Key Features in Revised EWC Directive

This is a summary of what we see as the key features of the rewritten Directive. It is not a comprehensive guide to all aspects of the rewritten text. We will produce such a guide when the definitive text of the Directive is available. Our analysis is informed by what our experience of negotiating EWC agreements tells us will be the most important issues for management. 

Timelines

Summary: Explains the schedule for transposing the Directive into national law, the grace period for compliance, and steps required if agreements are not updated within set deadlines.

The agreement reached between the institutional negotiators will need to be properly written up as a Directive and then “legally scrubbed” and translated. It will probably be published in the EU’s Official Journal sometime in September or October of this year. National governments will have two years to transpose it into national law, which would mean it would become effective in September or October 2027. There will then be a further year’s delay before it comes fully into effect to allow undertakings with Article 6 agreements to update these agreements to bring them into line with the requirements of the rewritten Directive. 

Should agreements not be updated, after the one-year deferment, 100 employees, or their representatives, from at least 2 EEA Member States, can request the establishment of an SNB to negotiate a new agreement in line with the provisions of the 2025 Directive. Management and the SNB will have two years in which to reach an agreement. Otherwise, the Subsidiary Requirements will apply.

There is another possible scenario For formerly exempted undertakings with A13 agreements, Art 14b applies. This essentially confirms that the Art 5 procedure applies, but with the deadline for Subsidiary Requirements (SR) to kick in reduced to 2 years. Again, this can be launched at any point in the two-year period after transposition. 

In both cases, the adaptation procedure must be launched by one or both of the parties. If not, the old agreement (A6 or A13) continues unaffected. 

“Workers”

Summary: Discusses the shift from "employees" to "workers" in the Directive, raising questions about broader inclusion, such as contractors and gig workers, and potential national law variations.

Across the text, the word “employees” is changed to “workers”. Workers has a broader meaning than employees and could be seen to include contractors and gig economy workers. Will the term worker need to be further defined in national law? Could the term workers vary from Member State to Member State?

Franchise Operations

Summary: Examines how franchise operations may now fall under EWC rules, with potential legal complexities for including workers from separate legal entities in EWCs, likely requiring court clarification.

Recital 3 now refers to possibility of franchise operations being included within the definition of a “controlled undertaking”. 

Indeed, many of that directive’s provisions are sufficiently flexible to accommodate evolving technological and economic realities and various forms of undertakings or groups. For example, it applies to all Community-scale groups of undertakings, no matter under which legal arrangements the dominant influence between the controlling and the controlled undertakings forming such groups is exercised. Consequently, undertakings linked, for instance, by franchise or license agreements can fulfil the definition of Community-scale group of undertakings, provided dominant influence is established.

Article 3 of the Directive proper says:

For the purposes of this Directive, controlling undertaking’ means an undertaking which can exercise a dominant influence over another undertaking (the controlled undertaking) by virtue, for example, of ownership, financial participation, or the rules and decisions which govern it.’

What this could mean in practice remains to be seen.  Many franchise operations are sizeable undertakings in their own right and are separate and distinct legal entities. Can one legal entity include workers from a separate legal entity in their EWC? These issues will need to be teased out and will probably end up in national courts and, no doubt, in the Court of Justice of the European Union (CJEU). It could be years before clarity is brought to this issue.

Article 13

Summary: Outlines the removal of the Article 13 exemption, the process for affected undertakings to establish EWCs, and the procedural requirements for transitioning to new agreements post-2027.

Once the Directive is transposed into national law, the “Article 13” exemption will go. The extra one-year deferment will not apply to undertakings with A13 exemptions. 

So, as and from September or October 2027, employees in undertakings with A13 arrangements will be able to submit requests for the establishment of a Special Negotiating Body (SNB) to discuss the establishment of an EWC within the framework of the law. It will only require 100 employees, spread across at least two EWC Member States, to make such a request. Or the request can be made by their representatives, which would only require two people, such as works councils or unions representatives from at least two countries, acting on behalf of at least 100. As many such representatives already sit on A13 Forums coordinating requests will not be a problem. Once an SNB request is received, management will have two years in which to negotiate an EWC agreement, otherwise Subsidiary Requirements will apply.

The transition from A13 Forums to EWCs can only be done through SNBs. It is not possible to negotiate the transition with the A13 Forum. However, there is nothing to stop management setting up an SNB now in anticipation of the revised Directive if it thinks “getting ahead of the game” makes sense. 

SNBs

Summary: Unchanged SNB composition formula, new gender balance requirements, expectations for negotiation meetings, practical challenges in convening + conducting SNB sessions under the revised rules.

There will be no change to the formula for calculating the composition of an SNB, one member per country in which an undertaking has operations, plus an additional member for each 10% over the first 10%. However, there is new wording on gender balance, but the wording accepts national law prevails and gender balance cannot be forced. In the event of an absence of gender balance, an SNB must explain in writing to workers why gender balance was not achieved. All we can say is good luck trying to do that. 

Once a valid request for the setting up of an SNB is received, management must convene the first meeting with the SNB within six months. Otherwise, the Subsidiary Requirements will apply. Management is also required to schedule further meetings with the SNB to try to reach an agreement 

With a view to the conclusion of an agreement in accordance with Article 6, the central management shall convene a sufficient number of negotiation meetings with the special negotiating body. It shall inform the local managements accordingly.

What constitutes a “sufficient number” of meetings? Who gets to decide what is sufficient? While the operations of an SNB might only have been of interest to a few undertakings in recent years all 320 undertakings with A13 arrangements will be open to SNB requests when the revised Directive becomes national law in 2027. SNB meetings can be expensive, especially if interpretation is involved. Can the need to hold meetings actually force the pace of negotiations? 

What happens if management, at the first meeting with the SNB, presents a draft agreement and says this is our “first, best, and final offer” and then refuses to move off that position? Can it arrange further meetings virtually and simply restate its position? Would half-day virtual meetings every six months suffice? A requirement for a “sufficient” number of meetings cannot force management to change its position if it does not want to do so. Our reading of what was agreed at the EU Trilogue suggests that meetings between the SNB and management do not need to be held in person. 

Transnational

Summary: Clarifies the revised definition of "transnational" matters, aiming to reduce legal uncertainty, but notes potential for broad interpretation and stresses the need for clear metrics in agreements.

Recital 5 sets out the thinking behind the definition of “transnational”. 

Evidence shows that legal uncertainty regarding the concept of transnational matters has led to differences in interpretation and disputes. In order to ensure legal certainty and reduce the risk of such disputes, it is necessary to clarify that concept. To this end, it is appropriate to clarify that Directive 209/38/EC should not only cover cases where measures considered by management of an undertaking or group of undertakings can reasonably be expected to affect workers of that undertaking or group, or of its establishments,   in more than one Member State, but also cases where such measures can reasonably be expected to affect their workers in only one Member State, but the consequences of those measures can reasonably be expected to affect their workers in at least one other Member State. This is necessary to cover cases where an undertaking envisages measures, such as lay-offs, redundancies, allocation of production activities or outsourcing of activities, which do explicitly target establishments in only one Member State but nevertheless can reasonably be expected to have consequences affecting workers of that undertaking or of an undertaking belonging to the same group, or of its establishments, in another Member State, for instance due to changes in the cross-border supply chain or production activities. The concept of transnational matters covers those measures which could affect employees in a substantial way, i.e. in a way which does not affect them in a trivial manner and does not only concern individual employees or ordinary operational decisions. To this end, it should be clarified that the scope of the potential effects of transnational issues on the workforce and the level of management involved are to be taken into account to determine whether a matter falls within the competence of a European Works Council.

We are not sure that this brings any great clarity to the concept of “transnational”. It seems to us that it potentially allows EWCs to argue that everything and anything is transnational. However, management can counter argue that even if a decision has a transnational dimension, it must affect “employees in a substantial way”. In our view, what is “substantial” is best defined in the EWC agreement by using metrics, such as affecting X% of the workforce within Y days.

Consultation

Summary: Amendments to consultation procedures, requiring management to provide reasoned responses to EWC opinions, and emphasizes the importance of clear timelines and procedures in agreements to avoid disputes.

The of consultation procedure has been amended to include the need for management to provide a reasoned response to any opinion an EWC might offer “within a reasonable time”.

Consultation shall take place at such time, in such fashion and with such content as it enables employees’ representatives to express their opinion prior to the adoption of the decision and based on the information provided in accordance with paragraph 2, without prejudice to the responsibilities of the management, and within a reasonable time, taking into account the urgency of the matter. The employees’ representatives shall be entitled to a reasoned written response from the central management or any more appropriate level of management prior to the adoption of the decision on the measures in question, provided the employees’ representatives expressed their opinion within a reasonable time in accordance with the first sentence.

The management of many undertakings with EWCs follow such a procedure already without it having an adverse effect on existing practice. This wording should not be understood as some form of EWC “veto” on decision making through delaying tactics and EWCs, and union and other experts, should not be allowed to construe it as such. In EWC agreements management should set out precisely the timeline and procedures to be followed, particularly in “exceptional circumstances”. 

If the workers’ representatives refuse to accept such a provision in the agreement but insist on keeping things “flexible” then there is little point in having an agreement, in which case the Subsidiary Requirements come into play. Management should make the point that if the EWC is to work under the Subsidiary Requirements then management will use the timeline and procedures it proposed to determine if “exceptional circumstances” exist. Best to have rules, even in the absence of an agreement, to which management can work. 

Costs

Summary: New requirements for EWC agreements to include provisions on funding for experts and training, ensuring necessary resources for effective employee representation and compliance

In future, EWC agreements will have to include wording on the funding of experts and training.

“These expenses shall include reasonable costs of experts, including for legal experts, insofar as necessary for that purpose. Expenses shall be notified to central management before they are incurred.

... the possible use and participation in meetings of experts, including of legal experts and of representatives of recognised Union-level trade union organisations, to assist the European Works Council in relation to the discharge of its functions.

In so far as this is necessary for the exercise of their representative duties in an international environment, the members of the special negotiating body and of the European Works Council shall be provided with training without loss of wages.

Without prejudice to agreements concluded pursuant to Article 6(2), point (f), the reasonable costs of such training and related expenses shall be borne by the central management, provided that the central management has been informed thereof in advance;

Under the Subsidiary Requirements, the government of Member States can lay down budgetary rules covering the work of EWCs. Presumably, such rules will set some parameters when it comes to the payment of experts and lawyers, and the cost of training. 

Negotiated EWC agreements should include provisions covering such costs and the procedures to be followed by the EWC before any costs can be incurred. No doubt, unions and experts will seek to advise EWCs that they now have a unilateral right to hire experts and lawyers and to organise training, as unions and experts will see this as a future income stream. Such “unilateralism” should be firmly rejected. 

One option would be to provide the EWC with an annual budget to cover expert and legal costs, should they arise. The EWC would need to work within this budget. EWCs would then need to decide for themselves what value, if any, experts and lawyers bring to the process. It is easy to spend other peoples’ money. It becomes a different matter when it is your own money that is being spent.

The EWC agreement should also spell out how training will be delivered to EWC members, both collectively and individually. Suggestions that EWC members can go off and book themselves onto any training program they like should be rejected. Training should always be agreed between management and the EWC. 

Penalties

Summary: Sets out the rejection of Parliament and union proposals for injunctions and GDPR-sized fines, noting that the final Directive avoids heavy penalties to preserve company decision-making flexibility and competitiveness.

In the event of failure to comply with the national provisions transposing the obligations under Article 9(2) and (3), Member States shall provide for dissuasive financial penalties, to be determined considering the criteria listed in the third subparagraph of this paragraph, without prejudice to the possibility to provide for other types of sanctions in addition.

“For the purposes of point (b), of the first subparagraph, Member States shall take into consideration, when determining penalties, the gravity, duration, consequences, and the intentional or negligent nature of the offence. In the case of financial sanctions, they shall also take into account the annual turn-over of the sanctioned undertaking or group or ensure that the applicable sanctions have a similarly dissuasive nature.

The attempt by the European Parliament, pushed by the trade unions, to include provisions to allow courts to impose GDPR-size fines was rejected by the Council and Commission and did not make it into the final text. This was no great surprise, as the idea that undertakings could be fined up to 4% of their global turnover because an EWC “believed” it had not been “properly” informed and consulted was always an unreasonable ask. Especially when the rights of an EWC are limited to offering an “opinion” on decisions under consideration by management. 

EWCs will not be given the right to seek injunctions to block management decisions, though there is wording – “other types of sanctions” – that Member States could introduce. However, it is our view that it is highly unlikely that any Member States would provide for injunctions in their national legislation.

When it comes to the size of financial penalties, one of two possible sets of criteria cites “the gravity, duration, consequences, and the intentional or negligent nature of the offence”. This is more bark than bite. The other criteria talks  of financial penalties linked to turnover or other dissuasive sanctions.

In our experience, the management of undertakings with EWCs never intentionally or negligently disavow their EWC information and consultation obligations. Where there have been disputes about consultation obligations, they have arises because of differences of interpretation about either agreements or the law. All of which underscores the importance of having clear and precise procedures governing information and consultation set out in the agreement and following those procedures properly and in good faith. Do it right and you won’t go wrong.

Disputes

Summary: Highlights new requirements for clear and accessible national dispute resolution procedures, and the potential for EWCs to access national legal aid schemes in the event of legal conflicts with management.

 ...adequate procedures are available to enable the rights and obligations deriving from this Directive to be enforced in a timely and effective manner.

With respect to the rights conferred by this Directive, Member States shall ensure effective access to judicial proceedings or, where relevant, administrative proceedings for European Work Councils and special negotiating bodies, or, on their behalf, their members or representatives. Member States shall provide that the reasonable costs of legal representation and participation in such proceedings are borne by the central management or take other equivalent measures to avoid any de facto restriction of such access for reasons of lack of financial resources.

This wording might be referred to as a “Brussels solution to an Irish problem”. It has been clear for some years that the existing Irish EWC legislation is defective when it come to the resolution of disputes between EWCs and management. The Commission has instituted infringement proceedings against Ireland. Nonetheless, the relevant Irish government department, the Department of Enterprise, Tourism, and Employment (DETE) obstinately refused to correct the defects. 

The wording on disputes in the revised Directive is designed to prevent this happening anywhere in the future. Members states will now have to notify the Commission of the means by which EWCs, SNBs and employee reps can bring judicial or administrative proceedings in respect of the rights in the Directive.

Subsidiary Requirements

Summary: Explains that EWCs operating under Subsidiary Requirements gain the right to meet management twice yearly with expert advisors, and that clear procedures and timelines are crucial when these default rules apply.

There are two main changes in the Subsidiary Requirements. 

The first is that EWCs are given the right to meet with management, in person, twice a year. Bear in mind that under the Subsidiary Requirements the select committee, if there is one, has no right to meet with management, other than in exceptional circumstances. In most agreements, the select committee is given the right to meet with management several times a year. 

Second, EWCs working under the Subdidiary Requirements will now have the right to bring their experts to meetings with management in an advisory capacity. There does not seem to be any limit on the number of experts that an EWC can bring with it. As already noted, payment for experts under the Subsidiary Requirements will be subject to national budgetary rules. 

The use and involvement of experts working within the framework of an agreement will clearly be governed by the terms of the agreement. 

Conclusions: Next steps 

As stated earlier, this is not an exhaustive guide to the revised Directive. We have picked out what we think are the highlight items. We will write a detailed guide when the “clean” text of the Directive is available. 

Our upcoming Sitges meeting will provide plenty of opportunities for member companies to raise questions. As many of our member companies now have their EWCs based in Ireland, we need to start think about submissions to the government about the transposition into national law. We plan to work closely with IBEC, Ireland’s leading employers’ organisation, on this.

Also, we are considering running an in-depth workshop on the new Directive in Sitges in October. Contact Tom Hayes if this would be of interest to you.