New European Commission Proposal on European Works Councils

New European Commission Proposal on European Works Councils

April 9, 2024, Covington Alert

Earlier this year, the European Commission adopted a proposal to amend the current directive regulating European Works Councils (“EWCs”) which would strengthen the rights of these transnational employee representative bodies.  In this alert we highlight the proposed key changes and their impacts on employers.

I. Current Law

The current EU minimum requirements relating to EWCs are dictated by the Recast Directive on EWCs (2009/38/EC) (“Directive”).  The Directive only applies to undertakings or groups with at least 1,000 employees within the European Economic Area (“EEA”) and at least 150 employees in each of two countries.  EWCs are employee representative bodies, set up upon a valid request, with members from more than one country in the EEA.  EWCs have the right to be informed and consulted regarding matters which significantly affect workers’ interests in the EEA as a whole or at least two EEA sites, defined as transnational matters, such as redundancies and restructurings.  In contrast to local works councils in some EU member states (e.g. Germany), EWCs typically have no co-determination rights and therefore cannot force the conclusion of certain agreements (such as social plans).  The EWC is governed by an agreement negotiated between central management and the relevant employees, through a special negotiating body (“SNB”).

II. Key Changes under the New Proposal

The European Commission adopted a proposal to amend the Directive (“New Proposal”) to give more power and protections to EWCs.  The key changes brought forward by the New Proposal are:

• Confidentiality: Company management will need to justify why information is confidential and cannot be disclosed outside the EWC member group or is not disclosed at all.  The requirement to keep relevant information confidential will cease when, in agreement with management, the justification provided becomes obsolete.
• Transnational matters: The new definition of “transnational matters” now includes cases where measures affect workers in only one EEA country, but the consequences of those measures can reasonably be expected to affect workers in at least one other EEA country.
• Financial aid: The New Proposal clarifies that, in negotiating the EWC agreement, central management must cover the SNB’s reasonable costs of legal assistance, representation, and proceedings.  In addition, the operating expenses of EWCs to be borne by the central management include reasonable legal costs, if these are notified to central management in advance.
• Gender Balance: The New Proposal sets a target of 40% of seats on the EWC being allotted to members of either gender.  SNBs should also actively pursue gender balance.
• EWC meetings: The number of mandatory EWC meetings under the “model” EWC agreement in Annex 1 of the Directive (i.e., the agreement which applies by default if the parties cannot agree following negotiations) will increase from one meeting each year to two each year.
• Voluntary Agreements: The exemption which allows companies who already had “voluntary agreements” prior to the adoption of the Directive to avoid establishing EWCs will be removed.
• Sanctions for breach: When determining monetary sanctions, member states will need to take into account, among other things, the size and financial circumstances of the sanctioned undertaking or group (for example, its annual turnover). 

The New Proposal is at an early stage in its development.  After public feedback is collected the European Commission will present it to the European Parliament, which may decide to make modifications to it.  It will likely take (at least) a couple of years for the New Proposal to come into effect, depending on how it progresses through the European Parliament.

III. Potential Impacts on Employers

If the New Proposal is adopted and comes into force, it would give EWCs consequential improved rights which would impact in-scope companies’ strategic plans.

Employers should track the developments of the New Proposal and train key personnel to recognise valid EWC requests that may be received in the future.  Employers who do not currently have an EWC in place may also wish to consider whether it is appropriate to take any proactive steps, such as implementing additional voluntary employee forums to provide a means for worker engagement / negotiation with management, outside of the scope of the EWC legal regime. 

Employers who currently have an existing EWC or voluntary agreement in place will need to be prepared for a possible renegotiation of their current EWC agreements to comply with the changes in the New Proposal, once it comes into force.