European Company Statute proposal blocked by Spanish resistance

Despite hopes of a breakthrough in the 28-year effort to reach a compromise on employee involvement in a European Company, the EU Labour and Social Affairs Council of 2 December 1998 failed to deliver, amid resistance from the Spanish government.

The meeting of the Council of Labour and Social Affairs Ministers on 2 December 1998 (EU9812142N) failed to reach an agreement on the Austrian Presidency's latest compromise version of the draft Directive on worker involvement in the European Company Statute (ECS). This is the latest setback in the long history of negotiations on this issue which go back nearly three decades. The ECS was first put forward in the early 1970s and was intended to allow the setting up of a new type of company, incorporated under European rather than national law, and enjoying a number of tax advantages. Despite interest among the business community in this new form of company, successive proposals have failed to enter the statute book, largely as a result of seemingly insurmountable disagreements in relation to the nature of worker involvement in such companies.

The debate on the ECS was revived in 1997 with the publication of the Davignon report which made a number of recommendations in relation to employee involvement in the European Company (EU9705128N). Despite the flexible approach proposed by the Davignon group, which gave priority to negotiated agreements on worker involvement at the level of each European Company, which was embraced by subsequent draft texts put forward by the Luxembourg (EU9710158N) and UK (EU9803193N) Presidencies, progress remained elusive.

The Austrian Presidency of the second half of 1998 subsequently drafted its own compromise proposal. The new text was first tabled at the previous Labour and Social Affairs Council meeting in October 1998 and discussed again at the December meeting amid hopes that the new draft text had succeed in allaying most of the concerns expressed in relation to previous proposals. The main areas of disagreement had previously revolved around the manner in which existing employee involvement rights were to be safeguarded and in particular, the safeguarding of board-level employee representation. The key questions concerned: the majority in the employee-side special negotiating body (SNB) required for decisions to be taken on involvement arrangements; the question of consent by companies establishing the European Company to board-level representation; and the conditions to be attached to the conversion of an existing company into a European Company.

It was the question of the SNB majorities required for decisions to be taken on the nature of involvement rights in the European Company, which proved to be the latest stumbling block in a long succession of compromise proposals.

This time the obstacle was mainly the objection by the government of Spain to the Austrian draft, which was based on a fear that a minority of workers could impose its traditions on a majority of the workforce, which, it argued, would have the effect of transposing a system of board-level participation that is inappropriate to national provisions in this area. This would, in the words of the Spanish delegation in the Council, "jeopardise the preservation of a cultural model of industrial relations".

The European Trade Union Confederation (ETUC) response to the failure to reach a decision on worker involvement in the European Company was one of frustration. As general secretary Emilio Gabaglio said: "the ETUC deplores that the attitude of one single government, Spain, has prevented a decision on worker involvement in the proposed European Company Statute, a long standing demand of the ETUC. Indeed, with the current wave of industrial restructuring and mergers across Europe, the need for such a statute, with not only information and consultation rights for all workers but also the full involvement of workers in companies' governing bodies, is greater than ever ...This episode once again proves that real progress in social policy can only be made if qualified majority voting becomes the norm."

The Austrian draft essentially contains the following key provisions.

  • European Companies can be set up either by: merger of existing companies; the formation of a joint holding company or subsidiary by existing companies; or the conversion of an existing company. The latter is clearly the most controversial, which is why the Austrian presidency proposed to oblige Member States to prevent its misuse for the purposes of depriving employees of their rights to involvement.
  • As soon as proposals to establish a European Company are drawn up, employers must enter into negotiations with employee representatives to discuss employee involvement in the new company. An SNB must be established and any agreement must lead to the establishment of a "representative body" for information and consultation purposes. In order to allay the fears of those who argue that such a procedure could be used to undermine systems with employee board-level representation, the Austrian draft provides for the opportunity for the agreement also to cover board-level participation. If the existing companies already have such representation, but the European Company is not to have such representation or only a lower level of it, this must first be approved by a special two-thirds majority of the SNB. Special rules are also to apply in the case of a conversion of an existing national company. In this case, the agreement cannot provide for a lower level of employee involvement than that in place in the company which is converting.
  • If the SNB fails to reach an agreement on employee representation arrangements within a set period, subsidiary rules are to apply, similar to those stipulated in the European Works Council Directive. The subsidiary rules provide for employee information and consultation through a representative body. In the case of the creation of a European Company of constituent parts (or a conversion) where board-level representation applies to a certain percentage of the workforce, representation at this level must also be provided for in the EC.
  • The composition of the SNB is essentially one of proportional representation; with one seat being allocated for each portion of 10%, or a fraction thereof, of the overall number of employees employed in a single Member State.

Negotiations on the ECS will continue under the German Presidency of the first half of 1999. The Commissioner responsible for social affairs, Pádraig Flynn, has highlighted this as a priority area for concerted action.

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