EC: European Company Statute close to adoption
In December 2000, the EU member states reached political agreement on the worker involvement aspects of the European Company Statute. As a result, the Statute should be adopted soon - possibly in March 2001 - bringing an end to over 30 years of debate.
The French EU Presidency of the second half of 2000 made progressing the European Company Statute (ECS) one of its priorities, and by the end of its term in office it had succeeded in breaking the deadlock on a proposal that was first proposed by the European Commission over 30 years ago. Brief details of the history of the ECS and the features of the new form of "European Company" (also known as a Societas Europea, or SE) that it creates are provided in the box on p.15.
The draft ECS consists of a Regulation governing the company law aspects of the SE, and a separate Directive on worker involvement. The Internal Market Council had been discussing the former (and had already succeeded in resolving all major problems) and the Employment and Social Policy Council the latter, which had proved controversial for many years. Of late, debate in the Employment and Social Policy Council had revolved around seeking to resolve the Spanish government's reservations about a compromise text acceptable to the other 14 member states. At the November 2000 Employment and Social Policy Council meeting, there was reportedly wide agreement on most of the planned provisions on worker involvement in the SE, with the only question remaining open being that of the compulsory fall-back provisions applicable in the absence of an agreement on involvement between employee representatives and management, in some circumstances. The ministers agreed to continue to seek a solution on this issue, with a view to enabling the European Council summit in Nice on 7-9 December to agree a compromise acceptable to all member states.
The Nice European Council succeeded in concluding a deal on worker involvement in the European company, by making the national implementation of some fall-back provisions optional (see below). The European Council called on the Council of Ministers "to complete before the end of [the] year the texts enabling the Statute for the European Company to be established". The Employment and Social Policy Council thus met on 20 December and reached a political agreement on the ECS involvement Directive (and on the ECS Regulation). This was greeted by Anna Diamantopoulou, the Commissioner responsible for Employment and Social Affairs, as a "milestone agreement which marries the needs of business with the needs of workers and reflects the Lisbon summit approach that good social policy is good economic policy". The main points of the Council's political agreement are set out below.
Setting up an SE
An SE may be set up in four ways:
These different ways of establishing SEs are important, in that specific worker involvement provisions apply to each type.
Negotiating process
When the governing bodies of existing companies decide to establish an SE, they must open negotiations with a special negotiating body (SNB) of employee representatives from all the companies concerned, with the aim of concluding an agreement on the involvement of workers in the planned SE.
The seats on the SNB are allocated to elected or appointed employee representatives in line with the number of workers employed by the companies concerned in each relevant member state. Each country will be allocated one seat for every 10%, or portion of 10%, of the SE's total workforce employed there. SNB members from a particular country should, as far as possible, represent all the companies involved. Member states may provide for trade union representatives to be SNB members, whether or not they are employees of the companies involved.
Negotiations between management and the SNB may last for up to six months (which may be extended to a total of one year by mutual agreement). The SNB may be assisted by experts of its choice, who may attend negotiating meetings and who may include representatives of appropriate EU-level trade union organisations. The SNB process can have four outcomes:
Agreements
Where an agreement is reached, this should set out:
The parties may agree to create an information and consultation procedure instead of a representative body, in which case the accord must specify how this will be implemented.
As well as these information and consultation provisions, the agreement may also cover board-level employee participation. If so, the agreement should specify: the number of board members that employees may elect, appoint or nominate; the procedure for election, appointment or nomination; and the rights of the employee representatives on the board.
The inclusion of board-level participation in the agreement is essentially optional. However, in the case of SEs formed by converting an existing national company, the agreement may not provide for a lower level of worker involvement than applied in the national company. Where the national company had board-level participation arrangements, such participation would thus be a compulsory element of the agreement. Moreover, in other types of SE, special rules apply where a certain proportion of the workforce of the companies involved were already covered by board-level participation - 25% in the case of companies formed by merger and 50% for those formed by creation of a joint holding company or subsidiary. In these cases, agreements may provide for a lower level of board-level participation than existed in the companies involved only if this is agreed by a two-thirds majority of the SNB, representing at least two-thirds of the total workforce.
Reference provisions
Statutory so-called reference provisions on information, consultation and (in some cases) board-level participation (set out in an annex to the Directive) will apply where no agreement on worker involvement is reached within the deadline, or if the parties so decide.
The reference provisions on information and consultation require the establishment of a representative body made up of employees of the SE, appointed or elected by employee representatives or, in their absence, by employees, in line with national law and/or practice. The composition of the representative body is governed by the same rules as for the SNB, with each country allocated one seat for every 10%, or portion of 10%, of the total workforce employed there. The representative body may elect a select committee of up to three members.
The representative body has the right to be informed and consulted on the basis of regular reports from management on the development and prospects of the SE, and to meet management at least once a year. This meeting should in particular cover: the SE's structure and economic and financial situation; the probable development of the business and of production and sales; the situation and probable trend of employment; investments; and substantial changes concerning organisation, introduction of new working methods or production processes, transfers of production, mergers, cutbacks or closures of undertakings, establishments or important parts thereof, and collective redundancies. The representative body also receives documentation relating to board meetings and shareholders' meetings.
Where there are exceptional circumstances affecting the employees' interests to a considerable extent - particularly in the event of relocations, the closure of establishments or undertakings, or collective redundancies - the representative body has the right to be informed. The body (or in some circumstances its select committee, plus representatives of the employees directly affected by the circumstances in question) has the right to meet, at its request, the SE's central management, or any other more appropriate level of management, so as to be informed and consulted on measures significantly affecting employees' interests. If management decides not to follow the opinion expressed by the representative body on the issue in question, the latter has the right to call a new meeting with management in order to seek an agreement.
Employee representatives are entitled to: meet on their own before all meetings with management; be assisted by experts of their choice; and have paid leave for necessary training. All operating costs are met by the SE, which must provide employee representatives with the necessary financial and material resources to enable them to perform their duties.
As well as creating a representative body, SEs with no involvement agreement would in some cases be obliged to apply reference provisions on board-level participation, if the companies involved in their creation were previously covered by such participation. This would apply:
The application of the reference rules on board-level participation to SEs formed by merger had been the remaining issue of contention between Spain and the other member states prior to the Nice summit. The European Council resolved the issue by agreeing that member states may opt not to implement the Directive's reference rules on board-level participation in the case of SEs formed by merger. However, if a member state opts not to implement these provisions, such an SE may be registered in that member state only if an agreement on worker involvement has been concluded, or if no employees were covered by board-level participation rules before the SE was created.
For SEs formed by conversion of an existing company that was already covered by board-level participation provisions, the reference rules provide that these existing provisions continue to apply in their entirety. In other types of SE, employees or their representative body have the right to elect, appoint or nominate a number of board members equal to the highest level of board-level representation which applied to the companies involved in creating the SE. The representative body will decide on the allocation between countries of board seats for employee representatives or nominees. Employee representatives or nominees on the board are full members, with the same rights and obligations (including voting rights) as other members.
Comparison with EWCs Directive
The proposed ECS worker involvement Directive has marked similarities with the European Works Councils (EWCs) Directive in the primacy it gives to negotiated solutions, with statutory provisions on involvement applying only in the absence of agreement. The provisions of the two Directives on matters such as the SNB procedure, the contents of agreements and the composition and role of the fall-back statutory representative body/EWC mirror each other closely.
However, there are differences. The most obvious is that the ECS involvement Directive provides in some cases for board-level employee participation arrangements at European level, in addition to the EWC-type information and consultation arrangements. Furthermore, its information and consultation provisions also differ from those of the EWCs Directive on a number of points. This is the case in areas such as: the rules on the composition of the SNB and statutory representative body, which allocate seats more clearly in relation to workforce size, in contrast to the EWCs Directive's more geographically based criteria; the somewhat stronger definitions of information and consultation used; the one-year (rather than three-year) deadline for SNB negotiations; the information and consultation rights for the statutory representative body, which exceed those of statutory EWCs in some respects; and explicitly allowing external trade union representatives to be SNB members. Such provisions may possibly provide some clues as to the content of a future revision of the EWCs Directive.
The path to adoption
The political agreement on the ECS Directive and Regulation should open up the path to the rapid adoption of perhaps the longest-delayed of all EU legislative proposals in the social policy area. Both the Directive and Regulation are based on Article 308 of the EC Treaty, which requires unanimous Council approval (as now appears to have been achieved) and a single consultation of the European Parliament (EP). The EP has already given its Opinion, but this was 10 years ago, at a time when the texts were very different. It is thus to be reconsulted on the new versions of the Directive and Regulation in early 2001. The EP may at that stage propose amendments which the Commission may or may not take into account in the texts to be placed before the Council for final adoption - any such changes are thought to be highly unlikely.
The Commission hopes that the ECS can be formally adopted on 6 March 2001, at the first Employment and Social Policy Council held under the Swedish Presidency. The Directive and Regulation would come into force three years after adoption.
The European Company Statute
The ECS, first proposed by the European Commission in 1970, would give companies the option of forming a European Company (Societas Europea, or SE) which could operate on a Europe-wide basis and be governed by Community law directly applicable in all member states (rather than national law). SEs may be formed by: the merger of existing companies from different EU member states; the formation of a joint holding company or subsidiary by existing companies from different EU member states; or the conversion of an existing national company (see main text for more details).
The main advantages of creating an SE, according to the Commission, are that companies established in more than one member state will be able to operate throughout the EU on the basis of a single set of rules and a unified management and reporting system. They will therefore avoid the need to set up a "financially costly and administratively time-consuming complex network of subsidiaries" governed by different national laws. In particular, there will be advantages in terms of "significant reductions in administrative and legal costs, a single legal structure and unified management and reporting systems". By setting up as a European Company, a business can "restructure fast and easily to take the best possible advantage of the trading opportunities offered by the internal market". SEs with commercial interests in more than one member state will be able to "move across borders easily as the need arises in response to the changing needs of their business".
The Statute had hitherto failed to gain approval in the Council of Ministers, largely due to disagreement over the worker involvement provisions to apply to the SE. Despite numerous changes to these provisions over the years, aimed at making them more flexible, an essential dividing line still existed between: member states (such as Germany) with a tradition of strong worker involvement rules, which were worried that the SE could be used as a means for firms to avoid such national worker involvement requirements; and member states (such as the UK) with comparatively weak systems of worker involvement, which were worried that the SE could be used as a way of importing or extending stronger regulations in this area.
In 1997, the Commission established the high-level "Davignon group" of experts, with the aim of breaking the deadlock on the ECS. The "Davignon report", issued in May 1997, relaunched the debate and the Luxembourg EU Presidency of the second half of 1997 drew up a new draft text of the Directive on worker involvement in the SE. This provided essentially for negotiations between management and a special negotiating body of employee representatives over the worker involvement provisions to apply in each SE. Only in the absence of an agreement would fall-back statutory provisions apply.
Over the course of 1998 and 1999, a succession of Council Presidencies refined the text of the proposed Directive in an attempt to find the required unanimous support in Council. Prior to the breakthrough achieved by the French Presidency in late 2000, discussions had reached a new impasse, with Spain holding out against a compromise proposal which was acceptable to the other 14 member state governments. The consensus reached at the Nice summit and the ensuing political agreement on 20 December 2000 ends some 30 years of debate on this issue.
