BEERG Reflections - EU’s Third Wave of...

European Union Member States, some more than others, provide multiple institutional channels for employee voice in the workplace. These include trade unions, works councils, European Works Councils, and, in a few countries, board level worker participation. 

In much of the rest of the world, if you are not a trade union member then there is no mandatory channel for collective, workplace voice. While in the US worker representation is legally limited to labor unions, elsewhere employers could put in place voluntary mechanisms if they so wished, but most chose not to do so.  Europe is unique in this regard in the sense that non-union channels of representation are mandatory at least in some countries.

Over the past 50 years we have had two waves of European Union (EU) laws on employee information and consultation through designated representatives. We are now, we believe, on the cusp of a “third wave” and this third wave will have a significant impact on workplace employee relations in ways that the two previous waves have not had.

Managers responsible for employee relations/labour relations across Europe will need to familiarise themselves with these coming developments, assess what they may mean for their businesses, and proactively plan ahead to ensure optimal outcomes. We will come back to this in the last part of this paper.

As the UK is no longer part of the European Union these developments will not impact the UK directly, though a future UK government may want to look at these laws as they plan their own. This could be particularly true of a Labour government. Managers, particularly in multinational companies, will want to think about how they manage employee voice in the UK and if the UK should have representatives on European Works Councils as the EU and the UK increasingly diverge.

First Two Waves:

First Wave

The first wave came in the 1970s and gave us Directives on Collective Redundancies and the Transfer of Undertakings. Early attempts to legislate for European Works Councils and board level participation came to nought as governments turned their attention to dealing with the social and economic impact of huge oil price increases resulting from war in the Middle East and which brought to an end thirty years of economic growth.

Where union representation and works councils are absent, European Union law provides that employees’ representatives to deal with a collective redundancy or a transfer of undertakings can be elected on an ad-hoc basis and stand down once the matter is dealt with. This was particularly the case in the UK and Ireland, though in other countries if there were no representatives in place as provided for in national law, there was no consultation. In the UK and Ireland, the ad-hoc fora rarely transform into standing information and consultation bodies. 

Second Wave

The second wave began with the signing the of the Single European Act (SEA) in the late 1980s and then the Maastricht Treaty in 1992. Both measures progressively removed the need for employment laws to be approved by the Council of Ministers unanimously and allowed for qualified majority voting. The ability of one country to block such laws was removed. 

From the SEA came health and safety committees, not to mention laws on working time and maternity leave. Health and Safety Committees have played an important role over the years, but their remit is limited. Maastricht gave us European Works Councils, then the Directive on employee information, consultation and participation in companies established under the European Company Statute Regulation, Societas Europea, (SE). 

European Works Councils are informed and consulted annually on broad, transnational issues and in “exceptional circumstances”. They can offer an opinion on decisions under consideration. They are involved with “macro” issues rather than the “micro” issues which tend to be of more concern to employees in offices and factories.

Finally, the General Framework on Informing and Consulting Employees was also adopted. This, however, has had little real impact in practice. It is difficult to find examples of Member States where it has led to the widespread establishment of works councils/employee fora, where none previously existed. However, as we suggested later in this paper, it may provide a useful framework to coordinate all the new information and consultation obligations required by the “third wave” of legislation.

There are also references to employees’ representatives’ involvement in some company law statutes but, to date, these have not proved to be of much significance in practice. This may be about to change.

Third Wave

The “third wave” is driven by a host of new laws, written to respond to the need of today’s workplace realities, such as the rapid emergence of Artificial Intelligence which is playing an increasingly important role in managerial decision making, and the widespread adoption of “platform models” (gig economy) of service delivery.

There is also growing public concerns over the need for social and environmental regulations covering all forms of businesses, stretching throughout supply and value chains. Not all these laws are defined as employment laws specifically, but they all have an important employment law dimension. The emerging EU legislation that will drive the third wave in the near-term include (see notes on each in Appendix on page 4):

• Directive on An Adequate Minimum Wage (agreed and now being transposed into national law)
• Pay Transparency Directive (agreed and now being transposed into national law)
• Employment Status of Platform Workers (in process)
• AI Act (in process)
• AI Liability Directive (in process)
• Corporate Sustainability Reporting Directive (adopted and due to be implemented beginning in 2024)
• Corporate Due Diligence (in process)
• Revision of the EWC Directive (in process)

Each of these take a broad view of the social responsibilities of companies with operations in Europe, and elsewhere. They expand corporate obligations beyond their immediate doorsteps and beyond traditionally defined employees. And several seek to expand, establish, and/or require new forms of collective representation as a counterpart to what is perceived, at least by some legislators, as management’s failure to manage with the interests of all stakeholders in mind, and employee stakeholders, in particular.

Third Wave: Some Thoughts

The Corporate Sustainability Reporting Directive will oblige managements to set out in detail their collective bargaining, employee representation, and other arrangements for employee voice within the company across Europe. This will be the first time such granular details will have to be made public. It will provide unions and other activists with campaigning data for demanding enhanced employee representation structures within companies. 

The web of new laws will fuel such demands as they will create multiple obligations on management to inform and consult with employees’ representatives. Unlike the ad-hoc representatives that are put in place to deal with collective redundancies and the transfer of undertakings, elected employees’ representatives under the new laws will become permanent fixtures. 

Even though many European countries have legal frameworks in place for the election of workplace representatives, not every workplace has such representatives. Employees often do not avail themselves of the right to elect representatives. The new laws may act as a catalyst, and we may see works councils being created in western EU Member States where none currently exist. In eastern Member States they may hand over increased influence to unions which, while they may have official representative status, have few if any members. All these information and consultation bodies run the risk of “activist capture” if management fails to create the conditions for widespread employee involvement.

As we make clear in the appendices, nearly all these new pieces of legislation call for information and consultation with employees’ representatives. The issue employers will face is this. Do you want one group of representatives to deal with pay transparency, another to deal with the rights of digitally-employed workers, a third to be involved in supply chain issues, a fourth to deal with AI issues in general? Or do you want one group to take responsibility for all information and consultation processes? 

If the answer is the latter, one overarching group, then there is already an answer in the 2002 General Information and Consultation Directive, as transposed into national law. We noted earlier that there was not any significant number of I+C Fora established under this legislation largely because, we believe, it was vague and unfocused, delivering no specific outcomes to which employees could relate.  

With the new legislation, there are focused, and specific issues employees’ representatives can engage with. Trying to eliminate gender pay differentials will encourage many to get engaged, as will improving the employment rights of digitally-employed workers.  So, what can employers do now?

1. Watch the progress of this legislation through the European legislative system and familiarise yourself with what it may mean.
2. Work with other employers, thorough employers’ associations and industry groupings, to influence the transposition of these Directives into national laws. Do not leave it to others with a different agenda to make the running.
3. Map what the developments we have listed above could mean for your business on a country-by-country, site-by-site, basis. Where have you existing employee representative structures that will take up these new mandates? Where might you have to create new structures?
4. Will you need multiple new structures? Would it make sense to go for just one, overarching structure. Should you be putting such structures in place now, getting ahead of the game?
5. How do you avoid “activist capture”? What can you do to encourage “mainstream” employees to get involved?
6. What training will new representatives need? Should you be designing such training now?

Planning and preparation will be the secret to overcoming the challenges the new laws will bring. Best to start now.  

Appendix:

Items in the coming Third wave with explanatory notes

• The Directive on An Adequate Minimum Wage (agreed and now being transposed into national law)
  • This Directive includes an obligation on Member State governments to put in place measures to bring collective bargaining coverage up to 80% of the workforce. How this is to be done if employees do not want to join unions is unclear. The unions think the imposition of sectoral collective bargaining is the answer. However, it is difficult to see any real political constituency for this in the Member States. But if governments put in place laws which facilitate union membership they could make some difference, even if only at the margins.
• The Pay Transparency Directive (agreed and now being transposed into national law)
  • If data analysis show pay gaps of more than 5% between men and women in job grades and categories which cannot be objectively justified then employers will have to engage with employees’ representative in a joint assessment to determine the reasons for the gap and what actions can be taken to eliminate it. Where representatives do not exist, then national law will have to make provision for their election/selection/nomination. Such committees of employees’ representatives will be long-lasting as it is unlikely that pay gaps can be quickly eliminated.
• The Employment Status of Platform Workers (in process)
  • Workers’ representatives, no matter whether such workers are employees or self-employed, will have to be informed and consulted about the use of algorithms in making human resource decisions about hiring and firing, work allocation, compensation, and evaluations. It needs to be kept in mind that the reach of this Directive will be determined by how the term “digital platform worker” is defined. Will it extend beyond the obvious, such as Uber and Deliveroo, to IT contractors hired by non-platform companies through digital channels?

Such workers’ representatives will be permanent committees, to be informed and consulted on an on-going basis. 

Whatever is agreed as regards information and consultation in this Directive will then be used as a template for the AI Act.

• The AI Act (in process)
  • The employee information and consultation obligations in the AI Act, which will set the EU’s governance framework for the use of Artificial Intelligence like the General Data Protection Regulations governs data use, will follow closely whatever wording is agreed in the Platform Workers Directive. Once EU lawmakers agree a formula of words on an issue in one Directive, it normally carries over into other Directives. Why reinvent the wheel? It is likely that employee representatives elected under the terms of this law will also become permanent. Many manufacturing and logistics companies now use AI to allocate tasks and design work schedules. These are issues that touch on the everyday lives of workers. They will take the chance to have a voice where they can.
• AI Liability Directive (in process)
  • While the AI Act will govern the use of AI, the AI Liability Directive will set out procedures through which those who believe they have been the victims of a wrongful AI decision can claim compensation. It could include provisions for class actions, which would allow works councils, unions, and other employees’ representatives to lodge complaints claiming that employees have been damaged as a result of AI decisions.
• Corporate Sustainability Reporting Directive
  • This Directive requires management to report annually on:
    • Equal treatment and opportunities for all, including gender equality and equal pay for work of equal value, training and skills development, the employment and inclusion of people with disabilities, measures against violence and harassment in the workplace, and diversity.
    • Working conditions, including secure employment, working time, adequate wages, social dialogue, freedom of association, existence of works councils, collective bargaining, including the proportion of workers covered by collective agreements, the information, consultation and participation rights of workers, work-life balance, and health and safety.
    • Respect for the human rights, fundamental freedoms, democratic principles and standards established in the International Bill of Human Rights and other core UN human rights conventions, including the UN Convention on the Rights of Persons with Disabilities, the UN Declaration on the Rights of Indigenous Peoples, the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work and the fundamental conventions of the International Labour Organization, the European Convention for the protection of Human Rights and Fundamental Freedoms, the European Social Charter, and the Charter of Fundamental Rights of the European Union.
  • In addition, the undertaking’s management will be required to inform “workers’ representatives at the appropriate level” and discuss “with them the relevant information and the means of obtaining and verifying sustainability information. The workers’ representatives’ opinion shall be communicated, where applicable, to the relevant administrative, management or supervisory bodies” (Article 19). Recital 9 states that the ultimate beneficiaries of sustainability reports include ‘trade unions and workers’ representatives who would be adequately informed and therefore able to better engage in social dialogue”. 
• Corporate Due Diligence (in process)
  • This legislation is still very much under discussion. There are three critical questions in play. 
    1. First, should the law only apply to supply chains, the system of suppliers to the end user company. Or should it also apply to values chains, the use that is made of goods and services after they leave the end user. For example, is Google responsible for the use to which its face recognition technology might be put?
    2. Second, how “deep” should the due diligence obligations of the end user company go? Simply to its first level suppliers? Or all the way down the supply chain to the Nth degree?
    3. Third, should be finance sector be included or excluded?

No matter how these questions are decided, there will be a role for unions/works councils/employees’ representatives in due diligence procedures. Will it extend to such bodies having the legal standing to take cases to courts alleging breaches of due diligence obligations? For example, could a German works council challenge a German company over its failure to recognise unions in the United States, claiming it is in breach of ILO Conventions? Whether such claims are well-founded or not, they will involve considerable time and cost to defend.  

• Revision of the EWC Directive (in process)
  • We have already written extensively about the proposed changes to the EWC Directive. The kernel of the changes proposed by the European Parliament is that EWCs would be given the right to seek injunctions from national courts to block management decisions where the EWC “believed” it had not been properly informed and consulted. 

Further, courts would be able to impose GDPR-size fines even in circumstances where companies inadvertently breached EWC information and consultation obligations. The costs of all such legal actions would have to be paid by management. A perverse incentive to challenge every proposed management decision with which the EWC did not agree, which pretty much means every decision.

Further, the Parliament wants the relationship between EWCs and national representative bodies to be recalibrated so that EWCs would consult such bodies before offering its opinion on proposed management decision. As the Parliament also proposes a significant extension of the meaning of “transnational” this would result in EWCs being at the apex of a European network of information and consultation bodies with the power to seek injunctions to block management decisions. 

As the parliament also wants unions to have an automatic seat on all EWCs, this package of proposals has the ability significantly destabilize existing industrial relations arrangements in most EU Member States. 

See our paper on the ETUC demands as set out in their response to the second consultation by the European Commission on the possible revision of the EWC Directive to get a better picture on how the unions see EWCs as the apex of a labour relations system in major multinationals, with every EWC being controlled by an embedded union official.  

DISCLAIMER: The views and opinions expressed in this paper are solely representative of the author