by Markus Roth
1. Employee participation via works councils
Works councils at the operational level provide an important form of employee participation, which is firmly anchored in the national legal tradition of many European countries, especially Germany. European works councils were introduced by the Works Councils Directive (Dir 94/ 45) in 1994. The Directive’s amended version of 2009 had to be transposed into national law by June 2011. Works councils and co-determination both provide employee involvement through access to information and participation in decision-making rather than in the form of financial participation in the earnings of the company or via occupational pensions. Works councils provide for employee participation mainly at the operational level via special institutions, whereas co-determination provides for employee participation at board level (board of directors or in the supervisory board) and therefore in existing institutions of the company.
Works councils are more widespread than co-determination. They operate in the overall context of worker representation. Other persons and institutions representing employees are employee representatives in the supervisory board or in the board of directors, but also unions and union delegations. Countries with national legislation for works councils but without a national co-determination regime covering all private enterprises are, inter alia, France, Poland, Greece, Spain, Switzerland and Portugal. National legal regimes for employee participation via works councils vary. Systems of worker representation which are largely independent from unions are found in Germany, Austria, the Netherlands and Luxembourg. In France, Greece, Portugal and Spain, both unionized and independent systems of worker representation exist. The Scandinavian countries rely heavily on a representation of workers’ interests through trade unions. In England and Ireland, employee involvement in entrepreneurial decisions is based almost entirely on European requirements.
2. European rules
Truly European works councils are subject to Council Directive 94/45 of 22 September 1994, which provides for a European works council. The amended directive 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 (Dir 2009/ 38) had to be transposed into national law by June 2011. According to the European Commission, in February 2008, a total of 820 companies had implemented European works councils, representing approximately 14.5 million employees.
The Directive applies when a company employs more than 1,000 employees and at least 150 in a different Member State. European works councils are to be set up at the request of 100 employees or the company’s management. A special negotiating body is to negotiate the powers and the framework of the European works council. Contrary to the first proposal, the Directive refrained from setting a mandatory standard for all companies. The Directive on European Works Councils has served so far as a model for the regulation on employee participation in Europe. Since 2001, co-determination in a European Company (Societas Europaea) is provided via negotiations and a fallback provision.
The amended Directive provides that information and consultation in European works councils and in national employee representation bodies are linked, with due regard to the competences and areas of action of each. The link can be made with an agreement between the central management and the central negotiating body. The Member States must ensure that the processes of informing and consulting are conducted in the European works councils as well as in the national employee representation bodies even in the absence of such an agreement. According to the amended Directive, the agreement between central management and the special negotiating body is the central instrument for employee participation. The agreement must determine in particular the undertakings that are covered by the agreement, the composition of the European works council, the number of members and the functions and the procedure for information and consultation of the European works council. In this context, information is defined as transmission of data to the employee representatives. Information must be given at such time and with such content to enable employee representatives to examine the information adequately and, where necessary, prepare for consultation. The competences, the establishment and the composition of the European works council are specified in the annex of the Directive, which also makes special provision for the event of non-agreement between the special negotiating body and the central management.
In addition to the Directive on European Works Councils, Dir 2002/14 establishing a general framework for informing and consulting employees in the European Union provides a tool for employee participation. The body or persons to be informed and consulted are to be designated by the national legislature. This Directive does not directly refer to employee participation via works councils or via co-determination. Information requirements exist on the recent and probable development of the undertaking’s or the establishment’s activities and economic situation; information and consultation requirements exist on the situation, structure and probable development of employment within the undertaking or establishment and on any anticipatory measures envisaged, in particular where there is a threat to employment as well as on decisions likely to lead to substantial changes in work organization or in contractual relations.
3. Works councils in the Member States
The rules concerning works councils in Europe are extremely heterogeneous. Works councils are based in some countries solely on the EU Directive. Before the implementation of the Directive to inform workers, for example, no national regulations on works councils existed in the United Kingdom. In Ireland, there was only a scheme for public servants and a common declaration of the social partners for the framework of negotiated works councils. In continental Europe, most countries have additional rules or at least operating practices which provide for employee participation at operational level. In most countries, works councils are made up only of employee representatives, while other legislation provides for parity representation of employees (eg Belgium and Luxembourg). Other countries have developed a special regime (eg Finland).
The regulation of works councils in Germany is particularly detailed. A first comprehensive settlement was already covered by the Works Councils Act in the Weimar Republic. Legal rules governing works councils are also in place in Belgium, Greece, Portugal, the Netherlands, Austria and Spain as well as many eastern European countries. The objects of employee participation, the design and the criteria for the formation of a works council vary considerably in these countries. Even outside of England and Ireland, mandatory employee participation via works councils is not a common European standard. In Denmark and Sweden, for example, works councils are not regulated, yet there is a practice based on collective agreements. In France, co-determination and works councils are merged in a comité d’entreprise.
Besides works councils, special bodies that allow for representation of employee interests exist in Belgium (Gewerkschaftsdelegation/délégations syndiccales du personnel des enterprises). Special representatives are in place as regards, inter alia, job security, youth workers and women. In most countries (Germany, Austria, the Netherlands and others) works councils are made up of employees only, whereas others (Belgium, Denmark) provide for joint bodies with representatives both for employees and the employer. In France, participation of employees is provided for by the works council, the comité d’entreprise (for a wide range of economic affairs) and by the délégués du personnel (for personal affairs of the employees). A similar differentiation is provided by the Luxembourgian Labour Act. Spain distinguishes between personal delegates (delegados de personal) for companies from 11 to 49 employees and works councils (comités de empresa) for companies with 50 or more employees and also provides for union representation.
In the European countries providing worker representation at plant level, employees are entitled to set up a works council once an enterprise reaches a certain size. The number of employees required to set up a works council varies between five (Germany, Austria) and 100 (Belgium). Greece distinguishes between firms in which a union exists (50 employees) and firms without a union (20 employees). Some countries, such as Germany and France, differ also in respect of the affairs concerned. In Germany, for participation in economic affairs there must be at least 20 employees and for some matters even 100 or 500 employees; in France, by contrast, there must be at least 11 employees for personal affairs (to elect délégués du personnel) and 50 employees for economic affairs (to set up a comité d’entreprise). Switzerland provides for works councils in enterprises with more than 50 employees if more than 20 per cent or 100 employees request the establishment of a works council. In the Netherlands, in enterprises with more than 50 employees, it is up to the employer to organize elections for a works council. A works council in the Netherlands can set up committees composed of works council members and other employees and delegate some of its competences to them.
Some countries, such as Germany and Austria, give works councils the power to conclude special agreements with the employer, binding all employees (company agreement). In Germany, employee participation via works councils was introduced as early as the 1920s with the Works Councils Act of 1922. After being abolished in the Third Reich, works councils were reintroduced after World War II with the Works Councils Act of 1952 and are now subject to the Works Councils Act of 1972. The Works Councils Act provides for information, consultation and co-determination rights in various forms in specific social, personal and economic affairs. When the works council has a right of approval and refuses to approve measures planned by the employer, the approval of the works council may, as in the Netherlands, be substituted by the Labour Court.
4. Common rules and development prospects
Unlike co-determination in supervisory boards or in boards of directors, works councils are not dependent on the company form. Not only stock corporations but also private companies, companies without their own legal personality and even businesses not organized in a company law form are subject to employee participation by works councils. Works councils are special bodies independent from the corporate governance form provided by national or European company law. Therefore, national works council regimes also apply independently from national company law to foreign companies.
Works councils are established to give employees a voice in the enterprise, to build trust and to enhance the collaboration between employees and the employer. They protect employees (members of the works council are protected against dismissal), but they also facilitate the restructuring of the company. Therefore, it would be too narrow to regard works councils as merely a device for employee protection. National legislatures specify the information, consultation and co-determination rights of works councils but often allow agreements between the works council and the employer or between unions and the employer to broaden the scope of employee participation. The effects of employee participation via works councils are difficult to evaluate, yet well-framed works councils are likely to enhance public welfare.
Economists favour works councils to co-determination. They assume that establishing works councils with specific authority could enhance public welfare, since granting general authority might likely result in employees calling for too much competence and employers being willing to provide too little. Therefore, the areas which are covered by information, consultation and co-determination rights are to be framed carefully according to the specific circumstances. The diversity of working conditions might explain the different legal regimes in Europe. Common features in the jurisdictions providing for works councils are that works councils lack the right to call for a strike, that they are equipped by the employer with appropriate resources and that the works council members are both released from their employment obligations (for the necessary periods or even fully) and are protected from dismissal. Most jurisdictions exclude ordinary dismissal, while some provide only for the presumption that there is no good cause for the dismissal of the works council member.
For the future development of employee participation in decision-making, works councils and co-determination have to be analysed together. In relation to the subjects dealt with above, such as social, personal or business affairs, employee participation via works councils or via co-determination cannot be clearly distinguished at the national and European levels. At the national level, the difficulty of classifying the French comité d’entreprise and the numerous interactions of all works councils with the business decisions of the employer exemplify this point. At the European level, European works councils deal with business decisions. This, together with the fact that works council regulation is more widespread in Europe than co-determination, suggests that works councils might in the future be more important for employee participation in decision-making than co-determination at the board level.
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