, the US, Japan or anywhere else, and is implemented through the national laws of the EEA countries. The directive was revised in 2011 with some important changes that have impacted the way EWCs operate in practice.

What do companies have to do?

The EWC Directive requires companies to set up a European Works Council when requested by employees or their representatives, and then to inform and consult it regularly on “transnational issues” affecting employees. At least 100 employees, or representatives of 100 employees (eg a trade union or works council), from two or more Member States must make the request to set up a European Works Council.

When a valid request has been made, the company must first set up a “Special Negotiating Body” (SNB) comprising representatives of all its EEA-based employees. It then has up to 3 years to negotiate an agreement with the SNB establishing a European Works Council and setting out how it will be informed and consulted.

If no agreement is reached by the end of the 3 years – or if the employer fails to start SNB negotiations within 6 months – fallback rules apply, contained in the annex to the Directive. The fallback rules require a European Works Council (EWC) to be established representing all EEA employees, and set out how it must be informed and consulted.

EWC agreements (with some exceptions), and the fallback rules, are legally enforceable against the company, meaning it could be penalised for not informing and consulting as it should. In some countries, eg France and Belgium, business decisions may have to be suspended or even reversed until consultation has been carried out correctly. In most countries though, the penalty for failing to consult is a fine.

The “recast” EWC Directive

Significant changes to the Directive were adopted in 2009 and were required to be implemented in national law by 5 June 2011. The most important were new definitions of the “information” to be provided to EWCs and the nature of “consultation”; new rules governing negotiations to establish an EWC including both the process of negotiating a new or revised agreement, and the contents of the new agreement; a new clause requiring management to provide EWC members with the “means required” to carry out their duties (though what this means in practice is far from clear); a new right to training for EWC members; a requirement to link consultation of the EWC with national consultation procedures; a requirement to renegotiate an EWC agreement following a corporate restructuring or merger, in certain circumstances; and changes to the exemptions for existing agreements.

Implementation in the Member States

Each EEA Member State has implemented the Directive into its national law, including the changes made in 2011. There is much similarity between the different Member States’ laws, being closely based on the rules in the Directive. But there are also some important differences, especially with regard to enforcement and sanctions. As a general rule, the law of the country where the company has its headquarters is the one that will apply to the company when setting up and running its EWC. However, non-EEA headquartered companies can choose which Member State’s law will apply by appointing a “representative agent” there.

Article 13 agreements are agreements establishing an EWC that were in place before the original Directive became law in the Member States in September 1996 (1999 in the case of some UK agreements). Strictly speaking, they should now be called “Article 14.1a agreements” – the relevant clause in the recast Directive. It is no longer possible to put an Article 13/14.1a agreement in place. Companies with such an agreement are exempt from the obligations in the Directive, although this has changed to an extent since June 2011 because of the Recast Directive. Article 13/14.1a agreements are supposedly voluntary, ie not enforceable in the courts – this is the case in some Member States, but not all.

Article 6 agreements are agreements establishing an EWC that were negotiated following the procedure in the Directive – with a Special Negotiating Body (SNB) and up to 3 years of negotiations. The agreement will set out the composition of the EWC, how it is to be informed and consulted, and on what subjects. Article 6 agreements are normally enforceable through the courts (the Central Arbitration Committee in the UK, labour courts in much of Continental Europe). Article 6 agreements that were not signed or revised in the 2 years leading up to June 2011 will become subject to all the new provisions in the recast Directive. Agreements that were signed or revised during this period should be exempted from these new provisions, but which provisions apply will depend on the way the governing national law has been drawn up, and this will vary from country to country. The UK legislation was drawn up in a way that minimises the impact on agreements signed or revised in the 2 year window.

Different interpretations of the Directive

Although the Recast Directive was supposed to help clarify the law, on certain points it has made it less clear. This has led to different interpretations of some of the key new provisions, such as how the new definitions apply to existing agreements, what is a “transnational” issue, what is included in “the means required”, who can provide training to EWC reps, when is the “adaptation” article triggered, and what is the status of an existing agreement after it has been renegotiated (does it retain its exempt status)? Trade unions, not surprisingly, tend to advance interpretations that seek to maximise the effect of the changes.

Review of the recast EWC directive

As with many employment directives, the European Commission was required to review the directive after a period of time and make any recommendations for changes. Article 15 of the recast directive requires the Commission, by no later than 5 June 2016, to report to the European Parliament, the Council [of member state governments] and the European Economic & Social Committee on the implementation of the directive “making appropriate proposals where necessary”. The Commission used consultants to research and report on implementation of the directive, and their report suggested a number of changes. Trade unions have made suggestions for numerous changes, particularly in the area of enforcement.

Almost 2 years overdue, the Commission published its evaluation of the Directive in May 2018. It concluded that the directive had improved the clarity of the legal framework; had not stopped the decline in the number of new EWCs being set up (now around 20 a year), and more needed to be done to encourage their creation since half of the companies eligible do not yet have one; had improved the information for workers but not consultation; and had not created additional costs for employers compared to the 1994 Directive, with the benefits outweighing the costs for most employers.

The Commission concluded that no changes to the Directive were needed. Instead, it intends to produce a “practical handbook” which will “provide concrete advice and guidance” for employers, EWC members, trade union reps and workers, and help employers and company reps fulfil their legal duties. It will also provide €7 million in 2019 to social partners for setting up projects to publicise and support the use of the handbook, as well as initiatives that support implementation of the legal requirements, raise awareness of the potential benefits of EWCs and improve their establishment and functioning.

Alongside its evaluation of the Directive, the EU Commission reported on how member states have implemented the directive in their national legal systems. It identified a number of deficiencies, the most important of which were in the area of enforcement and penalties where it said the nature and level of sanctions were in many cases not effective or dissuasive. It is possible the Commission will challenge some Member States’ legislation on this point.

Implications of Brexit

The UK’s exit from the EU is expected to result in the EWC directive no longer applying to the UK, although this may not be until the end of the transition period following Brexit, likely to be at the end of 2020. Unless a trade agreement between the EU and the UK continues to apply the Directive to the UK (which seems unlikely), there will be a number of implications from Brexit for European Works Councils, including those not based in the UK. Implications include:

(1) whether there is a continuing obligation to have a European Works Council (because UK employees will no longer count towards the employee thresholds);

(2) the position of UK representatives on a European Works Council (this depends on what the individual EWC agreement says about it);

(3) redistribution of seats on the EWC (if UK members are no longer entitled to sit on the EWC); and

(4) whether the governing law of the EWC will change (it will not be possible to have an EWC governed by UK law).

Got any questions or need advice? Please contact us. We have long-standing and extensive experience advising companies on setting up and operating a European Works Council, and training both employee representatives and management. We advise on the rules in all of the EU Member States, including rules for appointing EWC reps in each country, and on the implications of the new Directive. We advise on negotiating strategy and tactics if you need to negotiate or renegotiate an EWC agreement. We can provide examples of other recent EWC agreements, and put you in touch with other companies who have European Works Councils to learn from their experience and benchmark against them.