What the law says on European Works Councils

19 Sep 2019 By David Hopper

A new ruling sheds light on relocating employee representation in the wake of Brexit. David Hopper reports and offers advice to employers

Employers headquartered outside the EU can relocate their European Works Council (EWC) arrangements from the UK because of Brexit, the Central Arbitration Committee (CAC) has ruled. This will be welcome news, as the greatest impact of a ‘no deal’ Brexit in an employment context will be on EWCs.

The background

HPE is an American company. It started establishing an EWC in 2015. It appointed a UK subsidiary as its representative agent responsible for this process. This means that UK law would have governed any future EWC agreement.

When the UK voted for Brexit in 2016, this threatened HPE’s negotiation of a long-lasting EWC agreement under UK law, so it terminated its UK subsidiary’s appointment and replaced it with an Irish subsidiary.

HPE’s special negotiating body (SNB) of employees’ representatives challenged HPE’s actions. It then requested further training on UK law. HPE rejected its request as such training was unnecessary because Irish law now applied. The SNB complained to the CAC.

The CAC decision

The CAC ruled that HPE had been able to terminate its UK subsidiary’s appointment. It therefore did not have jurisdiction to hear the SNB’s training complaint.

Employers headquartered outside of the EU do not enjoy an unfettered right to change their representative agent. For example, they cannot do it to frustrate employees’ information and consultation rights. But employers acting in good faith can make this change. HPE had not sought to escape its information and consultation obligations. Instead, it had acted for the rational reason of reducing Brexit uncertainty.

The CAC also considered employers’ alleged ‘forum shopping’ for more favourable national EWC laws. HPE had not done this, and European Court of Justice case law means that businesses are not prohibited from doing this in any event. This reflects their fundamental right to enjoy freedom of establishment across the EU.

Implications for employers

If there is a no-deal Brexit it is likely that:

  • under EU law, most employers will be obliged to implement new EWC arrangements under a remaining member state’s laws. This will avoid a no-deal Brexit eroding non-UK employees’ information and consultation rights; and
  • under UK law, most businesses’ obligations to maintain EWC arrangements will end.

However, Brexit is unprecedented and legal uncertainty remains despite the CAC’s decision. Employers with UK-law governed EWC arrangements should proactively plan for a no-deal Brexit. Indeed, some risk criminal penalties if they do nothing.

Employers should plan based on their particular circumstances. Given the CAC’s decision, in general:

  • companies with old ‘article 13’ EWC agreements should conditionally appoint a representative agent in case a no-deal Brexit affects their general exemption from EU law EWC obligations;
  • employers headquartered outside the EU that are negotiating their EWC agreement or operate their EWC under the ‘subsidiary requirements’ may unilaterally appoint a new representative agent before or with effect from a no-deal Brexit;
  • businesses headquartered outside the EU that operate their EWC under a negotiated EWC agreement may immediately appoint a new representative agent with their EWC’s consent or unilaterally designate a new representative agent with effect from a no-deal Brexit; and
  • employers headquartered in the UK can unilaterally designate a representative agent with effect from a no-deal Brexit.

Choosing a new representative agent is an important decision. For example, only some member states’ laws impose criminal penalties or allow injunctions if businesses fail to properly inform and consult their EWCs. Most employers are therefore choosing Irish representative agents because of Ireland’s common law, English-speaking and business-friendly EWC environment.

David Hopper is a senior associate at Lewis Silkin

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