Dispute highlights position of works councils

A public dispute between the Magna automotive components firm and the trade unions over summer 1999 has led to increased attention being paid to the existence and role of works councils in Austria and on the unions' (limited) power to instal works councils.

A conflict at the Magna Auteca automotive components manufacturer has led to debate over the appropriateness of works councils in Austria. The concern currently has no works council and a dispute with trade unions over the issue came to a head recently An employee who at a staff meeting in December 1998 made it known that she favoured the establishment of a works council was dismissed in February 1999. Supported by the Union of Metal, Mining, and Energy Workers (Gewerkschaft Metall-Bergbau-Energie, GMBE) she has been alleging that the two events are connected - which would make her dismissal illegal - and has sued the company for reinstatement. The case is currently before the courts (AT9907157N), though the verdict will not be returned until spring 2000. Magna management states that the dismissal occurred because of conflicts between the worker - who until May 1998 was an elected "spokesperson" within Magna's internal system of employee representation - and a department head, in which the other employees took the side of the latter. Meanwhile the case has turned into a fierce conflict between Magna and GMBE, which has led to further court action for libel. GMBE at one point stated that it would form an international front against Magna, in which it intended to enlist trade unions in Canada, the USA, the Czech Republic, the UK and Germany. In late August 1999, works councils around Austria were asked to write letters to newspapers denouncing Magna and its actions, a move which was quickly exposed by Magna.

Auteca is owned by Magna International, one of the major suppliers to automobile manufacturers in North America and Europe, with more than 160 plants and development centres worldwide, which is headquartered in Canada. Magna's owner is widely regarded as having an aversion to trade unions and works councils, and in their place the multinational promotes a "Magna Charter" specifying the rights and obligations of employees and management, and "fairness commissions" arbitrating complaints. Magna has recently established three new plants in Austria with a total of 850 employees, and none has a works council, though in Austrian plants bought by the enterprise - in 1998 it acquired Steyr-Daimler-Puch AG- the pre-existing works councils continue to function as usual. These plants have about 7,700 employees. Magna has no European Works Council. The conflict between Magna and GMBE was fuelled by some very outspoken comments by Magna's owner.

On 3 September 1999 Magna Europe, headquartered in Austria, announced that referenda will be held at its three new Austrian plants to decide on whether or not to establish works councils. They will be supervised by a notary, a legal expert, and a representative of the provincial government of Styria. No date was set for the polls, and a more formal proposal was due to be made in early October. Legally, the results will not be binding. Employees, even if they vote against works councils and for Magna's system of employee spokespersons, will remain free to form a works council whenever they please. Magna also said that it would adapt its employees' charter to Austrian conditions and grant protection from dismissal to the elected representatives. This is far short of the rights and entitlements that works council members enjoy (see below).

A previous referendum on the reinstatement of the worker fired at Auteca saw 181 of the 255 votes cast against rehiring. GMBE and the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB) are adamant that pressure was exerted on the employees. They seem convinced this will be the case again, and they have called on the provincial government of Styria to help avoid such pressure being applied. Magna maintains that it will leave the employees to decide for themselves, but that it is determined to keep the trade unions and their politics out of its plants. The provincial government, in turn, is worried that the conflict, if it keeps simmering or escalates further, will make Styria a less attractive site for investments. It tried unsuccessfully to convene a round-table of trade union and company representatives on 31 August.

Conflicts and absence of works councils

The Magna case is not the only ongoing conflict over a works council. At a major fruit and vegetable distributor in Vienna, owned by the German Atlanta Bremen concern, the chair of the salary earners' works council was fired in July 1999 after the appointment a few months earlier of a new general manager charged with returning Austrian operations to profitability. The dismissal was found to be illegal but the company refused to admit the works council chair to its premises again. At the same time, according to press reports, the general manager maintained that in Germany he had always accepted works councils "because they have only advantages." However, other companies operating in Austria, both North American and European, have been showcasing the cooperation between management and works council and have established notably good relations with the trade unions.

There are both domestic and foreign-owned companies, some of them with a high public profile, that do not have a works council. They include the country's second largest furniture retailer, the best-known caterer, the largest retailer of consumer electronics, and the Austrian branch of Microsoft, the US-owned information technology multinational. The explanations for the absence of a works council differ, ranging from extremely flat hierarchies to high degrees of entrepreneurial attitudes required of employees, and an "open door" policy by management that is said to make intermediaries superfluous. Some employers object to repeated trade union attempts to set up a works council from outside, as it were, while others state that they merely want to make sure that certain rules are observed: problems that can be solved directly between employee and management should not be "appropriated" by the works council, and it must not interfere with business decisions.

Works councils legislation

Establishments consistently employing five or more workers must have a works council, according to Austrian law. In reality, of the approximately 77,000 establishments fulfilling this criterion only about 15,000 - one-fifth - have a works council. There are no particular factors which appear to govern why particular enterprises do or do not have works councils in place.

The law gives the responsibility for setting up a works council to employees. The employer has no right to interfere in the process at any point or in any form. In an establishment of at least five employees the first step towards a works council is a staff meeting to elect an "election board" of three. In establishments with at least 20 employees, only two of the three have to be employees in the establishment while the third can be an employee of a trade union or Chamber of Labour. In such establishments the relevant trade union and the Chamber of Labour also have the right to call the original staff meeting, if the employees themselves do not take action within two weeks after the trade union or the Chamber of Labour has formally informed them of the requirement to take steps towards the creation of a works council. It is this clause in section 45 of the 1974 Labour Constitution Act (Arbeitsverfassungsgesetz, ArbVG) that has been causing conflicts between employers and trade unions. The normal way to counter the trade union's initiative is for at least half the employees to stay away from the staff meeting thus called.

The size of the works council depends on the number of employees. In establishments with five to nine employees, the works council has one member, rising to two for 10-19 employees, three for 20-50 employees, and four for 51-100 employees. The size of the council increases by one member for every further 100 employees, and then by one member for every 400 employees in in establishments with more than 1,000 employees. The law urges that men and women should be represented according to their share of the workforce. Members of works councils can be dismissed only for reasons listed in the law, and only if the court approves of it. They are entitled to three weeks of paid training leave during a four-year period in office. In establishments with fewer than 20 employees the leave is unpaid. They are also entitled to paid time off for their duties as works council members. If the works council is comprised of at least four members, up to one quarter can be employees of a relevant trade union rather than the enterprise. A trade union employee can be a member of only one works council. Where there are more than 150 employees, if the works council requests that one of its members be given full-time paid leave to carry out works council duties, management must comply. This increases to two members when there are more than 700 employees, three members when there are more than 3,000, and then one more for every subsequent 3,000 employees.

Only citizens of member countries of the European Economic Area (EEA) can stand for election to a works council. However, if by accident a non-EEA national is elected, the election is valid. Membership of a works council can be challenged in court by either the employer, the works council or an individual member of the works council. There is an opinion that, due to the EU Association Agreement, Turkish nationals are entitled to stand for election, though this is contested by most trade unions. At least one case is currently before the courts.

Works councils in practice

Works councils do not seem to have a decisive influence on business practice. Workforce reductions been pursued regardless of whether or not there is a works council in a firm. Well publicised examples include Semperit Tyres, a subsidiary of Continental AG of Germany, or the current processes at the post office (AT9806196N) and on the railways (AT9809101F). Continental AG has also, according to some commentators, proved over the last several years that all-out internal competition between plants in Austria, Germany, Belgium, the UK, and Slovakia can be pursued even in the presence of a European Works Council. In Austria, the works councils in all these cases were instrumental in bargaining over social plans as compensation for the departing employees. This was also the case at SAT, a loss-making Magna subsidiary which has since been sold, where about 100 workers were made redundant at the beginning of 1999. There, according to the works council chair, the plan was so financially attractive that more than the required number of workers wanted to leave.

Works council members, in particular their chairs, most of whom are men, are also the power base of ÖGB and its 14 member unions. In practice, and usually by statute, positions in the trade unions can be gained only by works council members. Furthermore, works councils are important in recruiting members for the ÖGB. Setting up works councils, therefore, is a way for the ÖGB to secure its income base (AT9907158N).


The Magna conflict kept the media occupied over summer 1999. For ÖGB, it arguably served mainly as a "warming-up" exercise for its 14th federal congress in October, where there will doubtless be countless asides and jokes at Magna's or its owner's expense. ÖGB's stance is uncompromising. It refuses out-of-court settlements in the current court actions, and it declined to participate in the round-table planned by the Styrian provincial government. Arguably, its position is also formalistic: the law exists and must be kept to. However, the situation is rendered more difficult because Magna has consistently demonstrated a capacity to create jobs in a part of the country that has long been considered an agricultural backwater marked by emigration to larger towns. As recently as the end of August 1999. the creation of another 3,000 jobs from the year 2001 was announced.

ÖGB's concern that the Austrian social partnership might suffer because of the conflict seems to be unfounded. The Austrian Chamber of the Economy (Wirtschaftskammer Österreich, WKÖ) has been lying low in the conflict between Magna and ÖGB, and so have the other social partners. Works councils generally enjoy the support of policy-makers. Styria, the province where most of Magna's Austrian operations are concentrated, immediately halted a subsidy to the company when the conflict erupted, although the province's policy-makers are among those least adverse to a change in legal regime. Thus it was the provincial government which, apparently, originally proposed to hold the referenda at the three plants.

A works council can create costs in several ways: the full-time members receive a wage without producing; the works council entails bureaucracy; and it is likely to police wage payments, working hours, working conditions and so on. However, a works council can also be instrumental in containing costs as it is the only partner available to management to negotiate certain working time arrangements (AT9812115F) or motivation-enhancing wage arrangements (AT9902132N). They also can be valuable sources of feedback from the shopfloor. Thus one of the most common arguments against works councils is that other feedback channels have been created in particular enterprises. The formalisation of internal communication that is apparent in the legal prescriptions for works councils may have an adverse effect on all enterprises (with or without works councils) with regard to informal communication. Studies have repeatedly found that employee motivation and the internal flow of information are not strong points of Austrian business culture.

Arguments against works councils should not be confused with arguments against trade union "interference". Such confusion can easily arise in Austria as works councils and trade unions closely mesh. It seems likely that in the upcoming October 1999 bargaining round, GMBE will demand readier access to enterprises with at least 20 employees in a bid to make it easier to call the staff meetings required to start the process leading to the election of a works council. This was on ÖGB's agenda for legal change in 1998 (AT9805189N) but was rejected by WKÖ. GMBE has shown an ability to attain by collective agreement what the ÖGB cannot secure via legal change (AT9810107F).

It does not appear to be a clash of national cultures that is at the heart of the matter, though perhaps of business cultures. Magna sits uneasily with the Austrian business community too. In an unusual move, its biggest Austrian subsidiary has left the Federation of Austrian Industry (Vereinigung österreichischer Industrieller, IV). Furthermore, Austria's largest steel producer, in September 1999, sold its share in a joint venture with Magna back to Magna. The official silence over the reasons is punctured by reports that the two companies kept failing to agree on basic management principles. Magna likes to emphasise quick reaction to changing markets and does not favour having to coordinate actions with partners. Magna's stance may be described as highly anti-bureaucratic, and this is perhaps what likens it to other firms that have avoided or not required a works council and distinguishes it from enterprises which adopt a more cooperative approach, like Hewlett-Packard, McDonald's, IBM and so on (August Gächter, IHS)

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