Amendment of the Dutch Works Councils Act: a few surprises

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On 5 September 1997, the Lower House of the Dutch Parliament completed its debates on a bill to amend the Works Councils Act. Not counting various periodical adjustments, this is the seventh revision since the original 1950 Act. It has been repeatedly stressed by both the Cabinet and the members of the Lower House that the bill does not introduce fundamental changes. However, fierce debates have been waged with regard to the issue of worker participation, and how far this can be taken.

The Works Councils Act: a brief history

The 1950 Works Councils Act (Wet op de ondernemingsraden, WOR) is suffused with the spirit of cooperation so characteristic of the period of reconstruction after the Second World War. Specifically, this Act aimed to increase the level of cooperation between labour and management to improve the functioning of companies. Originally, management was included in the works council, and workers' representatives possessed only rights to information and enter discussion. Employee interests had no right to be included in decision making, and participation with regard to social issues was introduced only in the 1971 amendment.

The most far-reaching revision of the WOR took place in 1979. First, the works council gained additional autonomy by the removal of management. Second, the role of the works council was changed: it no longer focused exclusively on improving the functioning of the company, but also sought to represent employee interests. Third, the works council was granted the right to advise on all major strategic decisions such as mergers and take-overs, relocation, closure or reorganisation and major investments. In addition, if the employer did not act upon the advice of the works council, the works council could appeal to the Enterprise Chamber of the Amsterdam Court. This was unique in Europe. If the Court ruled that the employer's decision was not made in fairness, the decision would have to be withdrawn and the consequent actions reversed. In a few cases, the decision to close down a plant was reversed. The rulings of the Court over time reveal that mainly negligent decision-making is deemed unacceptable. Employers which provided sufficient information in a timely manner, explained their decisions and could show that consideration was given to employee interests in the decision-making process, were generally free to make their decision as they saw fit, even if the decision had adverse consequences for the employees.

The subsequent revisions were not as far-reaching. These generally extended the scope of the law: smaller companies were also included; "umbrella works councils" were introduced at company level; and in 1990, the many complex rules for settling disputes were simplified. In 1995, the scope of the law was further extended to include a major part of the government sector.

The initial phase of the present revision has taken almost a decade. In 1986 and 1987, the results of a major research project on works councils were published. In 1992 and 1994, theSocial and Economic Council (Sociaal Econoimische Raad, SER) published two reports that largely reflected the divisions within the Council between the representatives of employers' organisations on the one hand, and the labour unions on the other. Finally, a 1995 Cabinet Memorandum set the groundwork for the 1996 bill to revise the WOR.

The Works Councils Act: a brief outline

Before launching into a discussion on amendments, it is first necessary to sketch the most salient aspects of the Works Councils Act. First, employers who employ a set minimum number of employees are required to establish a works council. The works council has the right: to be informed on all relevant matters; to make proposals to the employer; to give advice on all major strategic decisions; to go to court if the employer does not follow the advice; and finally it has a right of approval for decisions on social issues. As a whole, the present revision does not fundamentally alter the rights of the works council. The most important changes relate to the scope of the law and updating the rights outlined above.

Revisions concerning the scope

Previous versions of the law contained a "one-third" criterion: only those workers employed for more than a third of the normal working time (approximately 38 hours) were taken into account for determining the establishment and rights of works councils. Since this criterion was at odds with current views on the importance of part-time employment, it was dropped in the revision. A result is that more companies are now covered by the law.

A much more far-reaching change concerns the different "regimes" of the law. Under the current rules, companies with 100 or more employees fall under the "complete regime" category and, as such, are fully subject to the WOR. A "limited regime" applies to companies with fewer than 100, but more than 35 employees, which offers works councils limited rights and facilities. Finally, a system of direct participation, or "staff meeting", applies to companies employing between 10 and 35 people.

This division has come under attack since the introduction of a new law on working hours in 1996. Following the adoption of a resolution tabled by an MP, Mr Rosenmöller, consultation with employee representatives was made mandatory in a number of cases regarding changes in working time in not only larger, but also smaller companies. During the debates on the Works Councils Act, the PvdA (Social Democrats) and D66 (liberal democrats) proposed abolishing the 100-employee threshold. The CDA (Christian Democrats) proposed that the number of employees needed to make a works council compulsory should be raised from 35 to 50. The ensuing debate resulted in a joint amendment that distinguished between four types of companies:

  1. Companies with 50 or more employees: in these a works council with the same rights as those exercised currently in companies with 100 or more employees will have to be established.
  2. Companies with fewer than 50, but more than 10 employees: employee representation must be established at the request of a majority of the employees, or by the employer voluntarily. This group will be vested with powers concerning decisions on hours, working conditions and a right to advise on strategic decisions that have a major impact on a significant part of the workforce.
  3. Companies employing 10 or fewer employees: the employer can opt to establish standing employee representation with powers over decisions on working time.
  4. Companies employing between 10 and 50 employees in which the employer has not established standing representation: here participation rights will be guaranteed in accordance with the current system.

In theory, as a result of these new rules, the existence of works councils in companies with 35 or more, but fewer than 50 employees would be seriously threatened at the end of their term of office. TheDutch Federation for Participation (Nederlandse Vereniging voor Medezeggenschap, NVM) has estimated that roughly 2,000 works councils will vanish, from a total of 15,000.

The law was also changed with regard to temporary agency workers. Up until now, participation was restricted to only those employees employed by the company with which they had signed a contract. The result was to exclude temporary workers who operate in limbo between a formal and an actual employer. The Cabinet has proposed that these employees should receive rights of participation in relation to both their formal and actual employers. However, a majority in Parliament foresaw many complications with this proposal and decided that participation rights should be granted in the firm of the formal employer. However, once the current "flexibility and security" Bill (NL9707116F) comes into force, temporary workers will also receive rights of participation in their actual employer's companies after 24 months of service.

Modernisation and extension of works councils' rights

Under current legislation, works councils have the right to give advice on strategic decisions (Section 25 WOR) and the right of consent on decisions covering social matters (Section 27). The list of decisions requiring advice has been extended to issues regarding the granting of security or credit, technological innovation and measures on environmental protection. The right of consent was withdrawn for certain decisions, including those concerning regulations contained in staff manuals, but was extended to include decisions concerning personnel monitoring systems, reimbursement of expenses and personnel records.

The two parliamentary representatives, Schimmel (D66) and Middel (PvdA), who were responsible for a majority of the amendments submitted, proposed that works councils be awarded the right to advise on the allocation of profits. This proposal resulted in a heated debate reminiscent of the 1970s. Employers' organisations warned that this would endanger the competitive position of the Netherlands. However, the most important argument raised against this was that such a right would constitute an infringement of the rights of the general meeting of shareholders. The Minister of Social Affairs and Employment also opposed the amendment on the grounds that this could adversely affect the Dutch economy. In the end, the amendment was withdrawn. A much weaker amendment to award the works council the right to gain access to information about the allocation of profits was subsequently rejected by the Lower House.

Another example of how this law was updated relates to how agreements between the works council and the employer are reached. Originally, the WOR was designed as a fairly closed system which included an exhaustive specification of the rights of works councils. In practice, a more open system gradually developed in which employers and works councils concluded agreements on all kinds of subjects. The revised law has codified this development.

Works councils and terms of employment

The role of the works council in determining the terms of employment is a relatively loaded issue. Historically, trade unions have enjoyed a monopoly position as far as wages and working time were concerned. Although works councils do have a right to consent with regard to many secondary terms of employment (that is, top-up benefits, including supplementary pensions), Section 27 also makes it clear that trade unions have precedence here as well. The right of consent does not apply to items which have been included as a part of a collective agreement. On the other hand, ongoing decentralisation of negotiations on terms of employment has led to a more prominent position for the works council, a subject which did not escape notice during discussions on the bill. On the whole, the Cabinet and the Lower House seem to be satisfied with the prominent role played by the trade unions in determining terms of employment. An amendment to extend the right of consent to all social matters not covered by collective agreements did not gain a majority (NL9703106F).

The codification mentioned above allowing works councils to conclude agreements strengthens their position in determining terms of employment, especially in sectors where the unions are weak, or in sectors where sector-wide collective agreements allow the details to be resolved by individual companies.

Other revisions

Many of the revisions have a technical character which seek mainly to remove superfluous provisions in the WOR. The Cabinet has repeatedly stressed that attempts to set rules to cover all aspects in a detailed way are doomed to fail. The position of "umbrella works councils" was somewhat strengthened: the WOR established their independent position, and extended their authority level to matters regarding the policy of the group as a whole.

Commentary

The Works Councils Act has been revised on a number of points. The law has been simplified and both the right to give advice and the right of consent on social matters have been brought up to date. In addition, the law now reflects the recent increase in flexible labour relations and the decentralisation of collective bargaining. All in all, the original proposals put forward by the Cabinet in 1996 left the Lower House relatively unscathed. The most significant change, namely changing the threshold for small and medium-sized companies from 35 to 50 employees, originated in the Lower House.

The commotion about the allocation of profits is somewhat surprising. The objection that such a right infringes the rights of the general meeting of shareholders seems exaggerated, and this view has been echoed by prominent legal experts as well. First, the right to give advice must not be confused with a power of veto. A decision may be reversed only after it has been ruled unfair. In addition, the Enterprise Chamber of the Amsterdam Court generally confines itself to procedural rather than substantive aspects of a decision. Second, even now, the general meeting of shareholders is not the only body authorised to make decisions on profits. For example, since supervisory boards in large Dutch companies have the power to adopt the annual accounts, they also determine the volume of profits. Many articles of association state that only after the board of directors and the supervisory board have reserved part of the company's profit, may the general meeting of shareholders decide on how to allocate the proportion remaining. (Robbert van het Kaar, HSI)

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