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European Union: European Commission takes the first step in the legislative process to strengthen the rights of European Works Councils

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In brief

Following calls by the European Parliament for potentially far-reaching changes, the European Commission has now kicked off the EU legislative process to revise the European Works Council (EWC) Directive. This alert provides an update on the Commission’s proposals, and we will issue further alerts as the legislative process continues.

While the Commission’s proposals reflect many of the changes sought by the European Parliament (see here for our earlier update on these) employers may be relieved to see they do not include specific requirements for member states to introduce GDPR-level fines nor EWC rights to take injunctive action against employers in relation to non-compliance with the Directive. Nevertheless the Commission’s proposals represent a significant and intentional strengthening of the influence of EWCs in relation to transnational acquisitions, disposals and restructurings in the European Union.

Key takeaways

Whilst there are still a number of steps in the legislative process before the proposed changes could become legally binding across member states, all multi-national organizations with operations in the EU (with or without an existing EWC) should monitor the progress of the proposed revisions. If adopted, restructurings and reorganizations affecting more than one jurisdiction in the EU will become more complex and require thorough planning before being implemented. We are also anticipating an increase in requests to renegotiate EWC agreements in anticipation of the new rights and the removal of the exemption for pre-Directive EWCs.

Background

The EWC Directive (the ‘Directive’) requires certain multi-national organizations to establish a EWC or a procedure for informing and consulting employees about transnational workforce related issues where this is requested by a qualifying group of employees. The obligation applies to undertakings (or a group of undertakings) with at least 1000 employees within the EU and the other countries of the European Economic Area (Norway, Iceland and Liechtenstein) and at least 150 employees in each of at least two member states.

Amid criticism that the Directive currently gives EWCs little practical influence over an employer’s decision making process in relation to transnational measures, early in 2023 the European Parliament called on the European Commission to propose legislation to revise the Directive.

Proposed changes

The European Commission has now published its proposals to revise the Directive; these reflect many but not all of those put forward by the European Parliament and, broadly, include the following:

  • Clarifying and expanding the scope of the transnational matters that are subject to the Directive information and consultation obligations to include those measures reasonably expected to affect workers in only one member state where the consequences of those measures are also reasonably expected to affect those in another.
  • Strengthening EWC consultation rights by requiring that before central management adopts a decision on any matter falling within the scope of the Directive:
    • It provides information to employee representatives to enable them to undertake an in-depth assessment of its possible impact and, where appropriate, prepare for consultation.
    • Consultation takes place in such time and fashion as to ensure employee representatives have an opportunity to express an opinion on the matter in question (within reasonable timescales) and receive from central management a written reasoned response to that opinion.

The Directive is currently silent on when in the decision making process the opinion of the EWC should be sought, leading to criticism that the EWC has no practical influence. The revisions mean that a number of prescribed steps must take place before a decision is ‘adopted’ by central management and these will need to be built in to transactional timelines.

  • Expanding rights to renegotiate EWC agreements by:
    • Ending the exemption from compliance with the Directive for EWC agreements concluded before the adoption of the first EWC Directive over 25 years ago.
    • Requiring renegotiation of any EWC agreement or information and consultation procedure that does not conform to the revised Directive where this is requested by at least 100 employees or their representatives in at least two undertakings or establishments in at least two member states.

According to the European Commission press statement this proposed change would enable 5.4 million workers in 320 multinational companies with pre-existing agreements to request the establishment of an EWC under the revised Directive.

  • Increasing the scope for experts including trade union representatives to act in an advisory capacity to EWCs including under the subsidiary (effectively default) provisions the right to be present at meetings of the EWC and meetings with central management.
  • Clarifying the reasonable expert expenses that central management must bear as regards the setting up and operation of the EWC. This is a broadly drafted right and includes not only the cost of legal assistance in the day to day running of the EWC but also the costs of legal representation in complaints or court proceedings brought by the EWC against the employer. This must also be addressed specifically in the EWC agreement as part of the financial and material resources to be allocated to the EWC.
  • Clarifying the scope of confidentiality provisions that management can apply in relation to information provided to the EWC with a greater focus on justifying the reason for confidentiality.
  • Increasing enforcement by requiring member states to ensure that penalties for non-compliance with the Directive are effective, dissuasive and proportionate with the gravity, duration, consequences and intentional or negligent nature of the offence to be taken into account in assessing the level of penalty. However, and importantly, the European Parliament’s proposal that the relevant penalties be set at levels equivalent to those that apply for breach of the GDPR have been left out of the Commission’s proposal as have express rights enabling EWCs to take injunctive action in relation to disputed management decisions and their implementation. The Commission’s revised draft instead leaves more discretion to member states to determine what they consider to be “effective, dissuasive and proportionate” sanctions. It’s possible, therefore, that we could continue to see a divergent position on sanctions across members states, with only some allowing for injunctive relief for example.
  • Requiring that gender balance is actively taken into account in composition of the EWCs and special negotiating bodies – it is unclear how this would be achieved given it is often the case that there is only one representative per member state, particularly for special negotiating bodies.

Practical impact for European employers

Having initiated legislation to revise the EWC Directive, the European Parliament and the Council of the EU need to agree to the terms before legislation can be implemented. In practice this means the proposed revisions to the Directive may change over the course of negotiations. Timescales for the changes ahead are difficult to assess particularly given the upcoming elections for the European Parliament in June 2024 which may impact the political landscape and agenda.

Notwithstanding this, the Commission’s proposals give EWCs much greater influence in transnational acquisitions, disposals and restructurings which are all areas where we are already seeing an increase in EWC involvement. Employers could also see increased requests to establish EWCs or renegotiate non-compliant agreements in anticipation of new rights.

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Monica Kurnatowksa is a partner in the Firm’s London office. She is recognised by The Legal 500 and Chambers UK as a leading individual. Chambers say she has “impressive experience of handling complex employment disputes and advisory matters for major clients. She is known for her expertise in trade union matters.” "The breadth of her experience is phenomenal." "She is an outstanding lawyer who provides a first-class service while juggling the intense demands of running high-profile matters on behalf of her clients. She is unflappable, courteous and extremely knowledgeable”. Monica is a member of the Consultation Board of PLC Employment On-line and is a regular speaker at internal and external seminars and workshops.

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Kim Sartin is a partner in Baker McKenzie's Employment and Compensation team in London and a Member of the Firm’s Global TMT Group SteerCo. She is ranked as a leading individual in Chambers, as Up and Coming for Industrial Relations and recognised for her experience in the TMT sector (Chambers Global, UK). She is described as “a true global partner” who “stands apart with her business acumen”.

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Alexander Wolff heads the Labor Law Practice Group in the Firm’s Berlin office. He co-authored the German section of Baker McKenzie’s Worldwide Guide to Termination, Employment Discrimination, and Workplace Harassment Laws and Global Employer. He is also a regular contributor to other labor law journals, and is a frequent speaker on employment law issues in seminars and conferences.

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Rob maintains a broad focus to his practice and provides advice to a wide spectrum of clients in a range of different industries, on both contentious and non-contentious employment law issues. Rob has experience in the fields of Equal Pay, Investigations, Industrial Relations and Data Protection as well as providing general counsel advice. Rob joined Baker McKenzie in 2013, qualifying into the Employment & Compensation team in 2015, and has completed secondments to clients in the media and aviation sectors. Chambers UK 2022 described him as an ‘Associate to watch’. "He is proactive, responsive and gives sound advice." "Rob is efficient, he is effective and he is a pleasure to deal with."

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