International: EWCs state of play - October 2010

More than 900 multinational companies now have a European Works Council (EWC), including around 110 firms based in the UK. We review the current state of play in terms of the development of EWCs and the changing legal context.

On this page:
The 1994 EWCs Directive
Number of EWCs created
Latest data on EWCs
Recast Directive
National implementation
Lull ahead of Directive's implementation
Recent agreements
SE involvement Directive
SE works councils.

The 1994 EWCs Directive

The 1994 EU Directive (94/45/EC) on European Works Councils (on the EUR-Lex website) provides for the establishment of EWCs (or transnational procedures) to provide information and consultation to employees, via their representatives, in "Community-scale" enterprises. These are undertakings or groups with at least 1,000 employees within the European Economic Area (EEA) member states (the EU, plus Iceland, Liechtenstein and Norway) and at least 150 employees in each of at least two member states.

These enterprises must, at the written request of at least 100 employees or their representatives from at least two member states, establish a special negotiating body (SNB) to negotiate with central management over the establishment of an EWC or procedure. Management can also initiate such negotiations itself. The Directive (as implemented by national legislation) specifies the composition, functioning and rights of the SNB.

The SNB negotiations may lead to an agreement on the establishment of an EWC (or procedure). Alternatively, the SNB may decide (by a two-thirds majority) not to open negotiations with management or to end negotiations already under way. A statutory EWC, based on the Directive's "subsidiary requirements", must be established if: management and the SNB so decide; management refuses to open negotiations within six months of being requested to do so; or an agreement is not reached within three years of a request to open negotiations. The composition, functioning and rights of the statutory EWC are laid down by the Directive (as implemented by national legislation).

Number of EWCs created

At the time of the Directive's adoption in 1994, around 50 multinational companies had already voluntarily set up EWCs. The Directive's obligations did not apply to multinationals which, by its implementation date (22 September 1996), already had in place an agreement providing for the transnational information and consultation of employees covering the entire workforce. This exemption prompted intense negotiating activity in the period up until the deadline, and nearly 400 EWCs were set up in 1996 alone, bringing the total to 520 by the end of that year.

An average of around 70 EWCs were set up each year over the 1997-2000 period, and between 30 and 40 new EWCs were then created annually up until 2008, since when the pace has slowed.

The most comprehensive monitoring of EWCs is carried out by the European Trade Union Institute (ETUI) through its EWCs database (external website). As at September 2010, the ETUI calculated that 1,167 EWCs had so far been created. However, more than 170 of these EWCs have since been dissolved or merged into other EWCs, usually because the company concerned was taken over or involved in a merger, because the firm is no longer covered by the Directive or because it has changed its legal status. For example:

• following the takeover by Eaton (US, power systems) of Moeller (Germany, electrical engineering), the Moeller EWC was dissolved and an agreement was signed in June 2010 that integrates Moeller representatives into the Eaton EWC;
• after Kraft Foods (US, food) took over Cadbury (UK, food), the Cadbury EWC was abolished and representatives of Cadbury employees joined the Kraft Foods EWC in September 2010;
• when Vinci (France, construction) took over Cegelec (France, engineering services), the latter's EWC was dissolved and Cegelec representatives started attending Vinci EWC meetings, and in March 2010 an agreement was reached to reallocate the seats on the EWC to reflect the post-acquisition structure of Vinci; and
• when the steel groups Arcelor and Mittal merged to form ArcelorMittal (Luxembourg) in 2007, their EWCs were dissolved and replaced with a new combined council.

The ETUI finds that 962 EWCs are currently active, while 904 multinationals have an EWC in place. The number of EWCs exceeds the number of companies because some multinationals have more than one EWC, usually because they have separate councils for different divisions (an example is General Electric, the US-based engineering group), instead of or in addition to an overall group EWC.

The ETUI calculates that 2,391 companies are currently covered by the Directive - that is, they have 1,000 or more employees in the EEA and at least 150 employees in each of two or more member states. Thus, only 38% of multinationals affected by the Directive actually have an EWC in place. The ETUI finds that 255 companies headquartered in the UK are covered by the Directive, of which around 110 have an EWC. Major UK-based multinationals that, according to the ETUI, come within the scope of the Directive but do not have EWCs include Anglo American (mining), Balfour Beatty (construction and infrastructure services), Carphone Warehouse (telecommunications) and Exel (logistics).

Negotiations are reportedly under way over the establishment of EWCs at 48 companies. The ETUI reports ongoing talks at six UK-based groups, including AMEC (consultancy, engineering and project management) and National Express (transport).

Latest data on EWCs

Figures from the ETUI database indicate that:

• The sector with most EWCs is metalworking, which accounts for more than one-third of the total, followed by chemicals (around one-fifth), food/ hotels/catering/agriculture (one-tenth) and building/woodworking (8%).
• Around one-sixth of all EWCs are in companies based in Germany, with US companies accounting for a similar proportion and the UK in third place with about 12%, followed by France, Sweden, the Netherlands, Belgium and Switzerland. Less than 1% of all EWCs are in companies headquartered in the new EU member states that have joined the EU since 2004.
• Around 37% of EWCs are found in companies with fewer than 5,000 employees in the EEA, 38% in firms with between 5,000 and 10,000 employees and 17% in multinationals with more than 10,000 staff (in 8% of cases, this information is unavailable).
• Of all EWCs, 13% have operations in fewer than five of the European countries covered by the Directive, while 28% have operations in between five and 10 of these countries and 56% operate in more than 10 (in 3% of cases, this information is unavailable).
• Around 22% of EWCs include at least one employee representative from the member states that joined the EU in 2004 (Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia), while 4% include a representative from Bulgaria or Romania, which joined in 2007. Only 2.5% include a representative from one of the three candidate countries for EU membership (which are not currently covered by the Directive) - Croatia, Turkey and the Former Yugoslav Republic of Macedonia.

In legal terms, there are at present three main types of agreements establishing EWCs:

• Article 13 agreements: As mentioned above, the 1994 EWCs Directive's obligations do not apply to multinationals which, by 22 September 1996, already had in place an agreement, covering the entire workforce, providing for the transnational information and consultation of employees. These pre-existing accords are known as Article 13 agreements (after the relevant article of the Directive). If these agreements expire, the parties to them may jointly decide to renew them: if not, the Directive's requirements apply.
• Article 6 agreements: Since the Directive's implementation in September 1996, all new EWC agreements have been governed by the Directive's rules (as implemented in national law) on the negotiating parties and process, and on their content. These are known as Article 6 agreements.
• Article 3 agreements: The 1994 Directive did not originally cover the UK but was extended to include it by Directive 97/74/EC, which took effect in December 1999. This Directive provided Article 13-type protection to agreements concluded before 15 December 1999 in multinationals that came within the scope of the EWCs Directive because of its extension to the UK. These agreements are known as Article 3 agreements.

The ETUI states that 40% of current EWCs are based on Article 13 agreements, 49% on Article 6 agreements and 6% on Article 3 agreements. In 1% of cases, an information and consultation procedure was agreed instead of an EWC, and in a further 1% no agreement could be reached and the EWC is based on the Directive's statutory subsidiary requirements. The remaining 3% are not EWCs, but "SE works councils".

The ETUI records the creation of only 18 new EWCs in 2009 and four in the first eight months of 2010. While the establishment of EWCs can take some time to come to light, there has clearly been a significant slowdown in activity. A key factor seems to be the adoption of a "recast" version of the EWCs Directive in May 2009.

Recast Directive

The main changes made by the recast Directive (2009/38/EC) (on the EUR-Lex website) are as follows:

• The information and consultation rights of EWCs are strengthened and more clearly defined.
• The information and consultation of EWCs and of national information and consultation bodies are both linked and more clearly differentiated (with a new definition of the "transnational matters" covered by EWCs).
• Management responsibilities for providing information to allow negotiations over the establishment of an EWC to begin are clarified.
• The national composition of SNBs and of statutory EWCs is amended to reflect more closely the size of the multinational company's workforce in the various European countries in which it operates.
• SNBs are given new rights to meet without management being present and to be assisted by representatives of EU-level trade union organisations.
• Agreements establishing EWCs must include new provisions, for example on the balanced representation of employees by activity, category and gender.
• EWC members are granted the "means required to apply" their rights and (along with SNB members) must be provided with necessary training without loss of pay.
• Where the structure of a multinational changes significantly, and the existing EWC agreement does not contain provisions on adapting to this restructuring, a new EWC agreement must be negotiated.
• The subsidiary requirements that define the role and operation of statutory EWCs are amended, for example by strengthening information and consultation rights.

National implementation

The EU member states must implement the recast Directive by 5 June 2011, whereupon the existing EWCs Directive will be repealed.

As with the original EWCs Directive, the Commission has set up an expert group of national officials to coordinate and harmonise the transposition of the recast Directive, reflecting the fact that this involves a complex, interlocking web of implementing legislation in 30 countries. The group has been discussing issues such as interpretation of the Directive's provisions on: revising, adjusting and renewing EWC agreements; linking the national and transnational levels of information and consultation; and the status of agreements reached between the adoption and implementation of the recast Directive. One key point agreed by the group is that the implementing measures in all countries will come into force simultaneously on 5 June 2011.

The UK is one of the few countries to have already adopted (in April 2010) its implementing legislation, in the form of the Transnational Information and Consultation of Employees (Amendment) Regulations 2010 (on the Legislation.gov.uk website), which will come into force on 5 June 2011. The Regulations have been criticised by trade unions for taking a "minimalist" approach to transposing the Directive. The TUC has expressed particular concern about issues such as the Regulations' definition of transnational issues, a perceived lack of clarity about the ability of EWCs to enforce their rights in court and how EWCs based on Article 13 agreements will be adapted to change.

Lull ahead of Directive's implementation

Any new EWC agreement signed, or Article 6 agreements revised or renegotiated, during the period between the recast Directive's adoption in May 2009 and 5 June 2011 will continue to operate on the basis of the legal obligations arising from the 1994 Directive, even after the national laws implementing the recast Directive come into force. The slowdown in the negotiation of new EWC agreements during 2009 and 2010 seems to reflect a reluctance among employee representatives to negotiate in advance of the more advantageous provisions of the recast Directive coming into effect, along with a general uncertainty surrounding the legal position during the transposition period.

The main European-level sectoral trade union federations, which often play a major role in the negotiation of EWC agreements, have issued guidelines to workers' representatives negotiating or renegotiating agreements in the run-up to June 2011. They state that it is advisable to be very cautious about signing any EWCs agreement during this period and that, from a strictly legal point of view, the safest option is to avoid signing any new or renegotiated agreements before June 2011. If there are clear reasons to sign an agreement before then, workers' representatives should try to ensure that it reflects the provisions of the recast Directive.

Recent agreements

The few new EWC agreements known to have been signed in 2010 include those at International Paper (US, paper and pulp), Jysk Nordic (Denmark, retail), Statkraft (Norway, energy) and Swedwood (Sweden, furniture manufacturing). All of these agreements, in line with the trade union guidelines, incorporate various provisions of the recast Directive. These notably include the provisions on: definitions of information, consultation and transnational issues; the consultation procedure in exceptional circumstances; the links between national and European levels of information and consultation; and the allocation between countries of EWC seats.

For example, the EWC agreement signed at Statkraft in June 2010 is described by the European Federation of Public Service Unions (EPSU) as "recognising" the recast Directive, for instance by following its definitions of information and consultation. Statkraft, which has a total workforce of 3,400 in more than 20 countries, is Europe's largest renewable energy company. Its EWC initially has 12 employee representatives from four European countries, with potential for additional members as Statkraft expands, plus an EPSU representative. The EWC will meet twice a year and, as well as dealing with the normal business and employment matters discussed by EWCs, has a role in developing and implementing the firm's corporate social responsibility policy. The agreement also commits Statkraft to respect International Labour Organisation minimum standards in its employment practices. The agreement will be re-evaluated when Norway transposes the recast Directive in national law.

The agreement at Swedwood, which is part of the Ikea group, also reflects the provisions of the recast Directive, but establishes a world works council rather than an EWC. The council will act as an EWC, but alongside nine employee representatives from EU countries (notably Poland and the Slovak Republic, where Swedwood employs most staff) and representatives from Russia and the US.

Revised EWC agreements reached in 2010 at companies such as Air France-KLM (France/Netherlands, aviation), Eaton and Vinci also appear to reflect many of the provisions of the recast Directive.

SE involvement Directive

Since 2004, EWCs have not been the only type of statutory European-level employee information and consultation structure that can apply to multinational companies. EU Regulation no.2157/2001 created the option of the European Company (also known as Societas Europaea, or SE), a form of company that operates on a Europe-wide basis and is governed by EU law directly applicable in all member states, rather than national law. SEs may be set up by two or more EU-based companies from different member states by merger, or by formation of a joint holding company or subsidiary, while an individual EU-based company may transform itself into an SE if it has a subsidiary in another member state.

The Regulation was accompanied by a Directive (2001/86/EC) setting out the rules on employee involvement to apply to SEs. The Directive provides for negotiations between management and an SNB in each SE over the information and consultation arrangements to apply, plus employee representation on the SE's board in some cases. This should lead to an agreement setting up a "representative body", similar to an EWC, or an information and consultation procedure. If the parties so decide (or compulsorily in some cases), the agreement may also set out the rules for board-level participation.

If the negotiations fail, statutory standard rules apply, providing for a representative body, along with board-level participation in certain circumstances where this had existed in the companies participating in the creation of the SE. The representative body has somewhat stronger rights than EWCs based on the 1994 Directive, though the recast Directive has largely "caught up" with the SE involvement Directive in this respect.

During 2010, the Commission has been consulting on the practical operation of the SE Regulation, with a view to possibly proposing amendments. The outcome of this process has not yet been announced.

SE works councils

The SE Regulation and Directive came into force in October 2004. There is no EU-level registry of the creation of SEs, and the most comprehensive monitoring is, as with EWCs, carried out by the ETUI (external website). As at September 2010, it had recorded the formation of 622 SEs. Only around a quarter of these are what the ETUI defines as "normal", in that they are known to have both operations and employees. The remainder have no employees or are inactive - apparently created for legal or tax reasons, or to be activated later or sold as an "off-the-shelf" company - or little is known about them. Only two out of 23 SEs registered in the UK are regarded as "normal".

Among the 157 normal SEs, just over 40% are known to have reached agreement on European-level information and consultation arrangements, while around 20% have agreed on board-level representation (these are mainly registered in Germany, where statutory board-level participation arrangements already apply to many national companies).

In practice, the information and consultation structures in SEs are widely known as "SE works councils". Major companies that have converted to SE status include Allianz (Germany, financial services), BASF (Germany, chemicals), Strabag Bauholding (Austria, construction), Fresenius (Germany, healthcare products), Hager (Germany, electrical equipment), MAN (Germany, motor manufacturing) and SGL Carbon (Germany, carbon and graphite products). All these companies formerly had EWCs, which have been replaced by SE works councils, as the SE involvement legislation takes priority over the EWCs legislation. SE works councils have also been set up in SEs which, in their previous form, had not previously had EWCs in place - examples from 2010 include Nordex (Germany, wind turbines) and Hochland (Germany, cheese production).

No SEs registered in the UK have signed employee involvement agreements, as far as is known. However, in April 2010, the UK-based BP oil group merged its subsidiaries in Austria, Belgium, Germany, the Netherlands and Poland to form BP Europa SE, registered in Germany. The rationale was a simplification of legal structures, corporate governance activities and internal financial and tax processes. BP Europa SE has a total of 10,600 employees.

Its involvement agreement provides for employee participation on its supervisory board (which oversees management, in a two-tier board structure), with half of the board members representing employees, as had previously been the case in BP's German subsidiary. Of the six employee board representatives, allocated in line with workforce size in each country, three are from Germany and one each from Austria, the Netherlands and Poland. BP Europa SE does not have an SE works council. Instead, its employees are represented through a specific committee of BP's existing group-wide EWC.

This article was written by Mark Carley, European editor.

European employment policy, practice and law, October 2010