Works councils and their right of appeal - current trends
Works councils in the Netherlands have had conspicuous success during 1998 in overturning the strategic business planning decisions of employers. Rulings have arguably, however, shown that the right of appeal of works councils does not present a fundamental attack on the policy-making freedom of the employer.
Since 1979, works councils (ondernemingsraden) in the Netherlands have had the right to lodge appeals against the strategic planning decisions of employers, including takeovers and mergers, reorganisations, business closures, relocations and changes in investment strategies, both domestic and foreign. Since March 1998, the list of decisions on which works councils' advice is compulsory has been expanded to include the introduction of new technology and the provision of security systems, for example in banks (NL9709130F).
When a company takes a planning decision of the above kind, listed in Section 25 of the Works Councils Act (Wet op de ondernemingsraden, WOR), it must seek advice in advance from the works council. It must state the grounds for its decision, the consequences for the workers and the measures to be taken to deal with these consequences. After the works council has given its advice, consultation between the works council and the company must take place at least once. Should the employer and the works council fail to reach agreement, three options exist. The employer can withdraw the decision, try to reach a compromise through negotiation, or decide to continue with the plans.
Should the employer decide to adopt the last option, it is obliged to postpone implementing the plan for one month. Within this period, the works council is then able to lodge an appeal against the decision. The competent court of appeal is the Enterprise Chamber of the Amsterdam Court of Appeal, which assesses whether the decision is reasonable. If it decides against the employer, it can force the employer to withdraw the plan, cease its implementation and adopt measures to reverse the consequences as far as possible.
The employer and the works council may also negotiate a compromise. For example, the works council may agree to a reorganisation or a merger on condition that the employer agrees to keep the business in question open for several years. In the case of complex plans, the compromise is sometimes set out in a separate agreement. Since March 1998, the Works Councils Act has explicitly referred to the possibility of entering into agreements of this kind. Barring exceptional circumstances, the employer is bound by such an agreement.
Recent decisions of the Enterprise Chamber
1998 has seen a number of important decisions by the Enterprise Chamber in favour of works councils on the issue of strategic decision-making:
- on 2 April, it was ruled that the Dutch state did not act reasonably in deciding to reorganise the regions of the Chamber of Commerce and Industry without seeking the prior advice of the Chamber's works council. The state's argument, that this was a political decision for which advice was not obligatory, was rejected;
- on 11 June, the publisher Wegener Arcade was ordered to reverse its planning decision on a demerger. The employer had explained the reasons for its plans only after discussions with the works council;
- on 2 July, workers at RTL/Veronica-De Holland Media Groep learnt that the company had already begun to implement its reorganisation plan prior to seeking advice from the works council. The company was required to reverse the steps that it had already taken;
- on 9 July, the Duinwaterbedrijf Zuid-Holland was judged to have acted incorrectly in not seeking the prior advice of its works council regarding a contract awarded to a consultancy firm; and
- on 30 July, Vereniging Vluchtelingenwerk was ordered to reverse a plan for hiving off that part of the association involved in labour mediation on behalf of asylum seekers. The employer was unable to explain to the works council why labour mediation was no longer one of the association's primary objectives.
In a number of other cases, decisions were rendered in favour of the employer. In a ruling dated 16 July, the Enterprise Chamber found that a public transport organisation had made a miscalculation in its earlier commitments and held that it would be going too far to bind it to them, bearing in mind changed market conditions. The works council of the Instituut Zorgverzekering Ambtenaren Nederland lost two appeals relating to two plans to implement electronic data interchange.
Enterprise Chamber reviews procedure, not policy
In reviewing the decisions reached by the Enterprise Chamber during 1997 and 1998, it is striking that the works councils prevailed in most cases. Until 1996, a mere one in 12 appeals lodged by works councils were upheld. However, the fact that this percentage has since increased significantly does not necessarily imply a policy swing on the part of the Chamber.
Nearly 20 years of judicial rulings clearly reveal that the Enterprise Chamber reviews primarily the employer's decision-making procedures and tends to avoid judging the content of its policy. The circumstances surrounding cases in which employers have lost can be distinguished as follows:
- the employer has sought no advice. This almost always results in the plan having to be withdrawn;
- the employer seeks advice, but very late, or gives insufficient reasons or information and so on. Except when this relates to minor irregularities, the Enterprise Chamber invariably decides that the decision-making procedure has taken insufficient account of the interests of the works council and the plan must be withdrawn; and
- the plan must also be withdrawn if the employer has failed to consider adequately the effects of a plan on employees and has not looked into how the consequences can be dealt with.
If, however, the Enterprise Chamber finds that the employer has formulated its decision-making procedure with sufficient care, it will allow a plan to be implemented, even if the plan has negative consequences for the employees. In other words: an employer which is careful in formulating a decision-making procedure has great freedom in terms of policy.
The works council's advisory powers and right of appeal apply to businesses with more than 50 employees. In smaller businesses, a somewhat different regulation applies. Employee participation is exercised not through a works council, but through an employee delegation or an "employees' meeting" (NL9709130F).
These structures have advisory powers and a right of appeal only if the ruling concerned could lead to job losses, or important changes in the nature, terms and conditions of work affecting at least a quarter of the employees. The advisory powers cease to apply if the subject in question has already been dealt with through a collective agreement. Neither the employee delegation nor the employees' meeting has a right of appeal to the Enterprise Chamber. However, the ordinary court can certainly be approached if the employer fails to seek advice.
The right of appeal of the works council has no counterpart outside the Netherlands. In this regard, it should be borne in mind that in several other countries, including Germany, employee representatives have a seat on the supervisory board. This also constitutes a form of participation in the strategic decision-making process.
Research shows that many works councils fail fully to exercise their advisory powers and right of appeal. In this respect, the Dutch system of participation is stronger on paper than in practice. Having said that, the right of appeal of works councils is not to be underestimated as a weapon against employers which do not follow carefully formulated procedures or which fail to take the interests of employees into account. The rulings of the Enterprise Chamber also make clear, however, that the right of appeal of the works council does not pose a threat to managerial prerogative. Instead, Dutch participation rules compel employers to formulate their decision-making procedures with due care. (Robbert van het Kaar, HSI)