BEERG Comment: EU Commission’s 2nd Consultation...

Introduction

On July 26^th last, the European Commission opened the second round of consultations with the European social partners – trade union and employer organisations – on a possible revision of the European Works Council Directive (EWCs). At this stage in the procedure, the social partners have the option to see if they can negotiate an agreement between themselves on the matter. It is clear, however, from the consultation paper that if the social partners either won’t or can’t negotiate an agreement, the Commission will bring forward legislation. 

Timetable

The second-round consultation is open for ten weeks and closes on October 4.

If the social partners decide to negotiate, then they will have nine months in which to reach an agreement. If they were to reach an agreement, then they could ask the EU Commission to turn the agreed text into binding legislation through a Directive, approved by the Council and the Parliament without either body having any right to vary its terms in any way. However, it appears from judgements of the European Court of Justice (CJEU) that the Commission would not necessarily be obliged to do so. 

From what is said in the July 26^th consultation paper and supporting documentation, based on the responses of the social partners to the first-round consultation, it appears that the unions and employers’ organisations are quite far apart in their view of what amendments should be made to the Directive. Whether there is a basis for negotiations is not clear. Negotiations between the European social partners on collective rights issues have never succeeded in the past because employers are loath to hand extra powers to unions or works councils to obstruct decision making because they did not like what was being considered. It is hard to see it being different on this occasion.

For example, a key demand of the unions is that EWCs should be able to ask for interim injunctions to block management decisions because they believe that their information and consultation rights have been infringed. It would be impossible for any management negotiators to agree to this, much less agree that such requests for injunctions should be funded by management. 

If we assume that the social partners do not agree to negotiate, then it falls to the Commission to being forward legislation. In our view, the earliest this could be done would be in the first quarter of 2024, given the procedures that must be followed within the Commission for draft legislation to be approved.

By that point, the European Parliament will be in pre-election mode. Elections are due in June 2024, and the members of parliament will not be in a position to give any proposed EWC legislation the attention it deserves. It will be towards the end of 2024 before the Parliament is full reconstituted and relevant committee members appointed. The future political balance within the parliament will have an impact on the shape of any legislation.

The legislation will also have to be considered by the Council of Ministers, though whether they will regard a revision of the EWC Directive as a priority remains to be seen. The Belgium presidency of the Council in the first half of 2024 could have a say in that.

It also needs to be kept in mind that the membership of European Commission will change in late 2024, with a new team coming into office for a 5-year term. The views of the new Employment and Social Affairs Commissioner on the issue will be important. All things considered, it seems likely that it will be sometime in 2025 at the earliest before a revised Directive is agreed, if even then. Allow two years for transposition and it would be 2027 at the earliest before it takes effect.

However, as we discuss below it seems to us from reading the documentation published by the Commission that supports the second-round consultation paper, that Article 13 agreements are very much in the crosshairs and, it is our opinion  that a revised Directive will probably phase them out. How this is to be done remains very much a matter for discussion. 

But our advice to anyone with an Article 13 agreement is this: start planning now. Look at your options. Be proactive rather than waiting for the axe to fall.

So, What’s in Play?

Given the complexity of EU legislative procedures, and the number of actors involved when it comes to employment legislation, it is impossible to say with any accuracy at this early stage what may be on the table come 2024 in any proposed legislation. But our reading of all the documentation suggests: 

• As noted above, Article 13 agreements are very much in the crosshairs.
• The timeline of SNBs may be shortened, with the first meeting having to be held within six months.
• Injunctions could be on the table.
• There will be a renewed stress on fines needing to be proportionate.
• The financial resources to be made available to EWCs for experts and legal advice/legal procedures will be more closely defined.
• What is to be considered “transnational” will be subject to much discussion.
• New limits may be placed on the ability of management to withhold information on the grounds of confidentiality. 

We will look at each of these in a little more detail below.

First, one point needs to be made. The current Directive empowers EWCs to offer an opinion on proposed, transnational management decisions. There is no suggestion in the Commission documentation that this will change. Consultation is not about to become “consultation with a view to an agreement”, much less any form of codetermination.

Consultation timelines, the use of experts, references to courts and tribunals, and legal costs need to be proportionate to the competence of an EWC. There is no case for injunctions and GDPR-size fines when all that is at stake is an opinion. EWCs are not a “shadow management”, there to second-guess decisions and offer alternative business strategies. They are there to offer an employee perspective on what is being proposed.

This point needs to be made strongly to employer bodies and government departments so that it feeds into discussions in the Council of Ministers.  EWCs are not European co-decision makers with management. 

Article 13 Agreements

According to the figures in the Commission’s consultation paper, there are some 3,460 companies within the scope of the EWC Directive of which around 1,000 have an EWC agreement. Of this 1,000, about a third have Article 13 agreements, which are voluntary agreements in place before September 1996 which provide for the information and consultation of the European workforce.

It is our view that rather than rewriting the Directive, efforts would be better spent on working out why around 2,500 companies in scope do not have an EWC. A13 agreements seem to work well. Why oblige the parties to them to migrate them to Article 6 agreements simply for the sake of “legal tidiness”?

None the less, it does strongly appear that the direction of travel is to bring A13 agreements with the legal scope of the Directive. If that is the decision that the legislators take then it should be by way of a negotiating procedure, which gives the parties the time and space to make new agreements that suit their circumstances. It should not be by way of a legislative diktat. 

Special Negotiating Bodies

There has always been a widespread assumption that after a company receives an SNB request, the first meeting had to be held within six months. We in BEERG have always worked on that assumption. But, it appears, there may be some legal uncertainty around this. We do not think it would be of serious concern if the Directive were to be changed to make this clear.

Nor do we think it would matter greatly if the timeline for SNBs was to be reduced from three years to two on the condition that some of the discussions between the SNB and management could be done virtually. An increasing number of business meetings are conducted this way. EWCs and SNBs should be no different. The use of virtual technology should be enshrined in the Directive.

Injunctions and Fines

There is a legal adage that the penalty should fit the crime. The European Parliament wants EWCs to be able to secure injunctions if they “believe” that they have not been properly informed and consulted. The Parliament also wants that managements that inadvertently breach EWC information and consultation entitlements to be liable to fines of 2% of global turnover or €10m, whichever is the greater. 

In practically all EU Member States, injunctions are not a feature of day-to-day industrial relations. In the few countries where injunctions are available, that appears to be the case as a result of judicial decisions rather than clearly defined legislative provisions. 

As BusinessEurope and other employer organisations have rightly pointed out, to make injunctions available to EWCs runs the risk of conflating national and European industrial relations issues, as national issues could artificially become “transnational” as local employees’ representatives looked for ways of blocking proposed management decisions with which they disagreed.

Further, it would seem that if injunctions were available then EWCs could make multiple applications for injunctions during the same information and consultation process. Even if frivolous, defending against such requests puts a significant strain on management time and incurs substantial, unnecessary legal costs. The demand for injunctions should be rejected. They have no place to play in what should be a process of information sharing and dialogue between management and European employees’ representatives.

Calls for GDPR-size fines should also be rejected. Fines of 2% of global turn or €10m, whichever is the greater, would be totally disproportionate when what is at issue is an “opinion” on proposed decisions. What is really in play with calls for injunctions and GDPR-size fines is an attempt to turn EWCs into European-level negotiating bodies able to block management decisions with threats of injunctions and fines, denials to the contrary notwithstanding. 

One final but nonetheless crucial point. It is legally questionable whether the EU legislators have the Treaty (constitutional) competence to specify to Member States the level of fines to be imposed in cases of infringement of private contracts between parties, which is what EWC agreements are. This also applies to the handful of EWCs working under the Subsidiary Requirements. The same argument applies to any attempt in a revised Directive to introduce injunctive relief is cases of alleged infringements of information and consultation rights.

Financial Resources

Throughout the European Parliament’s call for changes to the Directive are demands for extra resources for EWCs to make use of experts and to fund legal challenges to management decisions. In effect, these calls are for an “open management chequebook” to be made available to EWCs to spend as they will.

Across EU Member States it is not common practice for management to make unlimited funds available to employees’ representatives for the purpose of hiring experts and legal counsel to challenge management decisions. What is not common practice at national level should not become practice at European level. Of course, EWCs need resources. But those resources should be defined and limited to what is necessary. EWCs should not become cash-cows for experts and lawyers to be milked endlessly. Perhaps a budget for EWCs for expert and legal advice could be considered, based on formula set out in the Directive, which the parties to agreements could build on.

EWCs would then have to manage their own resources and decide best how to use those resources. 

Transnational

We know from experience that EWCs would like all decisions to be considered transnational. Arguments around the “potential” transnational “effects” of a local decision can never be concluded. In many EWC agreements “transnational” is defined by metrics, somewhat similar to the way collective redundancies are defined in the Collective Redundancies Directive.

Rather than try to find ever more convoluted wording to describe “transnational”, maybe metrics as found in many existing EWC agreements, and the Collective Redundancies Directive, would be an alternative way forward. 

Why reinvent the EU wheel?

Confidentiality

The ability of management to keep information confidential needs to be maintained. Proprietary information is the key to the success of many businesses, increasingly so in the age of algorithms and the use of artificial intelligence. There are also strict legal and market rules around price sensitive information.

Behind the attack on confidential is the mistaken belief on the part of unions and EWCs that there is a cache of information that management is hiding that, if made available, would undermine the rationale for proposed decisions. This is simply not true.

While the rules on confidentially can always be looked at and tweaked, if necessary, the ability of management to withhold information on the grounds of confidentiality, or to share information on the understanding that it remains confidential, must be maintained.

Conclusion

Like any legislation, the EWC Directive can always be improved. But, to repeat, as the legislation stands EWCs are empowered to offer an opinion on proposed management decisions. They are not there to negotiate agreements, much less codetermine matters. Changes must be proportionate to the function of EWCs. Injunctions and GDPR-size fines would fundamentally change the nature of EWCs. They must be rejected. 

Other changes need to be calibrated carefully. For example, change should not be forced on the parties to A13 agreements by legislative fiat. If it is not broken, why fix it? And there is no evidence that A13 agreements are broken. 

The purpose of this paper is to give talking points to BEERG/HR Policy Global members as they engage with their employer/industry associations and government departments on this issue.

Your feedback is welcome.

First drafted August 2^nd 2023

This version August 11^th 2023