S02E05 - European Works Councils: An Evolving History

Hello.  I’m Alan Wild and welcome to the Wild side podcast. Today we take a look at works councils and how to manage them.

Works Councils are most famous for the role they play in European employee relations, but employee representative forums exist in different forms elsewhere … even in China.  Today we will focus on Europe where they have a long history. The first were set up more than a hundred years ago in Germany.  They were established by the Weimar Republic to bring economic stability and workplace peace after World War one.  Little wonder that German companies manage to combine economic success with what outsiders see as extreme workplace democracy … they have had a lot of practice. Works councils were set up in France in the wake of World War two, for similar reasons but without the same balance of interests provisions. The Spanish dictatorship set up works councils in 1953 … and at the same time banned free trade unions … they then allowed works councils and trade unions to coexist in 1977 with the unions effectively taking them over. 

In Central and Eastern Europe the door was opened to works councils by the European Directive passed in 2012 … but there has been no real interest in them. Nor did they catch on in the UK or Ireland who were covered by the same laws.  In fact, works councils as the legally mandated and elected information, consultation and sometimes co-decison making forums only exist in eight of Europe’s 27 countries. In the rest, Central and Eastern Europe and the Nordic countries, legal rights to information and consultation belong to the trade unions.

Much more later … As you know, I’m Alan Wild, the Senior Adviser on Global Employee Relations to the HR Policy Association … the leading voice of CHRO’s today  … and you are listening to a walk on the wild side.

Let’s start with a warning.  Making the assumption that all works councils are the same, and they all exist to restrict management’s ability to introduce change would be a mistake. That would lead to the view that works councils are bodies that are inevitably adversarial and there to be marginalized … much like trade unions in the United States.  The truth is that works councils, and some trade union bodies, have the legal right to involvement in the management of change in the workplace.  It is the failure to reach agreements with them that restrict management decision making. For example flexible employment practices often restricted by law … like night shift, overtime or weekend working … can only be introduced by agreement with the works council. Developing constructive relationships with bodies that genuinely represent employee views is an essential part of doing business in Europe.  Don’t forget Germany is one of the world’s leading export countries and many French works councils work as employee welfare bodies. 

Let’s start with what is common about works councils and in some countries statutory union bodies;

• The most distinctive feature of post World War Two employee relations in Europe is the existence of works councils amongst the pre 2004 members of the European Union;

• Works councils …or representative councils of all employees in the case of the Nordic and central and eastern European countries … exist in every EU country and are made up of either elected employee representatives, trade union representatives or, more commonly, a mix of both;

• These bodies are very easy to set up or are mandatory …  by request of three employees in Germany and they are mandatory in France. They have the legal right to information and consultation and sometimes co-decision making. 

• Works councils, depending on the country, may or may not bargain for pay BUT in every country, they have a strong voice in implementing change at work.  In the power-based countries we typically see concession bargaining where agreements on pay and benefits are offset against productivity improvements.  In most of Europe, consultation over change is quite distinct from bargaining over pay.

We use the generic term works council, but they of course have multiple national names … Betriebsrat in Germany, Ondernehmingsrat in the Netherlands, Comite Social et Economique in France. In European countries without works councils the rights to information and consultation are given to the trade unions that have similar  low thresholds for recognition. 

Whatever the name …let’s talk about how they differ by looking at how works councils are triggered; who can be members; and what their powers are.

• Works Council are Mandatory in countries like France and Belgium;

• In all countries they can be triggered by a very low threshold of employees – in Germany and Austria an election can be triggered by just three employees. In Spain a trade union can request an election;

• In the UK and Ireland where 10% of employees can request a works council in writing … this rarely happens

• In the Nordic countries works councils and trade union representatives are synonymous … the company works with the established trade unions on all issues;

• Similar rules apply in Central and Eastern Europe. However, whilst trade union membership is very high in the Nordics, it is often very low in Central and Eastern Europe and there is a high risk of activist capture of decision-making bodies through employee disinterest. More of that in another podcast.

• In France works councilors are elected but in the first round of elections ONLY trade union members can stand. Works Councils discuss workplace change and trade unions negotiate pay and conditions, but in fact both groups include the same people;

• In Germany trade unions negotiate terms and conditions and works councils deal with operating issues. Any employee can stand to be a Works Councilor and normally the trade unions or other groups set up a slate of candidates who take seats according the results of the ballot. Only around 40% of works councilors are trade union members;

• In the UK and Ireland, where works councils exist, members are elected as individuals from defined constituencies;

• Unlike trade union committees … although preference is often given to trade union candidates, all employees, union members or not, participate in works council elections.

Let’s move from membership to the key issue of works council power and penalties. In managing works councils the awareness of penalties for failure to consult properly matter.

• All Works Councils have the right to regular information and consultation on the performance and prospects of the company; 

• In Germany the works council has rights to information and consultation but also rights to codetermination on a number of HR related issues.  Codetermination also applies to any social plan associated with workforce restructuring. Disagreements on codetermination issues go to arbitration;

• In France Works Councils have rights to information and consultation only (other than in the provision of medical services). In case of disagreement, employers may implement their decisions but a court may judge whether the measures to assure employability or financial compensation are adequate and halt the process;

• In the UK, and in the absence of a standing Works Council, employee consultation must take place where restructuring involving collective redundancies is proposed;

• Across Europe penalties for failure to consult properly range from declaring actions null and void in France or Spain, to penal arbitration judgments in Germany, and relatively small fines in the UK.  

 
Let’s take a very practical case study type” example on the common issue of workplace restructuring.

1. A company consults with its European Works Council by calling an extraordinary meeting, setting out proposals and holding a second meeting for the representatives to give their feedback. The EWC violently opposes the plan and threatens to take the company to court.  The EWC is organized under German law. We’ll cover EWCs in detail in the next episode.

2. The company has no trade unions in the UK and therefore gives the employees notice of dismissal giving due notice plus a service-related ex gratia payment.

3. In Spain, all of the trade union members of the Works Council oppose the closures saying that there are viable alternatives to the decision. After five turbulent meetings the company closes consultations and issues notices of dismissal paying the same separation terms that were agreed in prior voluntary exercise.

4. In Germany, the Works Council opposes the closure and fails to agree separation terms.

So, what happened;

1. The EWC was consulted properly. A proposal was submitted, employee representatives had the opportunity to consider it and give a response. The fact that they did not agree was irrelevant.

2. In the UK the absence of trade unions or a works council did not excuse failure to consult.  An employee representative group should have been elected for the purpose. The company was fined a standard 90 days pay per individual.

3. In Spain the trade unions went to court and the company was found to have failed to consult properly in that it did not examine alternative approaches seriously. The closed plant was forced to be reopen and consultations to be carried out properly.

4. In Germany the trade unions filed for arbitration. Despite unjon objections management is entitled to continue with the closure.  However, in the absence of agreement on a social plan the employees were awarded a settlement judged fair by the arbitrator