Law proposed on employee involvement in European Companies

June 2003 saw the publication of a report commissioned by the Swedish government on the national transposition of the EU Directive on employee involvement in the European Company Statute. It propose a new law to implement the Directive in Sweden. The social partners were involved in drawing up the proposals and reached consensus on many issues.

On 8 October 2001, the EU Council of Ministers adopted Council Regulation (EC) No. 2157/2001 on the Statute for a European Company (or Societas Europaea, SE) and Council Directive 2001/86/EC supplementing the Statute for a European Company with regard to the involvement of employees (EU0206202F). Member States must adopt the laws, regulations and administrative provisions necessary to comply with the Directive by 8 October 2004 (the date that the Regulation, which is directly applicable in the Member States, comes into force), or ensure by then that management and labour introduce the required provisions by agreement. The European Company Statute (ECS) Regulation gives companies the option of forming a European Company (SE) which can operate on a Europe-wide basis and be governed by Community law directly applicable in all Member States (rather than national law). The Directive lays down the employee involvement provisions to apply to SEs - providing for negotiations between management and employee representatives in each SE on the arrangements to apply, with a set of back-up statutory 'standard rules' where no agreement is reached. Involvement constitutes the information and consultation of employees and, in some cases, board-level participation.

In June 2002, the Swedish government decided in to appoint a special commissioner to investigate how the ECS employee involvement Directive should be implemented in Sweden. Eva-Helena Kling, chief legal advisor at the Swedish Union of Technical and Clerical Employees in Industry (Svenska Industritjänstemannaförbundet, SIF), was appointed as commissioner, along with a reference group made up of social partner representatives. In June 2003, the commissioner presented her report on 'worker involvement in European Companies' (Arbetstagarinflytande i europabolag, SOU 2003:64).

Importance of observing national traditions

The starting-point for the commissioner’s proposal is that the Directive should be implemented in a way that observes the traditions of the Swedish labour market as far as possible. The Swedish proposal has, however, also taken into account the work of a group of national experts responsible for the transposition of the Directive in the EU Member States (and the rest of the European Economic Area), convened in late 2001 by the European Commission in order to exchange information and coordinate transposition.

There is no current Swedish legislation that satisfies the requirements of the EU Directive on employee involvement in SEs, and the report thus proposes new legislation. Existing legislation governing employee involvement in Sweden includes the Co-Determination Act (medbestämmandelagen, 1976:580), the Board Representation Act (lag om styrelserepresentation för de privatanställda, 1987:1245) and the Trade Union Representatives Act (lag om facklig förtroendemans ställning på arbetsplatsen, 1974:358), while employee involvement in multinational companies is regulated in the European Works Council Act (lag om europeiska företagsråd, 1996:359). The Co-Determination Act will be unaffected by the proposed new legislation to implement the ECS involvement Directive, but the Board Representation Act and the European Works Council Act need to be updated.

Negotiations

Under the terms of the EU Regulation, SEs may be set up by two or more EU-based companies by merger, or by creation of a joint holding company or subsidiary, while a single EU-based company may transform itself into an SE. A condition that must be satisfied before an SE can be registered is that arrangements must have been made for employee involvement in the proposed SE. In line with the Directive, the Swedish report states that a special negotiating body - referred to as an 'employee negotiation delegation' (arbetstagarnas förhandlingsdelegation) - made up of employee representatives from the EEA operations of the participating companies should be established to negotiate the employee involvement arrangements in each SE which is to have its registered office in Sweden. In terms of the basic national allocation of seats on the delegation, the Swedish proposal follows the Directive’s stipulations - ie each country concerned would have one seat for every 10%, of fraction thereof, of the total number of employees of the participating companies and concerned subsidiaries or establishments in all the Member States taken together employed there. It is proposed that if the number of employees changes considerably or other structural changes occur in the participating companies during the negotiations, and these changes affect the geographical distribution of the number of seats the employees have in the various Member States, the seats should be reallocated. This is seen as a necessary precondition for the negotiation delegation to be genuinely representative of the employees.

Again in line with the Directive, the report states that national rules should stipulate how each country's employee representatives on the negotiation delegation should be selected. For Sweden, it is proposed that selection should be carried out according to the national model of employee representation through workplace trade union organisations. If a collective agreement applies to the workplaces concerned, the Swedish members of the delegation should be appointed by trade union organisations that are bound by the agreement. If these organisations cannot agree, the rules on the selection of employee members set out in the Board Representation Act should form the basis of the procedure. If there is no collective agreement at any of the workplaces, the local employee organisation that represents the most employees at the participating Swedish companies, subsidiaries and establishments should appoint the members, if the organisations cannot agree on an alternative course of action.

It is the duty of the companies participating in the creation of the SE to supply both the necessary information and the resources for the employee representatives to be able to participate in the negotiations. The proposed Swedish legislation would specify what should be seen as necessary information in this respect. The report states that participation in the negotiation delegation is essentially up to the employee representatives, and the commissioner has no proposal as to what should happen if the employee representatives refuse to take part in a negotiation delegation. However, it notes that, if that should happen, the proposed SE could not be formed, as an agreement on employee involvement (or waiving this involvement) must be concluded in each proposed SE.

Agreements on employee involvement

The proposed Swedish legislation specifies the areas to be discussed in the negotiations concerning employee involvement in the future SE. As in the Directive, these relate to employee information and consultation arrangements and - where agreed or relevant - board-level participation. There are no restrictions as to what the eventual agreement can contain, and there is no obligation to agree on every point on the agenda - the parties can decide themselves the extent to which they feel it is appropriate to regulate the various issues. The basic information and consultation structure to be established by an agreement should, according to the commissioner, be referred to as a European Employee Council (europeiskt arbetstagarråd), as this is in line with ordinary Swedish labour law usage and clearly indicates whom the council represents.

In line with the Directive, the proposed law lays down specific voting rules within the employee negotiation delegation for agreements on employee involvement on the SE, and these differ depending on the content of the draft agreement. The basic principle is that a draft agreement must be approved by an absolute majority of negotiation delegation members, who also represent an absolute majority of the employees. However, a special 'qualified majority' is needed to approve a draft agreement that implies a reduction in employee board-level participation compared with the current situation. The same qualified majority applies for a decision completely to relinquish employee involvement.

In the case of SEs created by the transformation of an existing company, the negotiating parties are prevented from agreeing on a lower degree of involvement than that to which the employees are entitled in the company being transformed.

An agreement should regulate the circumstances under which it should be renegotiated - for example in the event of changed conditions within the SE, its subsidiaries and establishments - and what should happen if such new negotiations do not lead to the conclusion of a new agreement.

Reference provisions

The 'standard rules' or reference provisions on information and consultation laid down in the Directive's annex, as transposed by the proposed Swedish law - these provide for the establishment of a standard European Employee Council, with a specified composition and rights - would apply if the negotiations over employee involvement in an SE fail, unless the negotiation delegation has decided not to open negotiations or to terminate negotiations already opened. For the reference provisions on board-level participation to be applicable, various conditions depending on the way in which the SE has been established must be fulfilled - but essentially if, prior to the establishment of the SE, employees were entitled to participation in company bodies, this right should be upheld after the SE has been established. If different forms of participation exist in the participating companies, the negotiation delegation should decide on which form of participation shall be applicable in the SE. If the delegation does not take a decision on this point, the commissioner proposes that the companies should do it themselves, as this is seen as better than a decision not being taken at all.

If the negotiation delegation decides not to open negotiations or to terminate negotiations already opened (and the reference provisions thus do not apply), it may at a later date, and at the request of at least 10% of the SE's employees, be reconvened after two years at the earliest unless the parties agree otherwise. Even if these negotiations do not lead to an agreement, the reference provisions will nevertheless still not be applicable. It will therefore not be possible for the employees to establish arrangements for employee involvement at a later date, against the wishes of the management, if the negotiation delegation had originally decided to relinquish involvement.

The proposed legislation also applies the Directive's various provisions on matters such as confidentiality, protection of employee representatives and enforcement. On the latter point, it is suggested that damages should be payable in the event of breach of the new law. Disputes under the legislation should be resolved according to the Swedish Labour Disputes Act (1974:371), with the Labour Court (Arbetsdomstolen) as first (and only) instance.

Commentary

The European Commission's expert group on the transposition of the ECS employee involvement Directive had not concluded its discussions at the time that the Swedish commissioner drew up her proposals for implementing legislation. Nevertheless, the Swedish report notes that the expert group has reached consensus on a number of conclusions concerning the majority of those issues where the group feels it is important that the Directive should be interpreted and implemented in the same way in all the different EEA countries, and the Swedish proposal takes these conclusions into consideration. In parallel to this, the commissioner's aim is also to ensure that the new legislation is in line with the traditional Swedish labour market model.

The report was drawn up in close collaboration between commissioner Kling and both labour law experts and the social partners, and consensus was reached on many issues. The representatives of the Confederation of Swedish Enterprise (Svenskt Näringsliv), the Association of Swedish Engineering Industries (Teknikföretagen) and the ALMEGA service sector employers' organisation insisted on the need to complement the proposed legislation with rules on what should happen if employees refuse to live up to their responsibilities to establish a negotiation delegation (see above). As employees would otherwise be able in practice 'veto' the establishment of a SE, this question needs to be dealt with in the implementation process, according to the employers’ representatives.

The Swedish Confederation of Professional Employees (Tjänstemännens Centralorganisation, TCO), and the joint legal bureau (LO/TCO Rättsskydd) of TCO and the Swedish Trade Union Confederation (Landsorganisationen, LO) raised objections about a few key issues, but these are seen as limitations of the Directive that cannot be solved at national level. Most importantly, the unions see the Directive as being too concerned with what happens when the SE is established and insufficiently concerned with how altered conditions could influence the application of the employee involvement rules. In the future, the union representatives fear that this could lead to the establishment of SEs in Sweden without employee representation due to historical circumstances. Their preferred solution is that, instead of having the opportunity to waive SE-specific employee involvement virtually indefinitely (as allowed by the Directive) the negotiation delegation should be able to do so only temporarily. As to the question of whether it is reasonable that the employees in practice could veto the establishment of a SE by refusing to set up a negotiation delegation, the unions representatives agree with the commissioner; 'this should be discussed in an overhaul of the Directive at EU level in which other issues are also discussed.' (Ann-Britt Hellmark, Arbetslivsinstitutet)

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