BEERG Perspective - Radtke EWC Proposals: Based...

Preface:

In May 2022, we circulated this BEERG Perspective analysing a report by German MEP Dennis Radtke (EPP) outlining the legislative changes he wished to make to the European Works Council Directive. His original ten-page report can be read HERE. 

Last week the “Radtke Report” became the “Radtke Proposal”, as it secured the support of  European Parliament’s Employment and Social Affairs Committee. The dossier will go before a plenary session of the EU Parliament in on January 18^th next. If adopted, which seems likely, the Commission will have three months in which to respond. Given that the Commission President, Ursula von der Leyen, is committed to respond “positively” to Parliamentary legislative initiatives, proposals for changes to the Directive from the Commission can be expected. 

The radicalism of what Radtke is proposing should not be underestimated… however, as Tom Hayes sets out in this analysis piece, his approach is based on a flawed assumption, namely that strengthening the EWC information and consultation procedures will lead to different outcomes.

Introduction:

Irish judges could be asked to hand down injunctions preventing US multinationals from closing a plant in France or transferring business activities from Spain to Poland. They could also be asked to hand out multi-million Euro fines to the same companies. Likewise, judges in other EU countries could be asked to block organisational changes in Ireland. 

Why pick out Ireland? Because, since Brexit, it is estimated that over 100 European Works Councils, mostly in US companies, are now legally based in Ireland. Ireland is also the location of the European HQ of many US multinationals. 

Multinational companies with more than 1,000 workers in the EU and at least 150 workers in at least two EU member states can be asked to set up a European Works Council (EWC). Where the headquarters of a multinational is not based in the EU, such as US multinationals, then they can decide in which EU member state to put their EWC.  

The European Parliament is pushing for a radical revision to the European Works Council Directive and MEPs are demanding that courts across Europe be given the power to stop companies closing plants or transferring business activities within the EU if worker’ representatives feel have not been properly informed and consulted. 

The Irish government will be in a weak position to push back against this legislation because the European Commission contends that the exiting Irish European Works Council legislation is defective and does not provide proper dispute resolution procedures. 

Denis Radtke, a German Christian Democrat member of the European Parliament and a former official of the German chemical workers union, has argued that EWCs need to be able to go to court and ask a judge to stop companies in their tracks when it comes to plant closures if they believe they have not been properly informed and consulted. But if a company has correctly followed the procedure, how does an EWC prove it has not been properly informed and consulted? 

Radtke also wants courts to be able to hand down multi-million Euro fines. Such fines could run to €10m or 2% of global turnover, whichever is the higher. For instance, in 2021, Amazon's total consolidated net sales revenue amounted to $469.82 billion. 2% of that would be around $9 billion. Hardly proportionate when all an EWC can do is to offer an opinion at the end of an information and consultation process, which management is obliged to consider, but not act on.

These fines would double if management intentionally violated its information and consultation obligations. So, the fines above could be imposed if management accidentally made a mistake in the procedure. Hardly proportionate and reasonable.

Last week, the Employment and Social Affairs Committee of the Parliament endorsed Radtke’s report. It will now be voted on by the full parliament on January 18. The EU Commission will then have three months to respond to the call for a revised Directive. As EU Commission President, Ursula von der Leyen, has committed to responding positively to any legislative requests from the parliament, changes to the Directive seem to be inevitable. However, the Commission will first have to consult unions and employers (the social partners) in accordance with EU treaty provisions. A legislative text would then be presented no later than January 2024.

At that point, the proposed text would have to be considered by the Council of Ministers representing Member State governments. That will take time. Also, in May 2024, elections to the European Parliament will be held and the political deck may be reshuffled. This could delay the passage of any revised Directive through the legislative process.

What does the Radtke Proposal ask for?

Acting on the Radtke proposal, and if endorsed by a vote in a Parliamentary plenary, then the Parliament would be calling for the EWC Directive to be amended as follows:

• The timeline for SNBs would be reduced from 3 years to 18 months. Given that it takes about six months to have members of an SNB elected/selected, this just leaves a year for negotiations. 
• SNBs and EWCs to be assisted by an expert of their choice, paid for by management, along with an official from a recognised European-level trade union. 
• Practically all issues to be regarded as “transnational” unless management can prove otherwise. 
• Severe restrictions to be introduced on classifying information as “confidential”. 
• An end to all “Article 13” agreements that is, those agreements negotiated before the original Directive came into force in 1996.
• Consultation to be redefined as follows:

‘consultation’ means the establishment of dialogue and exchange of views between employees’ representatives and central management or any more appropriate level of management, at such time, in such fashion and with such content as enables employees’ representatives to express a prior opinion on the basis of the information provided about the proposed measures to which the consultation is related, without prejudice to the responsibilities of the management, and within a reasonable time, which is to be taken into account within the Union-scale undertaking or Union-scale group of undertakings. Consultation shall take place in such a way as to enable employees’ representatives to obtain a reasoned response in due time from the central management prior to the adoption of the decision”;

"An information and consultation procedure shall be initiated within a timeframe and in such a manner that allows the European Works Council to undertake meaningful consultation of relevant employee representatives at national and local level with the aim of delivering its opinion before the end of the consultation procedure at the relevant level."

• In the event that EWC members do not believe that they have been properly informed and consulted then Radtke proposes that they can go to court for an injunction:

“Member States shall establish effective judicial procedures, that can be accessed in a timely manner, to apply for and terminate including the possibility to request a preliminary injunction for the temporary suspension of decisions of the central management where such decisions are challenged on the basis that there has been an infringement of the information and consultation requirements under this Directive or under agreements concluded pursuant thereto; The effects of the challenged decisions on employment contracts or employment relationships of the affected employees shall be suspended accordingly."

“The central management shall bear the judicial costs incurred in carrying out the procedures, the costs of legal representation and subsidiary costs such as subsistence and travel expenses for at least one workers' representative.”

• In addition, the courts can impose financial penalties as follows:

The financial penalties referred to in paragraph 2, point (a), shall amount to a maximum of EUR 10 000 000 or 2 % of the undertaking’s total annual worldwide turnover in the preceding financial year, whichever is higher.

In the case of intentional infringements, Member States shall provide for a maximum financial penalty of EUR 20 000 000 or 4 % of the undertaking’s total worldwide annual turnover in the preceding financial year, whichever is higher.”

(N.B. The words in bold are the amendments to Radtke’s original proposals that were made in committee).

BEERG Analysis and Commentary:

All business decisions come down to matters of judgement. There is no scientific way of making business decisions that ensure that they work out in the end for the better. In our social market economy management is charged with the ultimate responsibility for making decisions, weighing the interests of all stakeholders. Employees, and their representatives, are one stakeholder among many, albeit one uniquely dependent on the business for their livelihoods.

A flawed thesis

The underlying thesis of the Radtke proposal is based on a flawed assumption. That if you strengthen EWC information and consultation procedures you will get different outcomes. When EWCs complain that they have not been “properly” informed and consulted, what they really mean is that they do not like management’s decision, whether it be to close a plant, move operations from one country to another, or carry out Europe-wide restructuring. 

To put it bluntly. Changing procedures is not going to produce different outcomes. 

It is very rare, though not unknown, for management to announce a decision before it has exhaustively studied the situation, looked at the data in detail, and examined all available options. The myth that US CEOs announce major job cuts because they did not like a headline in the Wall Street Journal is simply that, a myth. 

The idea that, somehow or other, EWCs can come up with viable, alternative business strategies that will convince management to abandon their original plan is also a myth. They simple do not have the ability to do so. For the most part, they are simply ordinary workers, there to reflect the view of their colleagues. They are not a shadow management team in waiting. 

The response that they can bring in experts to help them do so does not stand up. Who are these experts who know better how to manage a company than the existing management team? Who are these “experts” who can say with certainty what alternative strategy a company should pursue? French accountants rebranding themselves as management consultants? None of whom have ever run a business in their lives but are supremely confident in telling others how to run theirs. What we Irish call “hurlers on the ditch”, useless at playing the game themselves but supremely confident in telling others how to play. 

Perverse incentives

If all Radtke wanted to do was to make the EWC information and consultation process a little bit more comprehensive though, in most cases, it is pretty comprehensive as it is, that is something that could be looked at. A bit more time, a few extra meetings in exceptional circumstances, all could be considered. Reduce the timeline for SNBs? There is a discussion to be had. Two meetings a year between management and the SNB? Not out of the question, provided use can be made of virtual meeting technologies. Clarifying the right to training? Not much of an issue as it is but could be tweaked. 

But that is not the case, though it pretends to be. 

What Radtke really wants is to give EWCs considerable delaying powers on management decisions at best, a quasi-veto at worst. His approach is designed to give EWCs leverage to “negotiate” management decisions, to block the process until acceptable terms are agreed. 

I have been dealing with EWCs for over thirty years. I have been involved in around 100 negotiations, and renegotiation, of EWC agreements. I know how real SNBs and EWCs work in practice, as opposed to the idealized SNB and EWCs of academic and research literature, or the idealistic and imagined EWCs of MEPs. 

First, EWCs are largely unaccountable to anyone. Once in place, they are free agents. There is no power of recall between mandates. They are obliged to report back to the employees they represent. That is all. And the barely even do that. Nor are they accountable to trade unions, even through unions like to think they are. But Radtke would change that. 

Second, EWCs can sometimes be “captured” by a minority of activists because – as we have often seen - the majority on an EWC will have little interest in the formal sessions and procedural details. 

So, the activists run the EWC. Power without responsibility. For now, they have little power. Radtke would change that fundamentally.

For a start, EWCs will argue that every issue is “transnational”. If management says it is not transnational but confined to one country, they will go to court. With management paying the costs. Why not? It is the rational thing to do. Win, and they are ahead in the game. Lose? No worse off than when they started. And no costs involved. What’s not to like?

• The same goes for information. “You have not given us sufficient information for us to be properly consulted.” Off to court, cost free. Changes delayed.
• “You did not properly take our opinion into account because you dd not change what you propose to do”. Off to court, cost free. Changes delayed.
• “This decision was already made. See the report in the Financial Times”. Off to court, cost free. Changes delayed.
• “You did not allow us time to properly consult local employees’ representatives. You will not let us travel to visit them.” Off to court, cost free. Changes delayed.

At multiple points in the “Radtke process” the opportunity exists for EWCs to go to court to delay matters. If you create incentives for EWCs to go to court to increase their leverage, then it would be irrational of them not to do so. That is the nature of labour relations, using leverage to force the other party to settle on your terms. Especially if the leverage comes cost free. 

So, there are multiple points in the “Radtke process” where EWCs could go to court to argue that they are not being properly informed and consulted and to seek injunctions. Not only could they seek injunctions. They could ask for fines to be imposed. (See earlier). 

All of which would create significant risks for management. Which is the whole purpose of the proposed Radtke amendments. To give unions with weak membership in private sector companies legal leverage to compensate for the absence of industrial strength. Hence the amendments which would see a union official sit in on every SNB and EWC meeting. Experience suggests that there is little doubt they would soon dominate.  

Third, you could have the bizarre spectacle of English trade unions officials, from “Brexit Britain” a country that has left the EU, appointed by one of the European trade union federations, having the right to sit in on EWCs that are dealing exclusively with European Union matters. 

At the very least, all “experts” and union officials involved with EWCs should be EU citizens, resident in an EU Member State. If British union officials, a “third country” in the EU jargon, can sit on EWCs why not US union officials, equally a “third country”? 

The fourth point to note is that Radtke draws a distinction between “intentional” disregard of EWC information and consultation procedures and “inadvertent” breach of such procedures. 

Certainly, where a company turns around and says, “We know we should inform and consult the EWC, but we are not going to do so”, then penalties are warranted. But in most cases, alleged breaches of EWC information and consultation obligations are just that, allegations, matters of interpretation, especially if there is an agreement in place. What are really in play are, in the language of labour relations, conflicts of interest, not conflicts of rights. It should not be for the courts to issue injunctions or impose fines where there is a conflict of interest between two parties. When there is a strike over a pay increase, do courts decide on what the pay increase should be? 

But this is what Radtke is asking courts to do. To get involved in conflicts of interest under the guise that they are conflicts of rights. To block management decisions that EWCs do not like because such decisions mean uncomfortable change. 

The end of negotiations

As you read through the Radtke Proposal and the Parliament’s amendments, you are left with the impression that what is also in play is an attempt to rewrite the legislation in such a way that all EWCs will end up under the Subsidiary Requirements. Taken together, the rewritten legislation, along with the Annex in which the Subsidiary Requirements are to be found, would be such that there would be no need for negotiations. A standard model would be imposed across the board. What incentive would there be for SNBs, or EWCs renegotiating agreement, to actually negotiate if the standard model could be imposed in 18 months in the case of an SNB, or maybe even sooner in the case of an existing EWC renegotiating its agreement?

Thereafter, the road would be clear to push issues to the Court of Justice of the European Union (CJEU) to interpret the legislation and the meaning of the Subsidiary Requirements, leading to the creation of a standardized, pan-European EWC template. 

Conclusion

The radicalism of the Radtke Proposal should not be underestimated. It poses a serious challenge for those businesses with EWCs. It would hand enormous legal leverage to EWCs, and unions, with no downside for them in exercising such leverage. It would leave companies at risk of injunctions and enormous fines over “imagined” breaches of EWC information and consultation procedures. It would be a game-changer. And not in a good way.