Directive on cross-border mobility of companies
Cross-border mobility covers several types of company transformations, such as mergers, divisions or transfers of registered offices, that have an impact in at least two Member States. The new directive on cross-border mobility aims to eliminate unjustified barriers to EU companies' freedom of establishment in the single market.
Background and status
On 13 March 2019, the European Parliament and Council concluded an agreement for a new directive that sets rules to facilitate mergers, divisions or transfers of registered offices within the single market. The aim of this directive – which was adopted on 27 November – is ‘to reinstate a predictable framework, legal certainty and create common standards of procedures for assessing cross-border operations in the EU’. This directive is part of the ‘Company Law package’ adopted by the European Commission on 28 April 2018, which also contains a proposal for a directive on the use of digital tools and processes in company law. According to the European Commission, the new rules include ‘strong safeguards for employees … and ensure that these cross-border operations cannot be misused for fraudulent or abusive purposes’.
- European Parliament and Council of the EU: Directive (EU) 2019/2121 of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions
- European Commission: Company Law package
- European Commission: Commission welcomes agreement on the cross-border mobility of companies
The directive specifies that the company implementing the cross-border operation should draw up the draft terms of the operation. These terms should include the likely repercussions of the cross-border operation on employment and, where appropriate, ‘information on the procedures by which arrangements for the involvement of employees in the definition of their rights to participation in the converted company are determined’.
The company’s management also has to draw up a report for the board of directors and employees justifying the legal and economic aspects of the operation, as well as its implications for employees. In particular, the report – which must be made available to employee representatives or, failing that, to all employees at least electronically – should also explain:
- the implications of the cross-border operation for employment relationships, as well as, where applicable, any measures taken to safeguard them
- any material changes in employment conditions and in the location of the company’s place(s) of business
- how the operation affects any subsidiaries of the company
The report should also indicate the location of the registered office, likely changes in the organisation of work, wages, the place of specific posts and the expected consequences for the employees occupying such posts, as well as provision for company-level social dialogue including, where applicable, board-level employee representation.
Employees or their representatives must be able to give their opinion on this report, and this opinion will be appended to the report given to the board of directors. The provision of the report and the opportunity to issue an opinion on it should be made without prejudice to the work of the existing employee representative bodies and information and consultation proceedings instituted at national level, including those following the implementation of European directives providing for a right to information and consultation. Since the directive establishes a harmonised procedure for cross-border transactions, it also specifies that information and consultation of employees related to the operation must take place at least six weeks before the general meeting intended to approve the project.
One contentious issue is the circumvention of workers’ participation rights by means of a cross-border operation. In this area, the compromise reached by the European Council and Parliament provides that the company or companies carrying out the operation and registered in the Member State that provides for such rights should not be able to carry out a cross-border operation without first entering into negotiations with employee representatives. This stipulation occurs when the average number of staff employed by that company is equivalent to four-fifths of the national threshold to trigger such participation. The negotiation must then follow the procedure established by Directive 2001/86/EC on employee involvement in European companies. Once the cross-border transaction is completed, the company should not be able to remove the participation rights in the event of any subsequent cross-border or domestic merger, division or conversion for a period of four years after the cross-border operation has come into effect.
- Council of the European Union: Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees