Strengthening transnational social dialogue – Habemus (revised) EWC Directive!

The revised European Works Councils (EWC) Directive (revised directive) which follows the Commission’s January 2024 proposal was adopted on 27 October. Its primary goal is to improve the EU/EEA social dialogue by strengthening the role, procedures of EWCs in transnational decision-making processes, as well as by promoting gender balance. 

EWCs are key mechanisms for social for large Community-scale (groups of) undertakings (with at least 1,000 employees within the EU, operating in at least two members states with at least 150 employees in each). The revised directive ensures that such companies inform and consult employee representatives for the European dimension of their strategic decisions (like restructuring, mergers, or significant changes in organisation).

In this blog post, we give a brief overview of the main aspects of the revised directive (see more details in this blog post and in this briefing), as well as some practical implications.

Key changes

The revised directive outlines several crucial amendments designed to make EWCs more effective and inclusive:

•       Clarification of the concept of “transnational matters”: the revised directive includes a presumption of transnationality:

1. where measures considered by management can reasonably be expected to affect workers in undertakings or establishments in more than one member state.
2. where measures can reasonably be expected to affect workers in an undertaking or establishment in one Member State, and workers in an undertaking or establishment in another Member State can reasonably be expected to be affected by the consequences of those measures, unlike in the existing directive. 

By way of an example, a decision to close a production site in Belgium (directly affecting Belgian workers), that will lead to significant change in raw material source in a site in France (affecting French workers) would be subject to the revised directive, as a transnational matter.

•       Removing legacy agreements: a major change is the removal of exemptions for certain “legacy agreements” that currently shield approximately 320 undertakings from the revised directive’s scope. This change will enable employees in these companies to request the establishment of an EWC in line with the revised directive, significantly expanding employee representation.

•       Treatment and non-transmission of confidential information: To prevent the misuse of confidentiality clauses, management must justify when declaring information confidential, and the non-transmission of information is strictly limited to cases where, according to objective criteria, it would “seriously harm the functioning of the undertaking”. In such instances, management must inform the EWC of the reasons. In addition, central management may set up appropriate transmission and storage arrangements to help safeguard the confidentiality of information.

•       Specification of financial and material resources of EWCs: The revised directive adds certain minimum requirements in this regard, such as including in the EWC agreements costs for the use of (i) experts, (ii) legal representation and participation of EWCs in administrative and judicial proceedings and (iii) for the provision of relevant training to members of the EWC. This obligation extends also to the pre-directive agreements.

•       Requirement of management response in the consultation process: The revised directive mandates that management provide a reasoned written response to the EWC’s opinion before making a decision. Furthermore, information must be delivered in a timely manner to enable employee representatives to conduct an in-depth assessment and prepare for consultation.

•       Strengthening gender balance: A new objective is to achieve gender balance in EWCs, aiming for women and men to respectively comprise at least 40% of the members, without prejudice to national laws. If the 40% threshold is not met, a written justification must be provided to the workers.

•       Amendments concerning legal remedies and penalties: Member States are now required to provide effective, dissuasive, and proportionate penalties for infringements. Non-compliance with EWC’S information and consultation rights must result in pecuniary sanctions, at least. 

What’s next?

The approved revised directive will enter into force 20 days after its publication in the Official Journal. It is worth noting that despite the obligation the Member States to transpose the revised directive within two years from its enforcement, they will have to apply the provisions of the directive at the latest three years after its entry into force. Hence, this will give to multinationals an additional time to revise their EWC agreements.

What will this mean for businesses?

For businesses operating under legacy agreements this means that they will need to prepare for potential EWC establishment requests, and ensure the related procedures and structures comply with the revised directive.

Furthermore, the undertakings in scope will need to review their EWC agreements, in order to comply with the revised directive. As for the local nuances of the latter, implementation across Member States need to be monitored. 

In Germany, for example, it remains to be seen whether, in light of the stricter requirements under the revised directive, the German legislator may amend the current sanctions regime specified in the German European Works Council Act (Gesetz über Europäische Betriebsräte (EBRG)), which in principle only provides for a fine of up to EUR 15,000 (Sec. 45 EBRG) and, in particular, does not provide for a right of the EWC to injunctive relief. 

In Belgium, the Belgian social criminal code provides for administrative and / or criminal fines ranging between EUR 25 and 500 (to be multiplied by 8) in case undertakings e.g., prevent the EWC from functioning, fail to provide the required information or conducting the mandatory consultation, etc. It remains to be seen whether such sanction mechanism would be considered sufficient in light of the legal remedies and penalties provided by the revised directive. 

In the Netherlands, violations of the Dutch EWC’s information and consultation rights are currently not sanctioned (although stakeholders can request enforcement together with a penalty payment through civil proceedings before the Dutch Enterprise Chamber), meaning that implementation of the revised directive will also in this area require an increased alertness on compliance with the new EWC rules. Industrial representatives have already announced that, once implemented, compliance with the revised directive will have their particular attention.

It would also be prudent that businesses invest in training their management, in particular in relation to the criteria of what can be considered as confidential information, and with regards to information and consultation requirements deriving from the revised directive.

The revised directive provides for significant changes, but its impact on Community-scale undertakings will also depend on the implementing approach that Member States will take.

Finally, it is important to note that the impact of the revised directive and status of national transposition laws are not only relevant for undertakings which have their headquarters in the EEA, but also for undertakings which have their headquarters in a non-EEA country, and have an EWC in place as a result of their operations in the EEA. For these non-EEA headquartered undertakings, it appears that, amongst others, Belgian and French law have been frequently chosen to govern their EWC agreement, and are therefore relevant to follow-up on.