BEERG Briefing Note: Possible Revision of EWC...

Introduction

The timeline for a potentially radical reform of EWC legislation has shortened considerably with the statement from Commissioner Nicolas Schmit (see here) that he intends to introduce legislation to amend the European Works Council Directive by the end of 2023, 

This comes in response to a request from the European Parliament based on the Radtke Report for a radical revision of the Directive. It seems that the Employment Commissioner intends to act before the end of the year as he appears to think that an agreement between the social partners, BusinessEurope and ETUC, is unlikely. 

This dramatic speeding-up of the legislative process heightens the importance of the engagement of the EU’s Member State governments. This rush to legislate based on the Parliament’s flawed proposals risks the creation of a revised EWC Directive which would gravely undermine European competitiveness.

If the Commission drafts legislation based on the Parliament’s suggestions, then EWCs would move from being fora for dialogue and discussion, to become centres of legal conflict, imposing delays, costs, and uncertainty on major multinational companies when change is under consideration. 

In this paper we outline, point-by-point, the key areas where we believe that the EU Parliament’s proposals get it wrong. 

• Both the original 1994 Directive, (94/45/EC here) and the 2009 recast (2009/38/EC, here) ensure that EWCs provide a forum for dialogue on transnational matters between employers and representatives from every EU/EEA country in which the undertaking has operation. To date, the vast majority of EWCs have operated according to what the law mandates. There are some 1,100 EWCs in existence. To the best of our knowledge, since 1996 there have been less than 100 court or tribunal references involving EWCs.
• The employees’ representatives are entitled to offer an opinion on the issues under discussion or on decisions being considered after they have been informed and consulted by management.
• There are problems with the current Directive in its lack of precision. The process could benefit from clarity around:
  • The definition of “transnational”. This seems obvious but became less clear with the 2009 recast.
  • Employers’ obligations regarding the provision of “information” are too loosely worded and do not clearly define what information should be given to representatives, or when information is to be given.
  • The provision on the timeline for “consultation” could also be better stated. 
  • Greater precision regarding the right to training could also remove a source of discord.
• It is important to note that many EWCs have dealt with these questions through agreement between the parties. So, while a new revision could helpfully clarify Brussels’ legislative intent, employees’ representatives and management have, for the most part, arrived at a consensus on what works for them. Any change in the legislation must provide for the protection of existing agreements, including Article 13/14 agreements, until the parties themselves decide to change them. They should not be changed at the demand of trade unions who are not party to them. 

HOWEVER…

PURPOSE:

• The purpose of the 2009 recast of the EWC Directive was “to improve the right to information and consultation of employee” and in a way that enables companies “to take decisions effectively.”  In today’s context, it is about ensuring employee voice is heard, and their interests are taken into consideration as a stakeholder in the process.  In its reliance on the Radtke Report, the European Parliament would replace the existing social dialogue model with a more adversarial and legalistic one which invites conflict between the parties.

Labour relations are about conflicting, collective interests. Matters are decided by what the French call the “rapport de forces” between the parties, which translates as the respective strengths of the parties. It would unbalance matters if one side, the EWC, could ask for an injunction simply because it believed it had not been properly informed and consulted, while the employer side had no such recourse if it believed the EWC was behaving in an irresponsible manner.

PROCESS:

• In EU law, there is a clear distinction between a Regulation [EU General Data Protection Regulation] and a Directive. Because a Regulation is applicable across the whole of the EU without the need to be transposed into national law, it needs to be precise and specific. On the other hand, a Directive is an instruction to national governments to amend their laws in line with the purposes of the Directive. Intentionally, governments are given flexibility to amend in line with national practices. 
• This is particularly the case when it comes to employment and labour law Directives. The EWC Directive is based on Article 153 of the EU Treaty. We are doubtful if that Article allows for the imposition on Member States through a Directive of both a process for injunctions and precisely defined financial penalties. We are also doubtful if a Directive can oblige Member States to provide for the payment of legal costs incurred by an EWC if that is not already the practice for local representative bodies in Member States. 

PENALTIES:

• In its call for a revision of the Directive, the European Parliament wants an EWC to be able to go to court to ask for an injunction to block management decisions if it believes it has not been properly informed and consulted. Further, courts could impose fines of up to 2% of global turnover in the event of an inadvertent breach of EWC information and consultation obligations, and up to 4% where the breach was deliberate. All of the EWC’s court costs would have to be covered by the employer.
• GDPR-sized fines do not have any role to play in labour relations, especially if honest mistakes are inadvertently made, as always happens, and by both sides. As already stated, we do not believe that it is appropriate for a Directive based on Article 153 to instruct Member States on what level of fines should be imposed. It should be a matter for Member States to decide in line with national traditions, laws and practices. Penalties should be applicable to both sides, if either party behaves inappropriately. 
• Nor should injunctions have a place in managing necessary change in multinational companies. Injunctions play no role in the collective industrial relations systems of the overwhelmingly number of EU/EEA Member States. And for good reason. These are matters best left to the parties to resolve between themselves. Judges are best kept out of it. Where judges have been involved, for example in the well documented French case of Gaz de France/Suez or, more recently when the Supreme Court in Spain ruled is 2022 that redundancies in Iberia in 2015 were illegal, delay and uncertainty get baked into the system which inhibit European companies compared to more nimble global competitors. 
• On the matter of injunctions, how is a court to decide if information and consultation obligations have been breached if they are not precisely defined? Management may attempt to do so in an agreement, but if an EWC believes that loose language in the legislation gives them leverage, they will reject such attempts. 
• From the Parliament’s proposals, it would appear that an EWC could go to court on multiple occasions during the same information and consultation process. It could go to seek an injunction if management held that an issue was not transnational. It could then allege that it had not been provided with sufficient information. The consultation was not conducted in a proper manner. The remit of the expert was too restricted. Management’s response to its opinion was inadequate. The possibilities are endless.
• While many such claims will be found to be without merit, the effort, time, and cost involved in defending them will be considerable. The time, effort and cost involved will also take way from what EWCs should really be about, dialogue between management and the employees’ representatives. If management comes to see EWCs as adversarial fora then managements’ willingness to engage in open dialogue will diminish.
• Injunctions would turn EWCs from dialogue fora into highly conflictual industrial relations fora. The guaranteed presence of trade unions in every EWC, whatever the level of their membership across the company, would compound this. Challenging management is what trade unions are about. If in doubt, check their websites. 
• To allow, as would the European Parliament, that all legal costs incurred by an EWC must be covered by the employer is to create a perverse incentive to make use of this facility. Any rational economic actor would. If you can legally challenge the other party any time you want, with the other party always having to pay your costs then that is the rational thing to do in the event of the slightest of disagreements. There is no downside. Win and you are ahead. Lose and you are no worse off. Paying the costs of the other party, irrespective of the merits of their claim and irrespective of whether they win or lose, is not normal practice across Europe. Doing so for EWCs would create an unhelpful precedent.
• There is also the very real danger that giving EWCs the right to go to court and seek an injunction would have an adverse impact on national industrial relations. The Parliament’s proposals conflate European and national industrial relations to a remarkable degree. Further, the Parliament’s definition of what is “transnational” is extremely wide-ranging, including issues that might “potentially” be considered transnational, disregarding the number of Member States involved. It is not difficult to see local/national employee representative bodies asking EWCs to seek injunctions on their behalf because the issue over which they are in dispute might “potentially” be transnational. Issues that are purely local could artificially be made “transnational”. 
• We could see a ludicrous situation where, say, a dispute in Poland in a US-based multinational company results in the German chair of an EWC based under Irish law going to an Irish court to ask an Irish judge to issue an injunction to prevent management implementing decisions in Poland because the EWC believed that the matter was potentially “transnational” and it should have been informed and consulted. Further, how are such injunctions to be enforced and by whom? How can an Irish-based representative agent instruct local management in Poland to cease and desist? 
• A legal structure of injunctions, fines, and costs cannot be built on a simple belief on the part of an EWC that it has not been properly informed and consulted. 
• Finally, all EWC disputes should, in the first instance, be subject to mediation in accordance with national laws and traditions in the country in which the EWC is legally based. A rewritten Directive should provide for this, and national governments should make sure that their labour mediation services have appropriate expertise to deal with such disputes. Resorts to courts should be the last option after every other method of resolving disputes has been exhausted. Such mediation should be cost-free and, ideally, should not need the involvement of lawyers.

OUTCOMES:

• Create incentive and parties will make use of them. It will be argued that EWCs, guided by trade unions, will act responsibly and will only resort to the courts in extremis. We do not believe this will be the case. Trade unions do not control EWCs and the majority of EWCs will not take instructions from trade unions, much as the unions would like them to.  
• For those who believe such an irresponsible exercise of the process would be unlikely, they only have to look at the number of cases the Verizon EWC referred to the Central Arbitration Committee in the UK and now, after Brexit, to the Labour Court in Ireland. 
• As we noted above, create perverse incentive structures and parties will take advantage of them if they think it further their interests.
• Injunctions, GDPR-size fines, and a liability for unlimited court costs would be extremely damaging to European competitiveness, especially at a time when an increasing number of European companies are looking at the US as a result of the Inflation Reduction Act. Despite the ongoing commitment of many multinationals to invest and hire in Europe, if managing change in Europe becomes too difficult, why stay? Further, if you don’t have an EWC why would you want one if this is what its gets you. 
• In our view, agreement between the parties on the ground delivers a better outcome for all than an imposed regulation from 40,000 feet.  We recognize that EWCs have not proven the vehicle for an international union renaissance that labor activists had hoped, but, as a vehicle for social dialogue, EWCs have delivered.
• What is needed is greater clarity and precision in the existing Directive, not a radical rewrite that completely changes the nature of EWCs.