EWCs: Franchising in the crosshairs

It certainly appears that the rewritten EWC Directive has expanded the definition of a “controlling undertaking” significantly to encompass franchise structures and other forms of contractual arrangements.

The Key Points  It appears to us that the revised EWC Directive have broadened the definition of a "controlling undertaking" to explicitly include franchise structures and other contractual arrangements, not just traditional corporate hierarchies. The revised Directive moves beyond ownership and financial participation, emphasizing who has ultimate decision-making authority, including situations where dominant influence is exercised through contractual rules and decisions.

Why This Matters  This expansion could fundamentally reshape the scope of EWCs by targeting complex business models, such as franchising, outsourcing, and agency arrangements, which previously might have skirted EWC obligations. The new approach places less emphasis on formal legal structures and more on actual influence, raising the possibility of judicial testing by unions and potential increases in legal costs for employers.

What Might Happen Next  Expect unions to test the limits of the revised language by targeting franchise and contractor arrangements in court, seeking to extend EWC coverage. Employers may face legal challenges as the new definition is litigated. Uncertainty remains over how broadly courts will interpret "the rules and decisions which govern" a controlled undertaking, potentially pulling more business models within the Directive’s reach.

What You Should Be Doing  Companies should review their contractual structures, especially franchises, joint ventures, and outsourcing agreements, to assess whether they could be captured as "controlling undertakings" under the new rules. 

On October 14 - 16, we are running a training program in Sitges, Barcelona on how to prepare for the coming of the 2025 EWC Directive.

ADDITIONAL INFORMATION:

Here is an article on the new Directive from the Irish law firm, A&L Goodbody. 

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Recital 3 of the rewritten Directive now reads:

An evaluation of Directive 2009/38/EC published in 2018 confirmed its added value and relevance in principle. 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.

In the main text of the Directive, Article 3, paragraph 1 is replaced by the following:

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. (Our emphasis).

How far can the words “the rules and decisions which govern it” be pushed? What interpretation can be put on them? From Recital 3 quoted above it is clear that franchise arrangements are very much in its sights.