The EU moves forward with a Directive amending European Works Councils (EWCs)

Why should I read this?

In February 2025, the EU will begin final negotiations aimed at agreeing a new Directive (“the Directive”) which amends existing European Works Councils (“EWCs”) legislation. The Directive impacts companies with at least 1,000 employees within the EU or European Economic Area and at least 150 employees in each of two countries.

The current EWC Directive outlines the processes for creating EWCs and for informing and consulting them on transnational matters, such as some cross-border M&As, outsourcing, restructuring and redundancies. Changes in the new Directive would, if agreed:

• strengthen workers’ and EWCs’ rights
• increase employer costs, such as funding EWC legal representation and participation in proceedings
• expand management’s EWC information and consultation obligations, including when such obligations are triggered
• require management to provide a justification when limiting, or withholding, information on confidentiality grounds and narrow the grounds for non-disclosure
• remove the exempt status of ‘legacy’ EWCs
• potentially, increase sanctions for non-compliance.

In summary, while there are differences within the EU as to the final details of the Directive (see further below), there is broad consensus for change and employers, both businesses with an existing EWC and those in-scope but without, should risk assess the impact and monitor the legislation as it develops in 2025.

What else do I need to know about the Directive?

Some of the key changes proposed by the Directive include the following:

Widen the definition of transnational

EWC information and consultation is triggered by transnational issues (to distinguish it from national level worker dialogue). Currently, the Directive defines transnational as matters concerning the undertaking or group: “as a whole, or at least two undertakings or establishments of the undertaking or group situated in two different Member States.”

The Directive proposes to widen the definition of transnational, in particular, by:

• requiring management to decide whether matters can reasonably be expected to be transnational – this introduces a future-looking assessment which is currently absent (compare ‘matters concerning’ with ‘matters reasonably expected to concern’)
• deeming as transnational those measures which can reasonably be expected to affect workers in one Member State (“MS”) and the consequences can reasonably be expected to affect workers in another MS. This may result in indirect cause and effects triggering EWC obligations.

All parties to February’s negotiation agree this broad approach. However, the final details are yet to be agreed. For example, Parliament has also proposed a requirement that management give written reasons, if there is a disagreement over whether transnational EWC obligations apply. 

Strengthen I&C definitions

Information and consultation (“I&C”) rights and obligations are core to an EWC’s role and, as a result, disputes may arise over I&C compliance. Where there are disagreements, how they are defined in both the individual EWC agreement and in the applicable legislation becomes important.

There is agreement within the EU that the Directive should strengthen I&C obligations to seek to ensure that meaningful consultation takes place before decisions are taken, such as by stating that the consultation should enable representatives (“reps”) to express an opinion prior to the adoption of the decision by management. In addition, management should provide a reasoned written response to this opinion before adopting a decision on transnational matters (subject to the responsibilities of the management and within a reasonable time).

Parliament is seeking to strengthen information duties further in the new Directive, such as management providing information in such a way as to enable the EWC to consult national employee reps and to prepare for meaningful consultation.

The changes mean that transnational consultation may need to start at an earlier stage and become more elongated in practice with the opinion of the reps gaining more significance as part of the consultation process. Some EWC agreements already provide for I&C timeframes and a response from management. However, they would need reviewing for compliance. For those agreements that do not, these proposals are significant.

Change the management of confidentiality

Currently, the Directive provides that reps and their experts are under an ongoing duty not to disclose confidential information and management may withhold information when it would seriously harm the functioning of the undertakings or would be prejudicial to them. National legislation may also contain local limits and conditions.

Responding to trade union claims that confidentiality is applied excessively, the proposed changes would:

• require management to give reasons justifying confidentiality or where information is withheld
• provide that confidentiality may no longer apply if no longer justified
• reduce the conditions for withholding information to a single one: that disclosure would seriously harm the functioning of the undertakings concerned.

If the changes were implemented, management would need to ensure that confidentiality or non-disclosure could be justified. They may increase the likelihood of disputes and delay in the EWC I&C process. Parliament is also looking to strengthen EWC confidentiality rights further by requiring: management to objectively justify their confidentiality reasons and to bear the costs if challenged by the EWC; prior regulatory or judicial authorisation to be obtained in order to withhold information; and the sharing of confidential information with local works councils to be permitted (subject to local rules on confidentiality).

Strengthen sanctions for non-compliance

EWC compliance is enforced at MS level and the current Directive does not prescribe the type of sanction. As a result, potential penalties range from the threat of injunctions in some countries to moderate fines in others.

There are significant differences between the Council, Commission and Parliament and their approach to sanctions in the new Directive. All agree that MSs should provide for effective, dissuasive and proportionate sanctions for failing to comply with transnational I&C, to include financial penalties.

Setting the rate of such penalties, and providing for other sanctions, are all points of disagreement, with the Council stopping short of setting minimum financial penalties and Parliament proposing substantial fines (based on the GDPR of between €10 million or €20 million, 2% or 4% respectively of total worldwide annual turnover, depending on whether the infringement is intentional) as well as injunctions to delay corporate decisions. How this is resolved in upcoming negotiations, and then implemented by MSs, has the potential to significantly affect individual EWC enforcement risks.

However, there is broad agreement that MSs should provide that the reasonable costs of legal representation and participation in proceedings (such proceedings taken by reps during the set-up phase or by the EWC) are borne by central management, however the exact details differ between the parties.

Increase or clarify EWC costs

The set-up and ongoing costs associated with EWCs are expected to increase, reflecting new proposed rights to reasonable expenses during the set-up phase (such as for legal advice) and to enable the EWC to represent employees, as well as measures to require greater certainty in EWC agreements over resources for existing EWCs. The default (‘subsidiary’) agreement would also be amended to require two, not one, plenary meetings per year – at least one of which should be in-person and, potentially, widening the application of default agreements.

Boost gender balance amongst EWC representatives

Women are underrepresented in most EWCs and the Directive proposes additional conditions aimed, where possible, at moving towards a more balanced representation of employees with regards to gender.

End the exemption of legacy EWC agreements

The current Directive does not apply to approximately 350 EWCs (so-called Article 13 agreements) which pre-date the application of the original 1994 Directive.

The new Directive proposes removing their exemption in order to provide greater legal clarity and consistency across all EWCs. Affected companies would be able to endeavour to maintain their existing agreements, or reps would be able to request the establishment of a new EWC which is subject to EU and national EWC regulation, replacing any previous agreements. Those employers with such legacy agreements would be advised to consider the potential benefits and credibility of maintaining such legacy agreements and the likelihood of a request to establish a new agreement under a new Directive and the financial and other changes resulting from a new EWC complying with the latest regulation.

In addition, it is proposed that other EWCs, concluded under and subject to previous versions of the Directive, may negotiate adaptations to bring them into line with the latest minimum requirements, with a potential two-year timescale to complete the negotiations. However, Parliament is seeking to make such renegotiations mandatory.

What should I do?

Given the significant nature of the proposed changes, as well as the potential for Parliament to increase employer obligations and duties further during negotiations, employers should stay abreast of developments once final negotiations commence next month. We will be providing updates on the latest developments.