CIPD - European Works Councils

Employee relations

Originally issued April 2003; latest revision May 2007

This factsheet gives introductory guidance. It:

explains the EU Directive on European Works Councils (EWCs)
gives advice on approaches taken by companies to manage their EWC arrangements
includes the CIPD viewpoint.

When was the Directive agreed and when did the UK implement it?

The EU Directive on establishing an European Works Council or a procedure in Community-scale companies or Community-scale groups of undertakings for informing and consulting employees¹ was agreed in September 1994 and finally implemented into the UK in January 2000 through the Transnational Information and Consultation of Employee Regulations 1999 (SI 1999/3323) (TICER)².

What are the prospects for amending the current Directive?

The European Commission has raised the possibility of amending the current Directive. Although the EU social partners (employers and trade unions) have been consulted on the need for changes (in 2004 and most recently in 2005), no formal proposals have as yet been tabled and the social partners have so far declined to negotiate an EU-level agreement on the matter.

In the UK, the Department of Trade and Industry (DTI) held a public consultation exercise in 2003 on the UK experience of EWCs. Responses suggested that EWCs had, in some cases, had a beneficial impact on employee communication at the trans-European level with some respondents suggesting that the EWC had ‘played a key role in helping to manage change’. However others thought that EWCs had only symbolic value, and others believed that many EWCs had yet to reach their full potential.

Which companies are covered by the Directive?

The current Directive applies to all companies located in more than one EU Member State and with at least 1,000 employees in total, of which at least 150 are located in each of two EU Member States. There is no obligation for companies to establish an EWC or transnational information and consultation procedure unless either company management takes the initiative to do so, or employees (or their representatives) trigger the request procedure laid down in the Directive. A receivable written request from employees, or their representatives, must represent a minimum of 100 employees in two or more EU Member States.

The Directive does not refer directly to joint ventures, although it includes specific criteria to determine whether or not employees of a specific business must be included in a company’s EWC arrangement; this is required where a company holds the majority of subscribed capital, or controls a majority of the votes, or appoints more than half of the company’s management or supervisory body. The Directive also refers to any other test of dominant influence determining whether or not a company is included in an EWC arrangement. No mention is made of 50:50 joint ventures.

Which law applies to companies?

Companies headquartered in the European Economic Area (EEA) (the EU plus Norway, Iceland and Liechtenstein) must apply the law governing their headquarter entity.

Companies that are headquartered outside the EEA must choose a Representative Agent to act for the company as regards its obligations under this Directive. This will include bearing liability for any legal challenges. The choice of Representative Agent is for the company to make but if none is selected, the law of the EU/EEA Member State in which the company has the largest establishment will apply.

To understand fully their obligations, companies should review both the text of the Directive¹ and the appropriate national implementing law. UK-headquartered companies, or companies designating their Representative Agent in the UK, should refer to TICER².

What options are permitted under the Directive?

The Directive provided for companies to establish a transnational information and consultation procedure voluntarily, ahead of the Directive’s implementation deadline of 1996, and a significant number of companies did so. (The same option was also open to companies brought within scope following the Directive’s extension to the UK in 1999/2000 but the same provision was not extended to the new EU Member States which joined in 2004.) A voluntary agreement is often referred to as an ‘Article 13 agreement’ (referring to the relevant article of the Directive). EWC arrangements negotiated after this time are often called ‘Article 6 agreements’.

The Directive requires that Article 13 agreements cover a company’s entire workforce in the EU, and that they provide for transnational information and consultation about the company or group in the EU. Article 13 agreements can be renewed. Several companies opted for Article 13 agreements at the time, believing that such agreements provided more flexibility for their organisational structure and employee relations culture.

An Article 6 agreement is the only route now open to companies seeking to establish an EWC, or a similar procedure. The Directive prescribes the negotiating arrangements that companies must follow (companies are required to establish a Special Negotiating Body (SNB) comprising of elected or selected employee representatives and which meets with management), and sets out the minimum content of a transnational information and consultation procedure, or EWC.

How are EWC arrangements negotiated?

The Directive requires that the SNB should be established at the level of the ‘controlling undertaking’ in the EEA and that employee representation is country-based, not by business line. In complex organisations, this means that business lines may possibly not be directly represented on an SNB, or the resulting EWC, if the same composition is followed.

How is consultation defined in the Directive?

The Directive defines consultation as ‘an exchange of views and establishment of a dialogue’. Most EWC agreements have simply included the same definition in their information and consultation arrangement, but recently a few agreements have amplified this to include references to timely consultation. The Directive does not require, however, co-management, co-decision making, or bargaining.

The Directive states that companies can require employee representatives and experts to apply confidentiality to all information that has been expressly provided to them in confidence. Employee representatives could, however, challenge company management for withholding information.

Does the Directive provide a back-up model of consultation to follow, and does this influence EWC negotiations?

The Directive also details a default EWC model that would apply in specific circumstances:

where the company does not respond to an employee request to establish an SNB within a specific time period
where negotiations with the SNB break down within a specific time period
where management and the SNB agree that the default model should apply.

In practice, the default model also tends to be a major influence on both the process and content of negotiated EWC arrangements.

The default EWC model details the transnational issues that should be subject to information and consultation, defining as transnational those matters that affect one or more EU Member States, and/or the entire group. The Directive states that transnational issues include: the structure of the company, economic and financial situation, probable development of the business and of production and sales, the situation and probable trend of employment, investments, substantial changes to the organisation, introduction of new working methods or production processes, transfers of production, mergers, cut-backs or closures of undertakings, establishments, or important parts thereof, and collective redundancies. In practice, negotiated agreements tend to reflect the minimum list of issues in the Directive’s default model but, in some agreements, additional subjects have been included (typically, health and safety at work and environment, equal opportunities and training). Many agreements also tend to exclude from their scope issues that would either be negotiated or subject to collective agreement (fro example, pay and terms and conditions).

The default EWC model requires one annual meeting of the EWC, but allows for additional meetings, comprising of some or all EWC employee representatives, to be held when ‘exceptional’ issues arise. The default EWC model allows for employee representatives to submit a written opinion to management following consultation on an exceptional issue, but very few EWC agreements so far reflect this provision.

Language interpretation must be provided for the SNB and most companies make similar provisions in their EWC arrangements, although some require that interpretation is subject to individual need, while others require employee representatives to undergo language training. In practice, interpretation is a major cost component of company EWC budgets.

Who are employee representatives for the purposes of the Directive, and how many are required?

The Directive defines employee representatives in accordance with national law and practice. The UK legislation, TICER, requires a workforce-wide ballot in the UK, unless an information and consultation procedure already covers the entire workforce. (The new Regulations³ implemented in the UK on 6 April 2005- see our factsheet on Information and Consultation of Employees Regulations - make no formal link between EWCs and other consultation bodies that may be establishedto cover UK workforces.) In continental Europe, local or national works councils, and/or trade union recognition tend to determine employee representation to SNBs and EWCs.

Go to our factsheet on Information and Consultation of Employees Regulations

The applicable EU/EEA national law determines the size of the SNB (national implementing laws define the number of representatives in relation to a country’s percentage of the company’s total EU/EEA workforce). The minimum is one employee representative per EU country where a company has one operation, with increasing representation for larger countries with larger workforces. Most negotiated EWC arrangements tend to reflect similar employee numbers as for the SNB. Although the EWC is often unrepresentative of the complexity of most companies’ operations, company managers tend to favour smaller employee representative numbers in order to avoid the EWC becoming unwieldy.

The Directive refers to employee representatives enlisting the support of experts of their choice, insofar as this is necessary for the EWC to carry out its tasks; this applies to the SNB and the default EWC model. National laws may also limit the number of experts to one. The Directive does not specify what the role of an expert should be, and national laws have not elaborated either. In practice, EWC arrangements reflect a wide range of expert involvement, ranging from none to several, and with some experts assuming an extensive role in EWC meetings; in some cases, these experts have exerted a strong influence on the EWC. The vast majority of experts are from national and European trade union organisations.

If the default EWC model in the Directive is influential in shaping EWC arrangements, what is left for companies and employee representatives to negotiate in determining the EWC agreement?

Typically, companies negotiate with their SNB on issues such as the precise issues subject to information and consultation, the issues excluded from scope, the countries and entities covered by the agreement, the number of employee representatives and any provisions for substitutes (some, but not all, national laws require the election or selection of substitute employee representatives), the number and role of experts, management involvement in the process (for example, the level of management that will engage with the EWC in its meetings), duration of the agreement, and procedures for its renewal or renegotiation.

What are the penalties for non-compliance?

Sanctions and penalties are a matter for each Member State. In some countries, breaches of labour law attract criminal penalties, while others enforce financial fines and require the consultation process to be re-started. In the UK, TICER provides for financial penalties (see TICER, Part V - Compliance and Enforcement, and from there on).

What impact has the Directive had to date?

According to latest statistics published by the European Trade Union Institute, 2169 companies fall within scope of the current Directive but only 737 have established EWC arrangements - a little over a third of the total.

A survey by ORC Worldwide in 2004 concluded that low take-up of the Directive would not necessarily be improved through legislative change. The ‘default’ model has had a significant impact on negotiated arrangements, although it is thought that no company has as yet been formally required to implement the default model. The survey also found that, in the vast majority of companies, the establishment of EWCs has resulted in a level of dialogue that did not exist before. However, if the EWC Directive were to require tougher consultation, some companies believe that this could create conflict between the EWC and local/national consultative arrangements.

CIPD viewpoint

Existing EWCs have so far largely failed to meet the hopes and aspirations underlying their creation. The number of companies covered by the Directive has increased with the enlargement of the EU in 2004, but significant further expansion of the network of EWCs seems likely to be limited.

Some companies have used their EWCs to improve employee communications and help break down cultural barriers. However, management needs to make an ongoing commitment of effort and resource to secure significant benefits from their operation.

There is little evidence so far that trade unions have been able to use EWCs to develop trans-national bargaining arrangements although a few high-profile companies have concluded agreements with their EWC on specific matters affecting the business. However, some employers remain concerned that this might be a longer-term development. Nevertheless, legal changes to the current Directive, as well as other initiatives envisaged by the European Commission and which address transnational bargaining and restructuring, may put the spotlight once again on the role and competencies of EWC arrangements.

The evidence suggests that EWCs can help foster closer working between employee representatives in different EU countries. But it may be difficult for them to agree a common line that transcends national interests.

Many UK employers prefer to keep their domestic consultation arrangements separate from their EWC (where one exists) although the implementation of information and consultation arrangements to respond to the new UK regulations⁴ could prompt some companies to establish some for of coordination between national/local forums and their EWC arrangement. The key issue across the EU appears to be the continued importance of local rather than trans-national consultation for both employees and management.

Consultation with CIPD members in 2003 showed little support for changes to the legislation and a shared concern about proposed amendments to the Directive put forward by the ETUC and the European Parliament. In particular members did not want to see a new definition of consultation. Under current legislation, consultation means ‘the exchange of views and establishment of dialogue between EWC members and senior management’ (the ETUC proposed that the directive should specify consultation as being ‘with a view to reaching agreement’). CIPD members expressed concern that this would be an unjustified extension of EWCs’ role and stressed that discussions are best held locally wherever possible.

References

Council Directive 94/45/EC of 22 September 1994 on the establishment of a European Works Council or a procedure in Community-scale undertakings and Community-scale groups of undertakings for the purposes of informing and consulting employees. (1994) Official Journal. L254, 30/09/1994. pp0064 - 0072. Available at: http://europa.eu.int/smartapi/cgi/sga_doc?smartapi!celexapi!prod!CELEXnumdoc&lg=EN&numdoc=31994L0045&model=guichett
The Transnational Information and Consultation of Employees Regulations 1999. (2000) SI 1999/3323. London: The Stationery Office. Available at: http://www.legislation.hmso.gov.uk/si/si1999/19993323.htm
The Information and Consultation of Employees Regulations 2004. (2004) SI 2004/3426. London: The Stationery Office. Available at: http://www.legislation.hmso.gov.uk/si/si2004/20043426.htm

European Works Councils