New European Law On "Works Councils" Demands Headquarters Strategy

Tuesday, June 1, 2004 - 01:00

A new European Union law coming on-line next year will force multinationals operating in Europe to set up in-house, shop-level worker groups that, to an American, look a lot like independent unions. The new law threatens to tie a multinational's hands whenever it decides, in the future, to change anything in its European operations.

The good news is that the new law offers you substantial freedom to structure your worker groups in as business-friendly a way as you want. The catch: you can't delegate the "works councils" problem down to your local European HR, and you have to implement your headquarters-driven strategy this year, during a special window period.

This article summarizes the new law, and then explains the "best practices" strategy of creating a works councils network template that takes advantage of the law's window-period that grandfathers in works councils structured before tough regulations get issued later.

Why Should U.S. Headquarters Worry About A New European Employment Law?

For 15 years, the 15 (now 25) countries in the Brussels-based European Union have been actively coordinating ("harmonizing") their national employment laws. Many of the EU coordinating laws ("directives") simply present local compliance issues for local European HR to worry about (for example, there are EU coordinating laws on maternity leave, part-time employment, worker safety). But certain other EU-coordinating laws actually reach across the Atlantic, to multinational headquarters stateside. A key example: the EU data privacy law (Council Directive 95/46/EC), which regulates transmissions of HR (and other) data to the U.S. (and elsewhere), affecting HRISystems (PeopleSoft, SAP). For years now, American headquarters, not local European HR staffs, have been driving U.S. multinationals' data-privacy compliance efforts (launching, for example, "safe harbor" and "model contracts" projects).

Having conquered European data privacy requirements, U.S. "best practices" multinationals will be frustrated to hear that the EU has struck again, unveiling another law with trans-European implications that commands the attention of U.S. headquarters: the new EU "directive" on local country "information and consultation" and "works councils," or workplace-level labor/management groups (Council Directive 2002/14/EC).

What Are The New Law's Basic Requirements?

This new law effectively forces multinationals to form in-house works councils in each workplace across Europe. Then management will have to provide data to - "inform" - the works councils about nascent proposals that could ultimately affect local terms/conditions of employment, such as proposals to restructure, roll out new policies, lay off workers, merge, outsource, or "offshore." And management will then have to hear out works councils' suggestions, considering them in good faith -"consult." While Europeans are quick to note that the new law does not force employers to "negotiate" with works councils, to an American this duty to "inform and consult" looks a lot like the U.S. union-context requirement to "bargain in good faith."

Do not confuse the new EU local works council law with the 1990s-era European Works Council [EWC] directive (Council Directive 94/45/EC), which requires each large multinational with trans-European operations to establish a single pan-European employee "information and consultation" body, called an EWC, with jurisdiction limited to trans-European (multi-country) workplace matters. The new law will have a much broader effect, will reach smaller employers, and will require a chain of little works councils across your European operations.

The point for American multinationals: the new law commands headquarters attention because it will stop you from unilaterally making certain business decisions (such as to restructure, roll out new policies, lay off workers, merge, outsource, "offshore"). Those U.S. multinationals that currently host works councils (four European countries already require them) will tell you that "information and consultation" is no mere formality. Get off on the wrong foot, and you'll significantly restrict your business operations across Europe. I once worked on integrating a French operation that a U.S. multinational's Paris subsidiary had acquired the year before. Even one year into the integration, the Paris works councils were still throwing up significant obstacles, fighting what U.S. management saw as reasonable proposals.

What Are The New Law's Mechanics?

Technically speaking, the new law does not affirmatively mandate local works councils at all. Rather, it forces each European country to pass a local domestic regulation forcing employers to "inform and consult" with workers about lots of workplace matters. The law lets each European country's legislature choose how to push "information and consultation" through. Scandinavia and Italy might end up requiring "information and consultation" via company-level trade union committees, but the other EU countries will mandate works councils.

Yet because the law is silent on works councils as vehicles for "information and consultation," the mechanics of how works councils will work is up in the air. And the eventual procedures will differ from country to country across Europe. We cannot yet answer:

• How will works councils get started up?

• What powers will works councils have?

• How often will works councils have to meet?

• How many labor and management representatives must each one have?

• When does an employer exhaust "consultation" and become able unilaterally to implement its last proposal ("reach impasse")?

What the new EU law does tell us is that the actual "informing and consulting" between employers and employee reps will cover a wide swath of HR and business topics (in American parlance, "mandatory subjects of bargaining"):

• news about an employer's "activities and economic situation";

• data on an employer's "situation, structure, and probable development of employment";

• management proposals "likely to lead to substantial changes in work organization or contractual relations."

Works councils will have a profound effect because they will be omnipresent. The new works councils law reaches all employers with 50 or more employees in any one EU country, or all workplaces with 20 or more employees. And under the proposed local UK version of the law (published in July 2003), just 10% of a British workforce will be empowered to force in a works council, even over the objection of the other 90%. Draft "Terms and Conditions of Employment" law, appended to UK Department of Trade and Industry "High Performance Workplaces - Informing and Consulting Employees," Consultation Document (July 2003) at 48. And this 10% will have the luxury of collecting simple signatures; forget NLRB-style supervised elections. While the new EU law will have its starkest effect in England and Ireland, where the "information and consultation" concept is brand new, other EU countries are expected to require works councils automatically, even without any affirmative employee initiative.

What Is The "Best Practices" Strategy For Dealing With The New Law?

How can you comply with the new law while minimizing disruptions to your European business operations? How can you set up works councils that facilitate your future initiatives (restructurings, new HR policies, reductions-in-force, M&A, outsourcing, "offshoring," and the like)?

The answer: ensure your local-country works councils mesh together as a network. Structure them using a single business-friendly blueprint or template. Without a template, divergent local works councils will spring up across your European operations - each with its own local procedures, obligations, and time-lines - and significantly complicate your future initiatives.

Fortunately, you can structure a business-friendly network of European works councils almost any way you want - but only if you resist the temptation to wait until local country works councils laws come on-line, starting at latest in 2005. The text of the EU law actually shelters so-called "article 5 pre-existing [works councils] agreements," insulating those works councils structures that predate the incoming local country laws, even if they fail to meet the eventual local country legal requirements for new works councils. Works Councils Directive, supra at art.5.

That is, the new law affirmatively rewards employers that act now, by grandfathering their works councils as exempt from the terms of the yet-to-be-issued local country laws. But to qualify, you need to win the race with the local European legislatures passing the implementing laws. After the window closes, inconsistent local country works councils laws will make a cohesive network much less viable, and will impose burdensome procedures. Plan now, and you might even craft a trans-European works councils network that serves as a valuable employee communication and involvement tool.

Donald C. Dowling, Jr. is International Labor & Employment Counsel at Proskauer Rose LLP in New York City. He works with multinationals on HR law matters that cross national borders.

Please email the author at with questions about this article.