European Company Statute:
The Concept of Employee
Participation under the Proposed Societas Europaea (European Company)
May 2001 Dr Maria Chetcuti Cauchi. All Rights Reserved.
creation of a corporate entity solely governed by European Law instilled
an indisputable fascination in European enterprises wishing to tune their
structures to the transnational character of their activities,
yet, discussions were held up by the particular Community nature of the
rules which had to govern this new type of company.
The chief obstacles were more often than not resolved by references to
However, this method did not prove feasible in the case of the principal
element of discord, WP in the SE. This lack of agreement was caused, inter
alia, by the diverse, distinct systems of employee participation in
WP is a concept based on the belief that employees
and managers have common interests and greater economic efficiency is
achieved if these two sectors join their forces:
Co-determination may have a number of positive effects on
the economy. It may lead to decision-making, both inside the board and in
the collective bargaining context, based on more information, which
results in better decisions. Efficiency of production and economic
allocation may thereby be enhanced.
Involvement of employees in decision-making may
include different levels of intensity. Mere information of decisions, after
they have been adopted is the minimum level, whilst consultation prior
to the taking of such decisions and participation in the
decision-making itself is the highest level. Strictly speaking,
participation in its pure form only includes the latter concept and this
means that the entrepreneur is not authorised to take decisions without
co-operating with workers’ representatives first.
The system whereby employee representatives
participate in the decision-making process on the administrative or
supervisory boards, is called co-determination.
What is certain is that WP does not refer to participation in day-to-day
decision-taking of the business, but involvement in the supervision and
strategic development of the company. On the other hand, the day-to-day
running of the business is to be undertaken by the management board.
many EU countries, BLER is an imperative means of employee involvement.
Systems of BLER in different MSs vary widely. A number of countries provide a statutory right
to such representation but others do not. In fact Belgium, Italy, the UK
and Ireland have no general law granting BLER in several forms of
companies. In the case of public companies in Belgium and Italy there are
specific provisions for BLER, yet the UK and Ireland still stand on their
own in having no legislative provisions on BLER, or noteworthy
collectively agreed provisions.
In Greece, Ireland, Spain and Portugal, BLER affects
those enterprises which are wholly or partially publicly-owned but in
Portugal, the legislative provisions are not even implemented. In Austria,
Denmark, Finland France, Germany,
Luxembourg, the Netherlands, Norway and Sweden comprehensive and
meticulous legislation provides for BLER. In the regulation of BLER,
legislation plays the major role, but in Spain, some public sector
arrangements are founded on agreements rather than legislation.
Both WP and collective bargaining seek to get to the
bottom of conflict situations or to avoid them in the first place. In the
majority of European
countries they exist side by side, however, we also come across situations
where one country resorts to collective bargaining mechanisms, whilst
other countries resolve conflicts by means of participative institutions
such as WCs. As a rule collective bargaining results in nationwide or
local agreements between employers and employees or employee
organizations, whilst WP occurs in the factory or in the company and deals
with local management.
The proposed ECS forms part
of the unique package of legislation characterized by social and
employment implications. Yet, throughout the years, this quality has
resulted in a large number of complications arising out of disagreements
between MSs. The fact is that the early proposals for an SE provided
for a compulsory two-tier board with employee representatives forming part
of the supervisory board. In addition, there was also provision for a EWC
with substantial information, consultation and participation rights
Under the 1975 proposal, one-third of the members of
the board had to be elected by the shareholders, one-third had to be
chosen by the employees and the remaining one-third had to be selected by
the these two groups together, as long as the latter members were persons
representing general interests and not directly dependable on one of the
groups which chose them. The choice of the latter one-third is highly
reminiscent of the Dutch co-option system.
This original Proposal sought to impose the German
worker participation rules on the rest of the European Community. The
British strongly refused to accept mandatory WP rules and preferred to
leave such arrangements up to negotiations between management and labour.
Thus, diverse company law traditions clashed and mutual agreement proved
to be impossible.
The mandatory two-tier board system with its enlarged role of labour,
could not be accepted.
The 1989 Draft Proposal removed all aspects of
employee participation from the Regulation and instead placed them in a
The latter was more flexible and provided a series of alternatives for management structure and employee
participation. More than one model of employee participation was included,
so that MSs would have a choice. The great diversity of rules and
practises in MSs on employee participation required a less rigid set of
laws where the specific characteristics of different legal traditions
would be taken into account.
This presentation of different models of participation was largely due to
the move of the Commission towards greater emphasis on social policy:
social dialogue had to be furthered, despite the implied difficulties.
Thus, in addition to a two-tier board, an “Anglo-Saxon”
one-tier board system was also allowable, and the German-style
co-determination system constituted merely one of the six possible
participation models, some containing board representation and others
presenting only information and consultation rights.
Notwithstanding this new flexibility, the ECS still
did not attain the necessary qualified majority in Council and the
employee participation proposals continued to be the main point of
This version of the Proposal sought to improve
equivalence between different WP models. MSs were still given the power to
restrict the choice of model available for an SE within their territory to
a model that best co-ordinated with their own national labour system.
This would surely have resulted in different provisions on WP depending on
the place of registration of the SE.
previous texts of the Proposal, the third model presented a right to
withhold information from representatives of employees. The 1991 Proposal
removed such right, thus increasing the equivalence amongst the models
even further. Article 6 of the Proposal
presented a standard model agreement which could be used by the
parties in all circumstances or in case of disagreement. This Article also
established minimum rights for employees by reference to WC rights. Under
this Proposal, WRs had to be elected from each MS concerned, i.e., each
State where the SE has an establishment and the number of such
representatives had to be proportionate to the amount of employees they
at a political level stalled the Proposal for some years as Germany still
hammered on the importance of mandatory rules on WP, whilst the UK
reiterated that the Proposal’s WP provisions were too excessive. This
disagreement blocked the implementation
of the Proposal once more.
In an effort to break the deadlock on the ECS and
other long-blocked proposals with employee participation provisions, the
Commission published a Communication on Worker Information and
Consultation in November 1995.
It endeavoured to initiate discussions among the EU institutions
and seek advice from the European-level social partners. Its brief
consisted in analyzing the misfortunes of precedent initiatives on
employee participation; outlining the possible principles and objectives
of a novel approach to the subject-matter and proposing a number of
potential routes for Community action.
The Commission suggested several options to secure WR
in European companies, including a new Community structure for information
and consultation of workers at the level of the site and the utilization
of the procedure supplied by the European Works Councils Directive
to the new European entities.
The fact is that some MSs, particularly Germany,
with a legal structure providing for strong WP on the company’s board
feared that if the ECS had inadequate provisions, companies operating on
their territory would be given much more room to evade BLER legislation.
On the other hand, other MSs without such strong provisions opposed the
requirement of board-level involvement through EU rules.
However, the problem was that EWCs, bodies for
supplying information and consultation, would not be enough to surmount
the antagonism of a number of MSs to the adoption of the ECS, as the EWCs would not handle involvement. Consequently EWCs cannot be
considered as alternatives for participation at company level.
EWCs were portrayed by the Commission as some kind of
philosopher’s stone, yet they still could never be regarded as
alternates for employee participation at board level. Finally,
it became evident that a body tailored to deal with merely
information and consultation could not negotiate on participation.
a clear desperate attempt to get somewhere, in November 1996, the
Commission set up a “high level expert Group on worker involvement”,
chaired by Etienne Davignon, president of the Société Générale de
Belgique and former vice-president of the Commission to deliberate on
possible solutions to break the deadlock.
The Group was instructed to study different MS’
structures of BLER and their “equivalence”
with other forms of WR in the decision-making procedure; to evaluate the
danger of circumventing the provisions of national systems by utilizing
the SE “without an appropriate social element”
and reflect on the type of involvement rules which should be used in the
At the outset, the Davignon Group stressed that
immediate attention was required towards the WP issue, in that, in this
present day and age, more and more “skilled, mobile, committed,
workers are necessary and these cannot surely be expected simply to obey
the employers' instructions. On the contrary, “workers must be closely
and permanently involved in decision-making at all levels of the
Group concluded that the blockage to the Proposal was being caused by the
concerns of States, with highly developed WP systems, that the ECS could
be resorted to in order to circumvent national legislation in this field.
On the other hand, it also claimed that one is to prevent the imposition
of foreign models of employee representation upon MSs which had no such
system in their legislation.
After engaging in good six months of investigation to
determine the reasons behind the deadlock of the ECS, the Group presented
its Report to the Commission on May 1997 and recommended that the ECS
should not prescribe models of worker involvement but should give priority
to free negotiations between management and WRs on the system of worker
involvement to be applied.
The Group concluded that general harmonisation is remote and almost
impossible, thus the search for an ‘ideal’ system should not be sought
anymore, as national systems are too diverse and differences far exceed
similarities. Indeed, the Group concluded that there is no ideal system
for WP, the best solution being the system most suited to the parties
Due to variety in national systems of worker involvement,
there should be negotiation on an ad hoc basis between workers and
management. This procedure should be compulsory and limited in time and if
no consensus is reached by the end of the said period, a set of reference
rules should be resorted to. The Group stressed the fact that priority
should be given to negotiations between the parties and it is only in case
of failure that a set of reference rules, covering both information and
consultation and participation of workers, would apply.
Thus, the Group rightly insists that negotiations on
worker involvement in the SE must commence at the earliest.
Also, minimum rules should regulate negotiators as these should be free to
agree what they deem best. The Special Negotiating Body would be the body
to negotiate with participating companies regarding the system of
involvement of workers within the SE and the representatives of employees
should be chosen according to national criteria, i.e. , appointed
according to national practices and procedures.
The Group has carefully examined the possibility of the
failure of negotiations and has decided on the application of reference
rules in such cases, so that the priority given to negotiations does not
lead to legal insecurity or the possible blocking of the establishing of
the European Company.
If no agreement is reached by the conclusion of the
negotiating phase, a series of reference rules on worker involvement would
apply. This, of course, does not prejudice the right of the negotiating
parties to commence fresh negotiations after a certain length of time.
However, it is important that a certain degree of certainty as to the
system which is going to be applicable be ensured.
The reference rules provide that there should be
information and consultation on specified matters as well as participation
on the SE’s board.
Also 20% of the SE’s board should be made up of workers’
The Group emphasises in its conclusions that the
challenge of global competition can only be pursued through collaboration
of all players concerned, namely, the social partners. The fate of the SE
depends on ascertaining that workers are directly and permanently involved
in the decision-making procedure, at all stages of the
formation of the undertaking. The principles adopted by the Group
seem very reasonable, especially when one reflects on the words of the
Group when its stressed how detrimental it is for the image of the EU,
vis-à-vis the rest of the world, that no solution had yet been found and
adopted regarding the issue of WP in the SE.
The Group leaves it up to national legislation to
define the role of national and European trade union organisations
involved in negotiations.
However, it has been argued that this solution simply does not work
and these bodies should be given a formal role in negotiations.
The transnational nature of the negotiations and practical experience
necessary call for a situation where European industry federations are
given a formal role in the negotiations. The example of negotiations on
EWCs substantiate this claim as in most voluntary arrangements on EWCs,
the European industry federations have held a crucial position in
initiating and organizing negotiations. These negotiations ran smoothly
when industry federations where part of the game from the very start.
Problems commenced where the federations were not engaged from the
though practice has accentuated the essential function of ETUC and its
industry federations, national laws have not acknowledged this role. The
Davignon Report did not formally define the role of such organisations
during the negotiation procedure and this was deemed to be a gap in the
system created by the Group.
Under the reference rules, it is proposed that one
fifth of the seats on the administrative or supervisory board should be
held by the workers, with a minimum of two members,
and these representatives should be given equal status on the Board.
It is a fact that the principle of the equal status
of representatives of workers on the boards is undoubtedly an extremely
significant recommendation by the expert Group,
however, the principle
of equal status is not highly reflected in the restriction of 20% of the
seats to WRs. Consequently, at least one-third workers’ involvement
should be provided for in the supervisory and administrative boards.
Moreover, one should also keep in mind that WRs that
hold extremely low competencies or no competencies at all, do not really
serve their function. Hence, the Statute for an SE should comprise a
listing of affairs for which the approval of the supervisory or
administrative board would be indispensable.
the formation of an SE by way of merger of two or more undertakings still
presented risks and doubts, because as a result of the merger, the
undertakings which participate in the merger, wholly disappear as legal
persons. Thus, the collective agreements concluded by trade unions within
the company would disappear too. The implications of this would be
drastic. All that was previously negotiated collectively and could hence,
only be altered through collective bargaining, could be changed on an
individual basis, by means of negotiations
between management and individual workers. In addition, all the delegate
bodies of workers which go beyond the level of the site would disappear
and with them involvement at the undertaking level, i.e., on the
The only solution envisaged would be that collective
agreements would remain and the central management of the SE would have a
duty to carry out the obligations deriving from them. As soon as the
collective agreement terminates, the new core
administration of the SE would be deemed to be the negotiating
partner for its renewal. As regards BLER, the only solution would be to
keep this in force, as WR at the level of the undertaking or the group is
necessary to preserve smooth communication.
response to the Davignon report has been generally positive. It was highly
welcomed by the Commission, European Parliament’s Legal Affairs
Committee and the Internal Market Council as good foundation for
relaunching the debate on the Statute. The Council supported the concept
of promoting negotiations, backed with statutory reference rules, and
deemed such concept to be the solution to the problem WP in the SE.
Even though there were still some fine details which
had to be ironed out, yet after 27 year there seemed to be a distinct
possibility that the ECS, with compulsory employee involvement provisions,
would be adopted shortly.
The Luxembourg EU Presidency presented a revised ECS
Draft in 1997, yet this was, once more, blocked due to disagreement on the
This text suggested that in the case of failure of negotiations, a
set of reference rules would apply regarding information and consultation
and also 20% of the supervisory or the administrative board had to be
composed of employee representatives. This was not accepted by the MS.
In the first half of 1998, the UK EU Presidency
presented a revised Proposal which amended the substance of the reference
rules without diminishing the importance attributed to negotiations. It is
important to note that under this Proposal the European-level Trade Unions
were give an advisory role during negotiations. In case no agreement would
be reached, the British Proposal also suggested that
information and consultation provisions
had to be applied, but it went a step and proposed that no minimum
of WRs should be fixed but employee representation should be equivalent to
the highest amount of WRs in any of the participating undertakings.
Even though the British Proposal offered solutions to two of the problems
remaining after the Davignon Report,
yet it was still not successful in gaining adequate Council support as
countries like France, Spain and Italy, which have systems differing from
the German co-determination one, considered the UK Proposal to lean to
much towards co-management.
In the second half of 1998, the Austrian Draft
provided one major controversial change from the previous proposals. SEs
could also be formed by the conversion of an existing company. The
Austrian presidency, on taking into consideration the controversy arising
on this matter, proposed that if the existing undertakings previously had
BLER, but it was decided that the SE would not have such representation or
would have such representation at an inferior degree, approval by a
special two-thirds majority of the SNB would first be sought. In addition,
the agreement on WP could not provide for a lower level of employee
involvement than that already existing in the company which would be
converting into an SE.
However, Spain objected to the Austrian Draft as it
feared that a minority of workers could enforce a system on a majority of
the employees and consequently, a system of BLER, improper to local needs,
would be transposed, thus jeopardising the conservation of a cultural
model of industrial relations.
A reaction of frustration to the decision adopted by
the Spanish government was emitted by the exponents of the ECS. With a
wave of industrial restructuring and mergers wafting across Europe, the
need for the Statute, was felt to be greater than ever.
Although, the German Presidency further strengthened
the compromise, it did not add much to it as it believed that that the
text was ripe enough for a decision to be taken and that there was no room
for further negotiations.
On the 20
December, 2000, the Council reached an agreement on the Regulation to
establish an SE and on the related Directive concerning worker involvement
in European Companies. Subsequently, the texts were passed on to the EP
and if the latter endorses the texts agreed by the Council, the European
Company will become a reality after thirty years since it was first
proposed. The text endorses much of the recommendations made by the
Davignon Groups and provides solutions for the possible loopholes which
where still present.
is deemed to be a marriage between the needs of business and those of
workers and reflects the approach that good social policy is good economic
policy where governments, business and workers are to face the challenge
of industrial change by means of co-operation.
Directive is based on Article 44
of the Treaty of Rome. Strangely enough, Article 44 is the Article more
nearly concerned with company law than Article 95 on which the
Regulation is based.
Both Articles necessitate merely QMV in order to authorize the proposal to
be adopted into Community law. This Article provides for measures to
be taken by:
44 (g) coordinating to the necessary
extent the safeguards which, for the protection of the interests of
members and others, are required by Member States of companies or firms
within the meaning of the second paragraph of Article 48 with a view
to making such safeguards equivalent throughout the Community.
believed by the UK that both the Council Regulation on the Statute for a
European Company and the Council Directive dealing with the Involvement of
Employees should be based upon Article 308 which requires unanimity.
Government claims that both the Regulation and the Directive are not
measures for the approximation of laws but they create new rights
superimposed on national rights.
The Directive provides for the participation of employees in the SE and it
is not intended to affect national law of practice on employee
participation in forms of companies, other than the SE. Thus, the WP
provisions in the Directive are not a measure for the coordination of
safeguards under Article 44. Besides Article 2 (3) of the Social
Policy Agreement provides that co-determination is to be decided by
unanimity and this further suggests that QMV is not appropriate for a
measure establishing WP procedures.
It has been
suggested that this choice of legal basis is motivated by political
reasons. The Statute is regarded as a method for introducing the WP models
into company law by a straightforward route and this would make the
adoption of the Draft Fifth Directive easier. If the latter
Directive became law, it would require all public companies with more than
1,000 employees to have BLER. Only the UK and Ireland have no provision of
BLER in their national law.
participation available under the present draft Directive are:
a model in which the employees form part of the
supervisory board or the administrative board, as the case may be;
a model in which the employees are represented by a
other models to be agreed between the management or
administrative boards of the founder companies and the employees or their
representatives in those companies, the level of information and
consultation being the same as in the case of the second model.
recommended under the Davignon Report, an SNB is to be established. This
role of this body is to negotiate with the competent body of the
participating companies regarding the establishment of arrangements for
the involvement of employees within the SE.
present proposal, negotiations are to start:
3 Where the management or administrative organs of the participating
companies draw up a plan for the formation of an SE (…) as soon as
possible after publishing the draft terms of merger or creating a holding
company or after agreeing a plan to form a subsidiary…
contrasts with the recommendations on expediency in the Davignon Report. Under the present draft Directive, negotiations begin at a
rather late stage, i.e., only after management has published the
draft terms for the formation of the European Company. The Davignon Report
had suggested starting negotiations once the plans for setting up a
European Company have been discussed by the competent bodies of the
companies participating in its creation. The ideal situation would be if
negotiations really commenced earlier. Also, one cannot invoke
confidentiality as the reason why negotiations are not commenced as the
SNB will still be bound by confidentiality rules.
the SNB are to be elected or appointed in proportion to the overall number
of employees of the participating companies by allocating one seat per
each portion of 10% of the overall number of employees, or a fraction
thereof, employed in a single MS. This provision ensures that each MS is
represented in the SNB, independent of the amount of employees are
employed in each particular MS.
In the case
of an SE formed by way of merger, each participating company which ceases
to exist as a separate legal person following the registration of the SE
will be entitled to have a seat. Thus, in case of SEs created by merger,
the composition of the SNB shall not only be governed by geographical
criteria (at least one representative per MS), but also by another
condition: there must be at least one representative per company on the
SNB. The number of such additional members shall not exceed 20% of the
total number of members of the SNB. This provision shall in no case lead
to double representation.
feature should be highlighted, in that the present draft presents an
option to MSs to provide that the members of the SNB may include
representatives of trade unions whether or not they are employees of a
participating company. An enhanced role is given to industry federation,
thus adding further safeguards to the rights of employees.
present draft Directive, the emphasis is still on negotiations in WP
issues, with the SNB representing all employees of the companies
concerned. In case of non-agreement, a set of standard principles, laid
down in an annexe to the Directive would be put into operation.
these principles require SE managers to supply regular reports on which
regular consultation of and information to a body representing the
companies' employees is to take place. Any business plans which would
affect the workforce, management changes, mergers, divestments, potential
closures and layoffs, are to be reported.
In case of
formation of a holding SE or a subsidiary SE, where in the promoting
companies 50% of the employees were previously covered by participation
rules and during negotiations, managers and employee representatives were
unable to negotiate a mutually-satisfactory agreement, the SE would be
obliged to apply standard principles on participation of its workers.
In case of
an SE created by way of merger, if at least 25 % of employees had the
right to BLER before the merger, then the standard principles on
participation contained in the Directive, would have to be applied. This
was the element which caused disagreement on the ECS until the Nice Summit
in December 2000.
December 2001, heads of State and Government struck a compromise. MSs are
given the option of whether or not to transpose into their national law
the Directive on participation in the case of SEs created by merger. If a
MS chose not to implement such Directive in its national law, an SE could
only be registered in that MS if an agreement to include BLER is concluded
or in the case where no employees were covered by participation rules
before the SE was created.
standard rules for participation
provide that in the case of an established by
transformation, the arrangements for WP applied by the national
company prior to its transformation into an SE would to continue to apply.
all other cases of establishing an SE, the employees of the SE, its
subsidiaries and establishments shall have the right to elect, appoint,
recommend or oppose the appointment of, a number of members of the
administrative/supervisory organ of the SE. This number shall be equal to
the highest proportion in force in the participating countries concerned,
before the registration of the SE.
the political accord reached by Council, the European Parliament has been
consulted on the two amended texts. It has been many years since the EP
has seen a formal draft of the text. The legislation is due to be formally
adopted in 2001 and enter into force three years later in 2004. Agreement
on the ECS is one of the ten priorities identified by
the Commission as vital to the creation of a fully integrated
market in financial services. The present draft seems to have
overcome the major obstacle faced by the SE: WP, but one still has to wait
and see whether in practice, these cultural difference between MSs have
been really surmounted.
May 2001 Dr Maria Chetcuti Cauchi. All Rights Reserved.