European Industrial Relations Dictionary - The enterprise

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Industrial relations at enterprise level are concerned with the processes by which rules are made, the parties to the negotiation processes, the outcomes of negotiations and the implementation of the rules. In particular, industrial relations within the enterprise deal with the relations between employers and those persons who have, are seeking, or have lost an employment relationship. In legal terms, the employment relationship is to be found in the contract of employment, which is traditionally based on the notion of employment relating to full-time workers. Changes in the employment relationship have become apparent since the 1990s, resulting from new tendencies in labour market developments characterised by increasing numbers of people working in more flexible settings.

Historical background

During the first 15 years of its existence, the European Union was concerned mainly with the external relations of the enterprise as part of the common market project, to secure free movement of goods, services, capital and labour. As regards employment and industrial relations within the enterprise, the EU’s concern was to ensure harmonisation of labour standards throughout the Member States in order to guarantee fair competition among all enterprises in a common market.

The transformation of the common market project of the European Community into the wider project of the EU carried with it a transformation also in the EU’s engagement with labour in the enterprise, and in particular, with respect to industrial relations. The result is a European regulatory regime comprising a number of directives characterised by a specific strategy: the engagement and participation of workers and their representatives, through enterprise representation, in decision-making in the enterprise.

This was initially introduced only for crisis situations: collective dismissals (1975) and enterprise restructuring exercises (1977). It was extended to the transnational dimension of multi-national enterprises with the introduction of European works councils (EWCs) in 1994 which was revised in 2008. The project for the creation of the European company statute was made conditional on arrangements for engagement of workers and their representatives in the company’s decision-making mechanisms (2001). Likewise, in 2003, the regulation laying down the rules on the establishment and operation of the European Cooperative Society and a directive on worker involvement were adopted. In 2002, Council Directive 2002/14 established a general framework for information and consultation of employees. Finally, the Charter of Fundamental Rights of the European Union (2007), which became integral part of Union law with the entry into force of the Treaty of Lisbon on 1 December 2009, confirms the worker’s right to information and consultation within the undertaking as a fundamental human right (Article 27).

Employee involvement in cases of dismissals and restructuring

Employment and industrial relations in the enterprise were initially addressed by the European Community following the political upheavals of the late 1960s and the economic dislocation caused by the oil shocks of the 1970s, leading to mass dismissals and widespread industrial restructuring. The first initiative was the 1975 Council Directive 75/129 on the approximation of the laws of the Member States relating to collective dismissals (OJ L 48/29, as amended by Directive 92/56 of 24 June 1992, OJ L 245/92, consolidated in Council Directive 98/59/EC of 20 July 1998, OJ L 225/16). As its title indicates, this piece of legislation was concerned with the protection of workers in the event of collective dismissals ‘effected by an employer for one or more reasons not related to the individual workers concerned’. The directive introduced the principle of mandatory information and consultation of employees’ representatives when decisions leading to dismissals in the enterprise were pending. For example, the possibility of alternatives to dismissal had to be explored. The directive also imposed obligations as regards notification of public authorities. The specific problems posed by dismissals in a transnational enterprise was dealt with in amendments to the directive in 1992, which attempted to ensure that management of multinational enterprises were obliged to inform and consult employee representatives.

The requirements of information and consultation of employee representatives applied also to cases of dismissals and restructuring. The Acquired Rights Directive of 1977 (Council Directive 77/187 of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of businesses, OJ L 61/26, as amended by Directive 98/50/EC of 29 June 1998, OJ L 201/88 of 17 July 1998, consolidated in Directive 2001/23 of 12 March 2001, OJ L/82/16) imposed procedural requirements on management decision-making in enterprises in the case of the transfer of an undertaking. The definition of ‘transfer of undertakings’, which determined the scope of restructuring exercises covered by the directive, was the subject of much contention. Transfers of undertakings and dismissals were often closely associated, as restructuring often entailed reduction of the workforce. However, restructuring of enterprises affected not only potentially redundant employees, it also had an impact on the terms and conditions of employees who remained at work. As well as mandatory information and consultation of employee representatives, the 1977 Directive imposed continuity of terms of employment of employees transferred. These provisions became important as they applied to privatisation policies of the 1980s, when parts of the public sector were transformed into private enterprises and public employees transferred to them. The continuity of terms and conditions of employment guaranteed by the 1977 Directive was particularly important in the case of contracting-out of public services to private enterprises, as the transfer of public employees to work for private contractors often led to attempts to cut labour costs by reductions in the terms and conditions of employment. Similarly, the 1977 Directive also applied when management strategy in the 1980s and 1990s triggered outsourcing of the non-core activities of enterprises. In the specific case of insolvency, a separate directive of 1980 specified obligations as regards employees for those engaged in salvaging bankrupt enterprises.

The right of information and consultation laid down in Directive 2004/25/EC on the takeover of companies is extended to the employees of both the offerer and the offeree companies. According to the directive, the employees in both companies have to be instructed about a takeover bid. The directive underlines the need to adhere to both national provisions and EU legislation relating to the information and consultation of employees.

In the case of transnational concentrations, the EC merger regulation entitles the recognised employee representatives of the concerned companies, upon application, to be heard by the Commission during its merger control procedures. This is of particular importance for the employee representatives, since company mergers and takeovers frequently entail major company restructuring and a reduction of the combined workforce.

Finally, in the case of mergers of limited liability companies on a cross-border basis, the cross-border mergers directive (2005) includes provisions safeguarding participation rights of the employees. Under the directive, employee participation schemes should apply to cross-border mergers where at least one of the merging companies already operates under such a scheme. In principle, the company resulting from the cross-border merger is subject to the rules in force concerning employee participation in the Member State where it has its registered office.

As company restructuring has become a worldwide phenomenon impacting on employment from a quantitative and qualitative point of view, in 2003 the European Restructuring Monitor (ERM) was set up in order to provide an overview of restructuring processes and their impact on employment. Keeping in mind that the negative effects associated with globalisation can question the idea of the European social model, in 2007 the European Commission introduced the European Globalisation Adjustment Fund with the objective of addressing problems associated with processes such as economic delocalisation, high increases in imports and a decline in EU exports.

Role of labour in decision-making in the enterprise

These EU measures were adopted to deal with the extreme crisis situations of the enterprise faced with collective dismissals, major restructuring and insolvency. The EU’s legislative competence to deal with more general issues of decision-making in the enterprise was first tested at the level of transnational enterprises with the directive on EWCs (Council Directive 94/45/EC of 22 September 1994). This required the central management of the enterprise to negotiate with a specially established special negotiating body comprising employee representatives in order to reach an agreement creating an EWC or an information and consultation procedure. Failure to reach agreement led to the imposition of minimum standards for a mandatory EWC contained in subsidiary requirements annexed to the directive.

In line with its objective of European integration, the EU had made a number of unsuccessful attempts to engage with the issue of worker participation in corporate governance (for example with the Davignon group). These were finally successful with the adoption in 2001 of the Regulation on the European company statute. The European Company Statute (ECS) Regulation enables national companies above a specified threshold to become a European company (Societas Europaea, SE) operating on a Europe-wide basis and governed by EC law directly applicable in the Member States, rather than by national law. The integration of employee representation into corporate structures is achieved by Council Directive 2001/86/EC supplementing the ECS. It prescribes employee involvement in SEs in the form of European company representative bodies. Similar structures have been provided for in an alternative form of the enterprise, the European Cooperative Society.

The extension of EU regulation to the role of labour in decision-making in the enterprise was finally applied at the national level in Council Directive 2002/14 establishing a framework for informing and consulting employees in the European Community. The directive is highly significant since it is the first EC law generalising the obligation to inform and consult employees. It is the most elaborate expression of EU policy on consultation and decision-making by agreement in the enterprise, a process reflected in the national experience of workers’ engagement in enterprise decision-making. The outcome is that the exercise of management prerogative is subject to procedural requirements of information and consultation of employee representatives. The directive establishes requirements as regards the availability to employees and their representatives of information in the enterprise, including the question of confidentiality. Furthermore, the directive outlines the principles which govern the requirement of consultation in the enterprise, including provisions as regards the relevant level of consultation, its timing, content and the use of experts.

Finally, fundamental rights are also part of the EU legal order. The recognition of fundamental rights of workers in the enterprise has, however, largely been limited to protection of traditional civil rights, such as the right to privacy (data protection). The consequence of the EU’s cumulative and multi-faceted strategy of promotion of the engagement of workers and their representatives in decision-making in the enterprise is the recognition of the right to information and consultation in the undertaking as a fundamental right (Article 27 of the Charter of Fundamental Rights of the European Union).

EU initiatives based on soft law

Other EU initiatives addressed specifically at enterprises include a number of soft law measures. For example, the Commission has shown to be interested in developing a framework for the promotion of employee financial participation. The EU interest in financial participation was evident in Council Recommendation 92/443/EEC of 27 July 1992 concerning the promotion of employee participation in profits and enterprise results, including equity participation. The Commission’s Communication on the promotion of financial participation schemes of 5 July 2002 reported on the main forms of financial participation and explored obstacles to their expansion.

Another EU initiative regarded the launch of a new European Multi-Stakeholder Forum on corporate social responsibility (CSR) on 16 October 2002, comprising some 20 representatives of enterprises, business networks, organisations of employers, employees and consumers and of civil society. Somewhat critical of the Commission’s position to support only a voluntary approach, in 2007 the European Parliament adopted a report which argues that firms should be encouraged to produce an annual CSR report.

European Court of Justice rulings

The importance of the abovementioned recognition of the right to information and consultation in the undertaking as a fundamental right can be illustrated by the case of the external relations of enterprises engaging with collective organisations of workers in a process of collective bargaining. The resulting collective agreements fixed the price of labour, and formally, such collective agreements appeared to violate Union competition law. It was the recognition by the European Court of Justice (ECJ) of the fundamental importance of collective organisation of workers and their activities which led them to reject the application of competition law to the industrial relations activities of the enterprise.

In the Viking case and Laval case, the right to strike at EU level, which has been acknowledged in Article 28 of the Charter of Fundamental Rights of the European Union, conflicted with the right to freedom of establishment, provided under Article 43 of the EC Treaty (now Article 49 TFEU), and the right to the free movement of goods and services, provided under Article 49 of the EC Treaty (now Article 56 TFEU). In these cases, the ECJ held that the industrial action did constitute a restriction on the Article 43 EC (now Article 49 TFEU) right. While this restriction might in principle be justified, by an overriding reason of public interest, such as the protection of workers, the ECJ held that such restriction must be suitable for ensuring the attainment of the legitimate objective pursued and should not go further than what is necessary to achieve that objective.

Again in the Rüffert case, the ECJ has ruled that Article 49 EC (now Article 56 TFEU) precludes an authority of a Member State from adopting a measure of a legislative nature requiring the contracting authority to designate as contractors for public works contracts only those undertakings which, when submitting their tenders, agree in writing to pay their employees at least the remuneration prescribed by the collective agreement in force at the place where the services are performed. The combined effect of the rulings in the Viking, Laval and Rüffert cases is to impose stringent limitations on any matters, including industrial action, which could limit the rights under Articles 43 and 49 EC (now Articles 49 and 56 TFEU).

Improvement of competitiveness and working conditions

Finally, EU policy towards the enterprise is particularly concerned with competitiveness, flexibility and adaptability, and the contribution of the social partners to that end. This includes issues relevant to working conditions, the humanisation of work and quality of work, as well as employee representation and agreements covering flexicurity or pacts for employment and competitiveness. The EU’s strategy to promote the engagement of workers and their representatives in decision-making in the enterprise is therefore cumulative and multi-faceted, and must be seen in the light of its goals of improving both working conditions and economic performance.