BEERG Newsletter - EWCs: in the UK post-Brexit

David Hopper and the Lewis Silkin LLP team write: As reported in last week’s BEERG newsletter, the Court of Appeal in London ruled on 30 June in the case of easyJet. It decided that, irrespective of Brexit and changes made to the UK’s legislation on European Works Councils in anticipation of it, easyJet must continue to operate a European Works Council governed by UK law. 

This article summarises the key implications of this decision for UK employers and the wider state of play in the UK following this decision.

No new UK law EWCs: With effect from the end of the UK’s Brexit transition period at the end of 2020, the UK’s legislation on EWCs was significantly updated. This has meant that UK employers can no longer be required to provide information on whether they fall with the scope of the EWC Directive based on their size and distribution of employees between European countries. It has also meant that UK employers can no longer be required to establish a new UK law EWC.

Although the legal changes included some transitional provisions for these kinds of requests if they had been made before the end of 2020, these sensible changes have brought welcome certainty for most UK employers.

UK members of EU law EWCs  Despite Brexit, the UK left in place numerous legal provisions concerning UK members of EWCs. These mean that there is certainty over how UK members of EWCs are to be elected, their employment law protections from detriment and dismissal, and their confidentiality obligations.

Although it might seem odd for the UK to retain such legal provisions, this policy choice is in fact welcome. Many EWCs operating under an agreement governed by the laws of a member state of the EU provide for non-EU countries’ employees to be represented on the EWC, such as employees in Switzerland and the UK. These agreements also often refer to the election or appointment of all members of the EWC ‘in accordance with national laws and practices’. In such circumstances, the continued existence of UK laws on UK members of EWCs is welcome.

UK EWCs already existing before Brexit

1. Central management situated in the UK The decision in easyJet, which is not being further appealed to the Supreme Court, provides some, even if unwelcome, certainty, for businesses whose central management is situated in the UK.

Despite the Court of Appeal noting that the UK’s legal framework on EWCs is “possibly not the best thought through piece of legislation”, it is now clear that central managements situated in the UK must continue to operate an EWC under UK law, irrespective of whether their corporate group also operates an EWC under the laws of an EU member state.

Echoing the earlier decision of the Employment Appeal Tribunal, the Court of Appeal recognised that its decision would give rise to ‘practical difficulties’ for both employers and employees alike by requiring the operation of two EWCs. For example, the different bodies may have different memberships (as UK employees might only be represented on the UK EWC) and different remits (as a project affecting Germany and the UK will only be transnational for the UK EWC). 

Employees who sit on both bodies could also find themselves under contradictory obligations in terms of reporting back. For example, an individual could be under a legal obligation not to report back information that is considered confidential under Irish law, with a breach of that obligation being punishable by imprisonment, and yet under an entirely contradictory obligation to report back that same information under UK law or else be in breach of a court order declaring that the information is not confidential. Neither the Employment Appeal Tribunal nor the Court of Appeal has given any guidance on how to deal with these practical issues.

Initially, the Central Arbitration Committee did suggest that the duplication arising from operating two EWCs could be resolved by way of an agreement between all of the parties. However, this overlooks the requirement under EU law that an EWC must operate under the laws of an EU member state, and the prohibition under UK law on contracting out of the UK’s legal framework. No formal merger of the two EWCs is therefore possible. 

The Court of Appeal’s decision and prohibition on contracting out also appear problematic for HSBC, which is currently awaiting a court hearing on its post-Brexit relocation from the UK to Ireland having operated on the basis of an agreement (unlike easyJet which operated on the basis of the default subsidiary requirements), on which we will provide an update in due course.

2. Central management situated outside of the UK Many businesses whose central management is situated outside of the UK, such as in the United States, operated their EWC under UK law up until the end of the Brexit transition period, on the basis that the EWC was run by a UK representative agent. A question therefore arises as to whether these businesses must also continue to operate two EWCs.

The Court of Appeal’s decision in easyJet was based on easyJet being a business whose central management is situated in the UK. Importantly, nothing in the decision suggests that a business that was responsible for operating an EWC on the basis of it being a representative agent must continue to operate an EWC under UK law if its status as a representative agent has been terminated. However, this issue is also currently before the courts and, again, we will provide an update in due course.

Final comments: 

Off the back of the Court of Appeal’s decision, UK based central managements are now placed in the difficult position of having to operate two EWC. There is also no end in sight to this situation as, at least until just a few months ago, the UK Government’s position is that there is no issue with the state of the law and so it proposes to retain it in its current form despite otherwise seeking to take advantage of “Brexit freedoms”. There is also no guarantee that it will respond in any way in light of the Court of Appeal’s criticism of the current legal situation.

In practice, UK businesses might now seek to come to practical accommodations with their EWCs, to achieve a de facto merger of them despite a formal merger of them not being possible. However, businesses that adopt this approach will still face the prospect of being sued in two different countries’ courts over the same circumstances with potentially different outcomes. 

The risk of divergence will also only increase if the European Union ultimately adopts the proposals detailed in the ‘Radtke Report’. All that seems certain, therefore, is that British businesses will face yet further difficulties for years ahead as a result of a Brexit.