Representative bodies and the transfer of undertaking in cross-border situations.
-How might the problems arising from business transferals in
cross-border situations with regard to representative bodies be solved?
Student: Janien Schunken
ID: 11145048
Programme: EILL
Prologue
My student life has been a very interesting period of my life. The writing of this thesis marks the final stage of this period. Of course, like every student, there were happier moments as well as moments of despair. Luckily the upper hand was for the happier moments. The ending of this period also marks the beginning of a new one. I look forward to this new period. Throughout the years it becomes clear to you what kind of future you admire. This thesis taught me that labour law really is my favourite area of law, with all its different and divergent topics, and that I want to continue working in this field.
Thanks to Allen & Overy LLP, who facilitated a workplace and provided all other necessities a student needs to write a thesis. Another special thanks to Merle van den Berg, who I bothered many times with questions, problems, solutions and my stubbornness.
I hope you will enjoy reading my thesis. Amsterdam, December 2016
Table of contents Page
1. Intro. 4
2. What European regulations are applicable? 4 3. Jurisdiction of courts. 10
4. Applicable law 14
5. Implementation of Directive 2001/23 in national legislation, in particular Art. 6. 15
6. Problems that might rise in case of a cross-border transfer with regard to workers representation. 20 7. Is further legislation necessary (at European level)? 30
1. INTRO.
Imagine: a company is sold from Belgium to the Netherlands. Many things have to be dealt with, but what happens with the works council that was seated at the transferor’s company?
Transfers, mergers, acquisitions and similar actions take place on a daily basis in business life. While a transfer within the borders of a country is subject to a lot of regulations, taking it to a cross-border dimension implies the applicability of even more regulations. Companies will not be constrained by these borders. Therefore, transfers with a cross-border dimension are not an oddity. Especially since one of the main goals of the European Union is to create a properly functioning internal market.
Several stakeholders are involved in case of a transfer, but the position of employees is usually subordinate to the decision to sell a company. Such cross-border decisions can have far-reaching consequences for the involved employees. Not only do they have to deal with a new, foreign, employer, but also with the possibility that the enterprise activity might be moved to another country.
Various European regulations, as well as national laws, apply in these situations. The Rome I Regulation, the Brussels 1bis Regulation and Directive 2001/23 are of particular importance, of which the latter also contains a specific article on the preservation of rights of workers representatives. The Rome I Regulation establishes the applicable law to a contract, the Brussels 1bis Regulation establishes the competence of the court and the Directive 2001/23 safeguards the rights of employees at the moment of the transfer.
The core principle of the Directive is that employees keep their acquired rights in the case of a transfer of undertaking. Employees are the weaker party and have to be protected, according to the Directive. Over the years the European Court of Justice (ECJ) has clarified with its case-law which rights are passed (over) from the transferor to the transferee. Employees cannot waiver their rights, nor is derogation from the rules laid down in the Directive allowed to the detriment of employees. The rules are thus mandatory to the extent that they provide minimum protection. The Directive acknowledges the differences between Member States with regard to the protection of employees in case of a business transfer. It therefore aims at narrowing down the differences and bringing the regulations of the Member States closer together.
Article 6 of the Directive protects the rights of workers representation. On the face of it, the conclusion would be that these rights have to be preserved and that’s it. Is it really that easy? Members States may have different systems on workers representation and may have implemented Art. 6 differently. What problems might rise with regard to these rights in a cross-border situation? What could be solutions for these problems?
2. WHAT EUROPEAN REGULATIONS ARE APPLICABLE?
Directive 2001/23/EC 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 undertakings or businesses deals with, obviously, the approximation of the laws of all different Members States with regard to transfers of undertaking. This implies approximating the laws of the EU member states in order to safeguard the rights of employees in case of a business transferal. The preamble of the Directive acknowledges that there still are a lot of differences between Member States. The Directive aims at reducing the differences between the way things are regulated within the Member States. The intention of partial harmonization implies that there isn’t, and will not be, a uniform level of protection in the EU on the basis of the same common criteria.1 The intention is for Member
States to cover the situation of transfers in their national legislation. In order to get a better view on the main question, it is important to take a deeper look into Directive 2001/23 first, starting with its history.
2.1 History of Directive 2001/23
In the beginning of 70’s, there were concerns that employees would suffer from the removal of barriers within the common market and the subsequent increase of possibilities for competition.2 The focus was more on creating a freely available common market, than on
the protection of the rights of employees. This was specifically true in the case of collective redundancies, insolvencies and changes in the structures of businesses. In order to deal with these challenges, three directives were adopted in a relatively short period of time: a) Directive 77/187 on employees’ rights on the transfer of undertakings, b) Directive 75/129 on collective redundancies and, c) Directive 80/987 on insolvency.3 All three directives
aimed at structuring changes of businesses, whether that was a collective redundancy or a transfer of a part of a business. None of the directives actually limited the option to restructure. The option to restructure was left at the discretion of the companies themselves, hence focussing on the effects of the decision to restructure.4 According to Barnard, the
three initial directives were aiming at regulating restructuring at a national level.5 The
change of the market required more extensive rules, which would also apply to cross-border restructuring.
Directive 77/187 was amended by Directive 98/50. Directive 2001/23 is a follow-up of Directive 77/187 and its amending Directive 98/50 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. The codification of the amendments into a new directive was done in the interest of clarity and rationality, as stated in the preamble.6
Another element that follows from the preamble is the fact that ‘economic trends were bringing in their wake, at both national and Community level, changes in the structure of undertakings, through transfers of undertakings, businesses or parts of undertakings or
1 Case 105/84 Foreningen af Arbejdsledere (1985) para. 26
2 Barnard, EU Employment Law, Oxford: Oxford University Press 2012. p. 577.
3 The three directives were a product of the 1974-1976 Social Action Programme (SAP). SAPs were launched periodically by the Commission to promote the EU’s social objectives. SAPs identify areas for EU initiatives that may evolve the form of legislative proposals or non-legislative activities.
4 The AKZO-case was one of the causes that led to regulating transfers of business and protection of employees more at an EU level. However, the Directives that were created do not prevent another Akzo Nobel-case example to take place. The Directives can only mitigate the effects of e.g. collective redundancies and not prevent them, evne though there would be fairer options to dismiss employees. Blanpain is of a similar opinion: Blanpain, 1991, p. 153.
5 Barnard, 2012. p. 577.
businesses to other employers as a result of legal transfers or mergers’7 and ‘it is necessary
to provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded.’8 These two elements contain the
rationale of Directive 2001/23. The extensive amount of case-law indicates that this directive is a much litigated one.9
2.2 Directive 2001/23
Based on Article 89 of the TEU, the Directive aims at protecting employees in the event of a change of employer and does that by ensuring that the rights of employees are safeguarded. It works on the premise that there are differences between Member States regarding the protection of employees and stresses the impact that these differences can have on the operation of the single market. Consequently, the Directive concludes that it would be recommendable to harmonise that protection. The goal of harmonisation is twofold: to ensure comparable protection of employees' rights in the Member States and to approximate the obligations that the rules of protection place on European undertakings. The scope and definitions are laid down in art. 1, stating, inter alia that the Directive shall apply to ‘any transfer of an undertaking, business, or part of an undertaking or business to another employer as a result of a legal transfer or merger.’ The Directive firstly establishes the (automatic) transfer of the rights and obligations deriving from the employment contracts between the employees and the former employer to the new employer (art. 3). The person or entity that ceases to be the employer, because of a transfer, is the transferor (art. 2.1 (a)). The transferee is the person or entity who becomes the employer by reason of the transfer (art. 2.1 (b)). In the Albron-case the court defined that the transferor does not has to be the contractual employer per se. In this case employees were assigned to a subsidiary within the Heineken concern on a permanent basis. HNB was the formal employer of all employees, but all employees were then posted to another company within the group on a permanent basis. Employees were then offered a new, less favourable contract with Albron. Heineken and Albron were of the opinion that there was no transfer of undertaking. However, the Court held the view that a transfer had indeed taken place. The Court established that, if two employers exist next to one another within a group, and one has contractual relations with the employees and the other has non-contractual relations with them, the latter can also be qualified as a transferor within the meaning of the Directive, despite the absence of any real contractual relations with these employees.10 This analysis is
supported by the rationale of the Directive as well.11
Member States are free in how they wish to implement the Directive, as long as the purpose of the Directive is obtained. When implementing, Member States are allowed to deviate from what is laid down in the Directive to the benefit of employees.12
7 Paragraph (2) Preamble Directive 2001/23. 8 Paragraph (3) Preamble Directive 2001/23. 9 See for a list of case-law the bibliography below. 10 Case C-242/09 Albron (2010).
11 Paragraph 30 Albron-case.
(a) Simplified consequence of a transfer of undertaking.
Another important way in which the Directive facilitates the protection of employees is the fact that employees cannot be dismissed because of the transfer (Art. 4). A dismissal based on grounds concerning the transfer itself is void. However, it is not completely impossible to dismiss employees in case of a transfer. The Directive gives the employer the option to dismiss employees, when the transfer involves changes in the workforce. These changes have to be related to economic, technical or organisational changes, the so-called ETO-reasons.
The Directive obliges the employer to inform and consult with the representatives of the employees who will be affected by the transfer in good time (Art. 7). According to this article there are four elements on which the representatives have to be informed: the date or proposed date of the transfer; the reasons of the transfer; the legal, economic and social implications of the transfer for the employees; any measures envisaged in relation to the employees. In its case-law the ECJ explained the elements of Art. 7 in more detail.13 Barnard
believes the protection safeguarded in the Directive is threefold, based on the before mentioned elements. First employees will have the terms applicable to their contract as with their previous employer, second, employees will be protected from dismissal because of a transfer and third, employees’ representatives have to be informed and consulted prior to a transfer.14
13 E.g. in the Fujitsu/Siemens-case, the ECJ explained the concept of ‘in good time’. 14 Barnard, 2012. p. 579
2.3 When do we speak of a ‘transfer of undertaking’?
The Directive does not specifically mention that it is applicable to national transfers of undertaking as well as cross-border transfers. The Directive defines its scope in art. 1. This article states that the Directive ‘shall apply to any transfer of an undertaking, business, or part of an undertaking or business to another employer as a result of a legal transfer or merger.’ In paragraph 1 (b) of the same article it is mentioned that there is a transfer within the meaning of the Directive ‘where there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.’15 Stating that the
Directive is applicable to any transfer, in my opinion, implicitly means that it is applicable to cross-border transfers too, but limited to the territorial scope of the EU.1617 Throughout the
years it appeared that case-law was required to establish a more defined scope of what is seen as a ‘transfer’ of ‘undertaking’ and the elements mentioned under art. 1(b).18 Preamble
8 emphasizes this point of view by stating that the legal concept of transfer be clarified in the light of the ECJ’s case-law. It is therefore that a lot of amendments to the new Directive were derived from the ECJ’s case-law.
Also, there is some discussion about the cross-border aspects of the Directive. The decisions to sell an undertaking and to relocate its enterprise activity are two separate decisions. Provided that there is a connection between the two decisions, employees will be able to rely on the Directive. Some authors argue that taking away this connection, for example by letting a year pass between the decisions, might mean that employees will not be able to rely on the Directive.19 This way, employers could rather easily circumvent the applicability of
the Directive. But, taking into account the purpose of the Directive, I believe that avoiding applicability of the Directive in this manner unlikely.20 Furthermore the Directive is not
applicable in the case the transferor faces bankruptcy or liquidation, nor does it apply to workers, who are not employees under national law.
The Spijkers-case gave an insight as to what elements play a role in order to speak of a transfer.21 The Süzen-case made clear that the transfer of only one employee is on itself not
enough to establish a transfer of undertaking.22 However, if the work was carried out by only
one employee before a transfer, this can be enough to establish a transfer of undertaking, according to the Schmidt-case.23 The Daddy’s Dance Hall-case emphasized, inter alia, that
employees cannot waiver their rights, not even when the overall status of an employee would become better after the transfer.24
The Klarenberg-case stated that: “the Directive may also apply in a situation where the part of the undertaking or business transferred does not retain its organisational autonomy, provided that the functional link between the various elements of production transferred is preserved, and that that link enables the transferee to use those elements to pursue an identical or analogous economic activity, a matter which it is for the national court to determine.”
15 Art. 1 (a) + (b) Directive 2001/23.
16 Judges in the Member States are of the same opinion: Ktr. Zaandam 26 september 2007, JAR 2008/67 (NL), CT Liège 10 juni 1993, JTT, 371 (BE).
17 The territorial scope is laid down in art. 1 par. 2 of the Directive.
18 E.g. in the Schmidt-Case C-392/92 (1994) it was established that undertaking could be described as an organised grouping of resources. In this case even one employee who cleans a bank could be an undertaking under the Directive 77/187. Later this phrase was added to the wording of the new Directive 2001/23.
19 Laagland, ‘Grensoverschrijdende overgang van onderneming’, in ArA 2011/3. p. 5-7. 20 Preamble 3
21 C-24/85 Spijkers (1986) para. 13. 22 C-13/95 Süzen (1997) para. 23. 23 C-392/92 Schmidt (1994) para. 20.
The aforementioned cases are not limitative, but show that the Directive is has been a source of discussion multiple times. The benefit of the extensive amount of cases is that the ECJ could explain the wording and purpose of the Directive many times, which makes it easier to predict the outcome of a case in future disputes.
2.4 Rights of representatives in case of a transfer
With Article 6 the Directive entails a specific article that covers the rights of representatives and represented employees in case of a transfer. This article states that:
´1. If the undertaking, business or part of an undertaking or business preserves its autonomy, the status and function of the representatives or of the representation of the employees affected by the transfer shall be preserved on the same terms and subject to the same conditions as existed before the date of the transfer by virtue of law, regulation, administrative provision or agreement, provided that the conditions necessary for the constitution of the employee's representation are fulfilled.
The first subparagraph shall not supply if, under the laws, regulations, administrative provisions or practice in the Member States, or by agreement with the representatives of the employees, the conditions necessary for the reappointment of the representatives of the employees or for the reconstitution of the representation of the employees are fulfilled.
(…)
If the undertaking, business or part of an undertaking or business does not preserve its autonomy, the Member States shall take the necessary measures to ensure that the employees transferred who were represented before the transfer continue to be properly represented during the period necessary for the reconstitution or reappointment of the representation of employees in accordance with national law or practice.
2. If the term of office of the representatives of the employees affected by the transfer expires as a result of the transfer, the representatives shall continue to enjoy the protection provided by the laws, regulations, administrative provisions or practice of the Member States.
The article differentiates two situations. The first situation is one in which the ‘autonomy’ of the undertaking is preserved. In that case the status and function of the representatives themselves as well as the representation of the affected employees is safeguarded, following the first paragraph of Art. 6. The ‘same terms and same conditions as existed before the transfer shall be preserved’. Autonomy is not the same as identity, which latter term is laid down in art. 1 of the Directive. Retention of identity is relevant in order to speak of a transfer in the first place and thus the applicability of the Directive.25 Without preservation
of identity, there cannot be preservation of autonomy. The ECJ explained in case-law what should be seen as preserving ‘autonomy’. The ECJ explained, again, that the need for a uniform application of community law and the principle of equal treatment follow from previous case-law and that an interpretation based on the usual meaning in everyday language is preferable.26 An important aspect according to the ECJ of the term ‘autonomy’ is
25 C-151/09, UGT-FSP (2010) para. 34. 26 Idem para. 38+39.
that it indicates self-government.27 According to paragraph 43 of the verdict in the
UGT-FSP-case this means that ‘the powers, granted to those in charge of that entity, to organise,
relatively freely and independently, the work within that entity in the pursuit of its specific economic activity and, more particularly, the powers to give orders and instructions, to allocate tasks to employees of the entity concerned and to determine the use of assets available to the entity, all without direct intervention from other organisational structures of the employer.’ So, if the organisational powers that existed before the transfer stay mostly unchanged, the autonomy of an undertaking or business is preserved. In this scenario, in my opinion, the consequences of the preservation of autonomy means that the status and function of representatives or represented employees have to stay roughly the same as before the transfer, which is very similar to the consequences of art. 3 of the Directive. A second situation is the situation in which the autonomy of the undertaking is not preserved. In this scenario the interests of the employees are no longer the same as before the transfer. Therefore, the terms and conditions of their previous representation have to be altered and adapted to the new situation for it to be again useful and suitable. Following the purpose of the Directive, it cannot be the case that these employees will immediately lose their representational functions because of the transfer. Member States have to make sure they take appropriate measures to make sure that represented employees remain properly represented after the transfer, until there can be installed or reconstituted a new representative body. So, something has to be arranged by the new employer to cover the period between the transfer and the new constitution or reappointment of a works council. The Directive states that this should be done in accordance with national law or practice.28
Case-law prescribes that, in case the autonomy of the undertaking is dissolved, the term of office of the representatives of the employees must be limited to merely the period that is necessary for the reconstitution of a representational body.29 A longer period is not logical,
as the new composition of employees demands a suitable and adapted form of representation. This notion seems to fill in what is meant by the words ‘properly represented’ in the Directive’s art. 6 subparagraph 4. The ECJ specifically states that, in those circumstances, the previous body of representation has to stay in place until a new one has been formed. This is much stricter than the wording ‘properly represented’ of art. 6 seemed to imply. The result will be that the transferred employees will have their previous representation for a short period after the transfer and probably be in a different situation from the employees that were already employed by the transferee and have their own system of representation. This situation will even become more difficult in case of a cross-border transfer, which I will elaborate on below.
3. JURISDICTION OF COURTS.
Of course, before the applicability of the Directive can be established it is necessary to ascertain which judge has jurisdiction in a certain matter. The Brussels 1bis Regulation is
27 Idem para 42.
28 Fourth subparagraph art. 6(1) Directive 2001/23 29 Case C-151/09 UGT-FSP (2010), para. 46
the most important European regulation on this matter.30 It regulates matters of jurisdiction
and the recognition and enforcement of judgements in civil and commercial matters. In principle it is applicable when the defendant has its domicile in a Member State.31 Whether
or not this defendant has a European nationality, he can always be sued in his country of residence within the EU. There are some exceptions to this residence-principle. Articles 20 to 23 contain leges speciales for employment contracts.
Though the Directive in principle focuses on (transfers of) undertakings instead of individual employment contracts, the employee can rely on his contract to enforce the protection the Directive grants him. The individual employment contract grants the employee the special protection of Section 5 of Brussels 1bis.
This implies that the employee can enforce applicability of the Directive before the court where a) his employer has his domicile, b) the employee habitually carries or carried out his work, or c) the court of the place where the business engaged is or was situated.32
Undertakings, companies or other legal persons are deemed to have their ‘domicile’ at the place where they have their statutory seat, central administration or principal place of business.33 Parties can deviate from these special rules on jurisdiction for employment
contracts in two ways: firstly by an agreement that is entered into after the dispute has arisen; or secondly, by an agreement that allows the employee to bring proceedings in courts other than those indicated in previous rules.34
4. APPLICABLE LAW
In the very first proposal for a Directive to regulate the consequences of a transfer of undertaking, the Commission opted for a choice-of-law rule.35 In case the enterprise activity
was moved to another EU Member State, the applicable law would change as well. This meant that a different national (implemented) law could be applicable to employment
30 Regulation 1215/2012/EU (Brussels 1bis). 31 Art. 4 Bussels 1bis.
32 Art. 21 Brussels 1bis. 33 Art. 63 Brussels 1bis. 34 Art. 23 Brussels 1bis 35 Art. 10 COM 1974, 351
contracts after a transfer.36 However, this choice-of-law rule did not make it into the
eventual version of the Directive.
In order to determine what law is applicable to contractual relations, the Regulation on the law applicable to contractual obligations (Rome I) nowadays is the most important.37
Rome I applies to situations involving a conflict of law in case of civil or commercial obligational matters.38 A merely internal situation therefore does not fall under the scope of
Rome I. There has to be an issue with two or more possibly applicable national laws.
Starting point of Rome I is the freedom of contracting parties to choose the applicable law that covers their contract. Freedom of contract is one of the corner stones of the EU and the stimulation of an internal EU market. Article 3 specifically mentions this freedom, but adds the requirement that the choice of law has to be made explicitly. If not, it could also be clearly demonstrated in the contract or the circumstances of the case what the applicable law is. A choice of law can be made afterwards as well.
If parties omit to make a choice of law, the Regulation defines what law should be applicable. In this regard Article 8 is of particular importance to employment contracts. This article states that, in case parties have not made a decision on the applicable law, that the law of the country in which, or failing that, from which the employee habitually carries out his work shall govern the employment contract.39 Working in another country temporarily
does not change this.
In case there is no country in which or from which the employee habitually carries out his work, the law of the country where the place of business through which the employee was engaged is situated shall be applicable to the employment contract.40 The last paragraph of
Article 8 makes it possible to deviate from all the previous provisions if it appears ‘from the circumstances as a whole that the contract is more closely connected with a country other than indicated in paragraphs 2 or 3, the law of the other country shall apply.’41
As I mentioned before, Article 8 defines the applicable law in case no choice of law was made. It gives leads as to what should be the applicable law when objectively chosen. The fact that parties choose a completely different law than the law Article 8 would propose is possible. However, choosing another applicable law cannot have as a result that employees are deprived of mandatory rights of the objectively chosen law. So, to conclude, parties can choose the law applicable to their contract, but employees cannot be deprived of the rights they would have had under the objectively chosen law, unless the chosen law appears to treat them better with regard to those mandatory provisions.
5. NATIONAL LEGISLATION ON WORKERS REPRESENTATION AND THE
IMPLEMENTATIO OF, IN PARTICULAR, ART. 6.
The way Member States have implemented this article may provide an indication as how to solve the problems that might rise in case of a cross-border transfer. I will first shortly explain the system of workers representatives in three countries, before I consider the way in which these countries have implemented the Directive. These countries will be the Netherlands, Belgium and the UK. I have chosen these three countries, because their systems of workers representation are quite different from one another.
36 The Rome Convention did not exist at this time yet.
37 Regulation 593/2008/EC on the law applicable to contractual obligations. The Convention on the Law applicable to Contractual Obligations Agreements is still applicable to agreements that were concluded before December 17th 2009.
38 Art. 1 Rome I 39 Art. 8 par. 2 Rome I 40 Art. 8 par. 3 Rome I 41 Art. 8 par. 4 Rome I
5.1 The Netherlands
6. Workers representation
The Netherlands is known for its extensive system with regard to workers representation. The vast majority of the rules for workers representatives is laid down in the Works Councils Act (WOR). Employee representation at the workplace is essentially through works councils elected by all employees. They should be set up in all workplaces with at least 50 employees and more than three-quarters of workplaces of this size have them. (There are other arrangements for smaller workplaces.)42 Every undertaking in the
Netherlands with at least 50 employees is obliged to set up a works council (ondernemingsraad - OR) with a range of information and consultation rights. Each independent plant is classified as an undertaking under Dutch law. The extent of the works council's powers varies according to the issue at stake. In broad terms the works council must be informed and consulted about economic issues, but on social issues it also has a right of (dis)approval.
Works councils do not exist in all undertakings that should by law have them, although they are normally present. Figures published in 2012 in a study undertaken on behalf of the labour ministry show that 71% of workplaces with more than 50 employees had a works council in 2011.43
The works council consists entirely of employees, who are elected by the entire workforce. The works council elects its chairman and one or more delegates.44 It draws up its
procedural rules, but management must have an opportunity to comment on them and they must be approved by the joint union/management commission set up in each industrial sector.45
The only legal requirements are that the works council must meet the employer at least twice a year to discuss the overall state of the business in the presence of one or more members of the supervisory board. The works council meets the employer within at least two weeks in case they wish to.46
The purpose of the works council is more than only to represent the employees. The legislation makes clear that ‘consultations with and representation of’ the employees are ‘in the interest of the sound functioning of the undertaking in all its objectives’.47 This is why
there are frequent meetings between the works council and management.
In headlines the law provides works councils with three main types of right: information rights; consultation rights and approval rights. In addition the works council has powers to make proposals to which the employer must respond, which is called the right of initiative. 7. Implementation of the Directive and more in particular Art. 6.
42 Art. 35b WOR.
43 Naleving van de Wet op Ondernemingsraden: Stand van zaken 2011, May 2012. 44 Art. 7 WOR.
45 Art. 8 + 14 WOR. 46 Art. 23 WOR. 47 Art. 2 WOR.
The Works Councils Act contains the framework of employee representation. However, the implementation of Directive 2001/23 was done mostly through the Dutch Civil Code (DCC).48
The transferal of acquired rights is laid down in the DCC, yet article 6 of the Directive is not implemented into Dutch national law. The legislative history gives a better insight into the government’s motives not to implement this article. The government is of the opinion that, in case the transferee already has a works council, the transferred employees are automatically represented by the works council of the transferee. The government based this presumption on the WOR, stating that a works council represents all employees in an undertaking, so including the newly transferred employees.49 I believe that the government
ignores the exact wording of article 6, which states that ‘the status and function of the representatives (…) shall be preserved’, in my opinion this means that also the rights of employees who fulfilled a representative roll before the transfer should be preserved individually. The government merely pays attention to the aspect of employee’s representation as a whole and not the rights of possible individuals involved.
The government elaborates more on a specific situation in which an undertaking’s autonomy is not preserved. This could be with regard to an undertaking or part of an undertaking. Plus, in their hypothesis, the transferee does not already have a works council and not more than 50 employees, after the transfer. Since there are less than 50 employees, there is no legal right under Dutch law for the transferee to install a works council.50 In this scenario,
problems with regard to the preservation of representational rights can be solved by a special agreement laid down in the WOR.51 With this agreement, employees and the employer can
lay down how they will solve the gap between the transfer and new elections for a works council.
In my opinion the Dutch legislation does not implement the rules of the Directive completely in the first place and leaves a gap in relation to the transfer of representational rights. There are many situations imaginable, in which it is not clear what the law wants the employer/transferee to do. Moreover, nor the Dutch Civil Code, nor the WOR, specifically regulates situations in which a cross-border transfer takes place. It is safe to conclude that the Dutch legislation does not provide a clear legal framework for what should happen with workers representation in case of a transfer, especially not in case of a cross-border transfer. Furthermore it seems that the rules of the WOR are conflicting with the rules of the Directive.52
7.1 Belgium
8. Workers representation
Workplace representation exists in two different forms. The works council represents the entire workforce, but the amount of employees working at a worksite has to be around 50.53
The second form, trade union delegations, represents trade unionists. In case there are at least 50 employees working in a business, a special committee for health and safety matters
48 Art. 7:662 to 7:666 DCC
49 Kamerstukken II, 2000/01, 27 469, 3, p. 2 50 Art. 6 WOR
51 Art. 32 WOR and Kamerstukken II, 2000/01, 27 469, 3, p. 2
52 Of a similar opinion are multiple authors like: Sprengers, Bassyouni, van het Kaar, Beltzer and Zaal. 53 The law changed the threshold to >50 employees after 2007, before that the threshold was 100 employees.
has to be installed. In case there are between 50 and 100 employees working in a business, these safety and health committees also have some information and consultation rights.54
Of the two institutions the trade union delegation is the most important one. Only trade unions are able to nominate candidates for the works council. All employees are eligible, but only through one of the three major trade unions. It’s the trade union delegation that negotiates important issues with management, although the works council has elaborate information and consultation rights. It also has some decision making powers.
The legal basis of the works council is laid down in the Law on the organisation of the economy55, which originates from 1948 and has been amended afterwards multiple times.
The legal basis of the trade union delegation is regulated by a series of legally binding collective agreements. The national level agreement was conducted in 1971 and, later, individual industrial sector agreements were drawn up. The details vary from agreement to agreement.
In the works council there are employee’s representatives as well as employer’s representatives. However, there can never be more employer’s representatives in the works council than employee’s representatives. The works council has to meet at least once a month. The employee members have the right to meet separately before the start of a meeting.
Although the decision-making powers of the works council are limited, the essential role of the works council is to be informed and consulted on several topics, such as different economic and labour issues.
The real difference between the two bodies is that the trade union delegation is the institution that will address issues to the employer and negotiates with the employer, while the works council has rights to be informed and consulted on certain topics.
Every four years the works council members are elected. All employees at the worksite can vote. One of the criteria for being eligible is that employees have to do it through one of the three major trade unions, since only these representative unions can nominate candidates. This automatically means that all members of the works council are trade union members. 9. Implementation of the Directive into Belgian law
The Directive is mainly implemented through a collective agreement that was declared generally binding – CAO nr. 32bis.56 In Belgium Art. 6 of the Directive is implemented into
Art. 21 para. 10 of the Law on the organization of the economy. This law contains two definitions of the concept ‘undertaking’; the legal entity and the technical business unit. With legal entity, the law means every operational site that belongs to the same legal person. A mall would be a good example. A technical business unit possesses a certain economic and social autonomy with regard to the executive board of the legal entity it belongs to. To use the same example: the technical business unit would be one of the stores in the mall.
54 In case there is no works council installed. 55 De Bedrijfsorganisatiewet.
In case the entire legal entity is transferred and no changes occur regarding the entity’s autonomy, the representative bodies of the business units will be transferred ipso jure.57 The
representative bodies will stay in place with no changes in their status or functions.
In case only a part of the legal entity is transferred, but the transferred business units that are transferred are transferred completely, those representative bodies will stay in place after the transfer too.58 So, as long as the transferred business units retain their organisational powers,
the installed representative bodies stay in place, even when other business units within the legal entity are not transferred.
In case the entire legal entity is transferred, but the autonomy of the entity is not preserved, all members of the representative bodies will be added to the representative bodies of the transferee. The transferee’s representative bodies will thus be expanded, until new elections can take place.
The entities are allowed to deviate from these rules by virtue of agreement.
If a legal entity is transferred and some business units are divided, the transferor’s representative body will stay in place, though smaller. The transferee will add the representatives that are transferred to its own representative body.
It can also be the case that the transferee did not have a representative body installed prior to the transfer. In that case there are two scenarios. First, when the autonomy of the business unit is preserved, the representative body will stay in place after the transfer. This body will only represent the transferred employees. Second, when autonomy is not preserved, the representatives will form a temporary representative body, until new elections will take place.59
It is safe to state that Belgian law fully implements Art. 6 of the Directive. Transferred employees remain represented in case the autonomy of the unit they worked in is preserved and also in case the autonomy is not preserved.
9.1 United Kingdom
10. Workers representation
The UK is a bit of a stranger in the midst.60 There is no formal legal mechanism present that
regulates employee representation. Workers representation doesn’t even exist in most of the workplaces. The most usual way in which employees are represented is through trade unions. However, most workplaces that do not have union support also do not have workers representation, despite the implementation of the Directive on information and consultation into national regulations.61 If unions have sufficient support, they are able to force the
employer to negotiate with them. Yet another thing the UK is missing is a legal system that enables the legislator to declare collective agreements legally binding, hence taking away a great opportunity for trade unions to gain power.
The degree of workers representation varies enormously from worksite to worksite, due to the lack of (proper) legislation. There are four forms of workers representation present in the
57 Dorssemont, a.o., De Ondernemingsraad, Mechelen: Kluwer 2007, p. 40+ 41. 58 Art. 21 para 10 sub 2 Law on the organization of the economy.
59 Art. 21 para 10 sub 3 Law on the organization of the economy.
60 The UK is a common law country, unlike most of the other European Member States that have a civil law system. 61 Directive 2002/14.
UK.62 First, a recognised union. Second, a non-recognised union’s representative. Third, a
joint consultative committee. Fourth, non-union representation. Results of the questionnaire showed that 64% of all employees were in workplaces with any of the aforementioned structures (35% of the total workplaces).
The most occurring form of representation is through a union. The essential element to effective trade union representation is recognition of the union by the employer. It varies per workplace on what topics the employer and the union negotiate. Furthermore, recognition means the union has certain rights.
Legislation conducted in 1999 provided for the first time a legal mechanism to compel employers to recognise unions. Unions must prove to an independent body, the Central Arbitration Committee (CAC) that a majority of employees in a “bargaining unit” wants a union to represent them. They can do this either by showing that more than half the employees are union members, or by winning the support for recognition of a majority of employees in a ballot, although this must also be equivalent to at least 40% of all employees in the bargaining unit. The legislation only applies to employers with 21 or more employees. There is no common right or requisite to have workers representation, despite the existence of EU Directives that compel the employer to inform or consult employee representatives on certain issues.
UK legislation implements the EU directives by requiring the employer to inform and consult existing employee representatives, in case there are any, or to inform and consult representatives that are specially elected for that purpose. It is important to realise that in none of these examples there are precise rules in the legislation as to how this employee representation should be formed.
The EU Directives give employees in undertakings with more than 50 employees the right to be informed and consulted on issues related to employment. If there does not exist a structure for information and consultation, employers or at least 10% of the workforce can initiate a process to install such a structure. Unfortunately, if neither the employer nor the 10% of the workforce initiates this process, nothing will happen.63
As there are no legal rules on the amount of representatives, it varies from workplace to workplace. Moreover, if there are no union representatives, it is up to the employer to decide what rights and tasks are given to the workers representatives.64 The method of electing
workers representatives will also be decided by the employer.
11. Implementation of the Directive into UK law and in particular art. 6.
The UK TUPE Regulations implement Article 6 solely with regard to trade union recognition. The transfer of union recognition only applies where the transferred organised grouping of resources or employees maintains an "identity distinct" from the remainder of the transferee's undertaking after the transfer. The Regulations are silent on the impact for other types of employee representation, but in any event such bodies are very rare in the UK. There are Regulations under which some type of works council arrangement could be
62 Workplace Employment Relations Study 2011.
63 Some employees might not even know they have such rights. 64 Except for the rights that derive from Directive 2002/14.
requested but there are very few examples due to the different industrial relations culture. If such a body does exist, then the impact the employer’s restructuring will have for it should be addressed by the agreement itself.
12. PROBLEMS THAT MIGHT RISE IN CASE OF A CROSS-BORDER
TRANSFER WITH REGARD TO WORKERS REPRESENTATION.
12.1 Establishing jurisdiction
One of the issues I already addressed is the starting point of all disputes; the jurisdiction of courts. On what basis can an employee file a claim against his employer when he has issues regarding his representational rights? The Brussels 1bis Regulation grants (former) employees several possibilities to sue his employer in different countries. The basis for this is the individual employment contract itself. Rights of employees representatives are not laid down in the individual employment contract. To establish jurisdiction this fact might be problematic. This paragraph will deal with this issue.
(a) What does this mean for the jurisdiction of courts in case of a cross-border transfer? The first distinction that has to be made is whether the claim addresses the transferor or the transferee. If the claim is against the transferor, this will most likely not be problematic. The employee can sue the transferor in the country where he has been working all the time before the transfer, as there are multiple options to sue the employer in that country.65 The following example describes an equivalent situation:
Example.
A Dutch company sells its assets and liabilities to a British company. The enterprise activity is moved to the UK. If an employee has an issue with the transferor, in this case the Dutch company, he can sue the company in Dutch courts.
It becomes more complicated when the claim is addressed to the transferee and the enterprise activity is moved to another country. Another issue that might rise is which country is the country from where the work is habitually carried out. The ECJ has given some guidelines to ascertain which country this is.66 The transferee has its
domicile in another EU country (the UK in this case) in a cross-border transfer situation, hence giving the courts in that country jurisdiction. When the transferee also moves the enterprise activity to another country, it will often become impractical and cumbersome for employees to file a claim, let alone the problems regarding possible language barriers. The centre of activities will then be in that other EU country.
The ECJ has stated that the country from where the employee is deemed to habitually carry out his work is the country where he has worked the biggest part of his career. However, if the enterprise activity is permanently moved somewhere else, the intentions of the parties outweigh the working time at the previous worksite.67
The following example describes an equivalent situation:
Example b.
A Dutch company sells its assets and liabilities to a Belgian company. The enterprise activity is moved to the UK. If an employee has an issue with the transferee, in this case the British company, he has to sue the company in British courts.
The situation described under Example b. does not in any case force the employee to sue his employer in a British court. It is possible that parties themselves made a choice-of-court agreement. Another option would be an agreement that was made after the coming into existence of the issue that gives a particular court competence.
65 Section 5 of the Brussels 1bis provides multiple options for an employee to sue the employer. 66 Case C-383/95, Rutten. (1997).
67 Case C-37/00, Weber vs. Ogden (2002): para. 54 “For example, weight will be given to the most recent period of work where the employee, after having worked for a certain time in one place, then takes up his work activities on a permanent basis in a different place, since the clear intention of the parties is for the latter place to become a new habitual place of work within the meaning of Article 5(1) of the Brussels Convention.”
Section 5 of the Regulation provides multiple grounds for jurisdiction that may be other countries than the country where the enterprise activity is stationed.
Employees use their individual employment contract as a starting point to base the jurisdiction of the court on. The rationale of, inter alia, Section 5 of the Brussels 1bis Regulation is the protection of the weaker party, in this case the employee. The Section provides multiple ways to establish jurisdiction and with that it succeeds in protecting the employee. However, rights of employees’ representatives are not rights that are laid down in the individual employment contract. The right to be represented or the rights of representatives stand apart from the employment contract itself. This seems to have the consequence that Section 5 of the Brussels 1bis Regulation is not applicable for issues regarding rights of employees’ representatives. It would also mean that part of the protection that Brussels 1bis aims to provide is not given.
The general rules of Brussels 1bis provide that persons or undertakings can be sued in the country of their domicile.68 I believe Section 2 of the regulation provides a
safety net here. In article 7 par. 5 it is stated that a person domiciled in a Member State may be sued in another Member State in case a ‘dispute arises out of the operations of a branch, agency or other establishment, in the courts for the place where the branch, agency or other establishment is situated.’ The ECJ provided a comprehensive statement as to what should be seen as a branch, agency or other establishment, stating that: “The concept of a branch, agency or other establishment implies a place of business which has the appearance of permanency, such as the extension of a parent body, has a management and is materially equipped to negotiate business with third parties so that the latter, although knowing that there will if necessary be a legal link with the parent body, the head office of which is abroad, do not have to deal directly with such parent body but may transact business at the place of business constituting the extension.”69 This means that it is also
possible for an employee to sue the employer in the country where the branch, agency or other establishment is situated, where the employee is working. The fact that the special provisions of Section 2 are applicable adds to the purposive interpretation of Brussels 1bis. The perception that cases related to workers representation cannot be based on section 5, but have to be based on the general and/or special provisions of Section 1 and 2 of Brussels 1bis is in accordance with the view of Laagland.70
However, I do not fully agree with the previous point of view. I believe that it is arguable to base jurisdiction of courts on section 5 of the Regulation, in cases related to workers representation. Of course there are other Directives that lay down rules with regard to workers representation, but the origin of workers representation itself is found in employment contracts.71 This presumption is based on the following
elements: First of all, the sole purpose of Section 5 is to protect the weaker party, in this case the employee. It would be odd to defend that issues with representation cannot be built on section 5, merely because those rights do not directly stem from their individual employment contract. Employee representation is a phenomenon that is only seen in the employment sector and not for example something that is seen in
68 Art. 4 & art. 63 Brussels 1bis.
69 C-218/86 SAR Schotte v Parfums Rothschild (1987) para. 10.
70 Laagland, Grensoverschrijdende overgang van ondermening, ArA, 2011/3.1 71 E.g. Directive 2005/56 Art. 16 or Directive 2002/14.
completely other areas of law, e.g. consumer law. Furthermore, the exact wording of article 20 says that: ‘in matters relating to individual employment contracts (…)’, I think it’s plausible to state that rights of representatives are related to their employment contract. After all, without the employment contract in the first place, there won’t be representative rights at all. Taking a look at Directive 2001/23 it becomes clear that the purpose of the European legislator was to create protection for employees in case of a transfer. The Directive lays down the preservation of rights of employees in case of a transfer. In this Directive, rights of representatives are also mentioned, in a separate article. Therefore, it appears to be the case that also rights of representatives and representation are seen as rights of employees and that they also have to be protected. This fact implicitly links the rights of representatives and representation to contractual rights of employees based on their contract. In the
Gimnasio-case, the ECJ also stated that rights that are transferred are not always only
rights ex contractu, but can also be rights that have another source than the employment contract itself, though find their origin in the employment contract.72
The concept of the employment contract should be interpreted extensively. In the
UGT-FSP-case, the court stressed that it should be borne in mind that Directive
2001/23 is intended to safeguard the rights of employees in case of a transfer and that the right of employees to be represented is not an exception. It follows from this wording that rights of representatives cannot be seen separately from other rights of employees that originate from the employment contract.73 The rights that originate
from the employment contract and rights that originate from the position of being a representative or the right to be represented are so closely connected that they cannot be seen as two different things.
12.2 How to deal with the different outcomes of art. 6 and the differences between the
systems of Member States regarding workers representation?
Of course, the starting point of the Directive to be applicable is the fact that an economic entity, that preserves its identity, is transferred.74
To continue, the special provision on workers representation is laid down in art. 6. It is important to have a clear view on the different situations that might occur in the case of a cross-border transfer and the workers representation that is, or is not, present. The first distinction that has to be made according to art. 6 is whether or not the transferred undertaking, business, or part of it, preserves its autonomy. This is a follow-up question to the question whether a transfer takes place within the meaning of the Directive. I already elaborated on this issue in para. 2. It has been unclear for a long period of time what was meant with the term ‘autonomy’. One of the reasons for this was the lack of explanation of the term in the Directive itself. Member States interpreted the term ‘autonomy’ the same as the term ‘identity’. In the UGT-FSP-case, the ECJ explained the term ‘autonomy’ for the
72 C-688/13 Gimnasio Deportivo (2015), para. 52+53 and Beltzer, ‘Overgang van wettelijke verplichtingen – het Hof van Justitie van de EU treedt wederom buiten contractuele grenzen’, ArA 2016/3.2.
73 C-151/09 UGT-FSP (2010), para. 40
first time. The ECJ explicitly ruled that ‘autonomy’ was not the same as ‘identity’ and that an equivalent interpretation of both terms could not be accepted. Autonomy is a form of self-government. Self-government would fit best with the usual meaning in everyday language of the term ‘autonomy’.75 The ECJ stressed the importance of an autonomous and
uniform interpretation of a term used in Community law that does not refer to national law.76
Therefore the term ‘autonomy’ was defined as referring to the powers to manage an entity, practically freely and independently, and the powers to instruct employees and assign them tasks and to define how the available assets must be used. The aforementioned powers should be without direct interference of other organisational structures of the employer.77
Once it is determined whether or not the autonomy of the undertaking, business or part of it is preserved, there are four possible scenarios imaginable to continue with; (i) the transferor already has installed a works council, or other similar body for representation of employees and the transferee does too; (ii) the transferor has installed a works council, or similar representative body for representation, but the transferee does not; (iii) the transferor does not have workers representation, but the transferee does; and (iv) lastly, both the transferor and the transferee do not have installed a representative body.
On the following page there is a schematic overview of the possible scenarios.
75 C-151/09, UGT-FSP, para. 39
76 C-151/09, UGT-FSP, para. 38, which also refers to another case, namely: C-433/08 Yaesu Europe, para. 18. 77 C-151/09, UGT-FSP, para. 43
Overview of possible scenarios
WR = Workers Representation, or similar representative body, present at undertaking or business.
N-WR = No Workers Representation, or similar representative body, present at undertaking or business.
TUPE Directive;
art. 6
preservartion of
autonomy
conditions for
constitution are
not fulfilled
conditions for
constitution are
fulfilled
WR WR
WR N-WR
N-WR WR
N-WR N-WR
no preservation
of autonomy
WR WR
WR N-WR
N-WR WR
N-WR N-WR
(a) No preservation of autonomy
It is possible that an undertaking is transferred and that it loses its autonomy subsequent to the transfer. In this case the fourth subparagraph of Art. 6 applies. This subparagraph reads that Member States have to take appropriate measures to make sure the affected employees that where represented before the transfer continue to be properly represented, until a new representative body is established. This vague obligation to ensure proper representation is susceptible for multiple interpretations.78 In case-law the ECJ shed some light on this issue. In the
UGT-FSP-case the ECJ explicitly ruled that the term of office of the transferred
representative body should be prolonged until a new suitable workers representation is established. In that period of time, the former employee representatives have a different status than usual. The interest of the previously represented employees is different after the transfer, as there is a change in the organisational powers of those previously in charge.
(i) WR WR
What does it mean when the business that is being transferred loses its autonomy, but had a representative body installed before the transfer? It can be the case that the transferee also has a representative body installed. In the latter case, the most desired outcome would be that there will be two representative bodies in the undertaking for a certain period of time.79 During
this period the transferee has to arrange new elections in order to install a representative body that fully represents the entire workforce. Having two representative bodies installed at the same time may not be the most practical solution, but it is in line with the statements of the ECJ and the scope of the Directive. Furthermore, it is only for a certain period of time that two bodies will operate next to each other. Another solution could be that the representatives that are transferred join the representative body that was already installed at the transferee’s business. The representative body will then for a certain period of time be expanded, until a new body is installed. In my opinion this solution could also be in compliance with the statements of the ECJ and the scope of the Directive. However, in case of a cross-border transfer this solution might give rise to more problems than the first solution would.
As we have seen, the systems of Member States vary from one another. Some Member States’ systems may look alike, but others are far from similar. In case the enterprise activity is moved to the country of the transferee, there most likely will be difficulties regarding the different systems and difficulties on how to integrate the transferred employees’ representation into the new system.
If the representatives of the transferred company (that comes from abroad) would be placed in the representative body of the transferee, it would give rise to certain problems immediately. The rights and functions of the representatives might differ to an extent that the situation would not be
78 E.g. in the Netherlands the government was of the opinion that the representative body of the transferee automatically represents the transferred employees as well.
practicable.80 Letting two representative bodies exist next to each other,
seems to be the most logical and practicable solution. Meanwhile the transferred employees’ representation can get used to the new system that might be applicable to them in the future and the transferred employees remain properly represented, until a new joint representative body is established. The fact that there will be two representative bodies installed plus the fact that they follow different legal systems is an inconvenience that should be at the risk of the employer.81 However, this inconvenience may
lead to more incentives for the employer to organise new elections/ establish a new representative body quicker.
In my opinion the applicable law to the contracts after the transfer does not create more difficulties with regard to proper representation. The Directive provides for the prolongation of the term of office of the previous representatives, in order to properly represent the previously represented employees too. However, after this period and thus with the instalment of a new representative body, the effect of the Directive ends. It does not matter whether the new representative body is installed pursuant to the legal system of the transferee, or the legal system of the transferor, as long as there is a new representative body for the entire workforce established.
A counter argument could be that the different systems have different terms in which elections should take place and that the time in between the transfer and new elections would bring friction to these terms. However, the situation of two representative bodies operating next to each other is not to the detriment of the employees. If the terms to organize new elections are exceeded according to one of the legal systems, this will be to the disadvantage of the transferee. In my opinion there is no problem in the possible different election terms.
(ii) WR N-WR
Another scenario is that the transferor had a representative body installed, but the transferee did not. In case, after the transfer, the transferee is obligated to install a representative body by virtue of law, then the same situation and results as I described in the previous paragraph occurs. Following the fourth subparagraph of art. 6, in the light of the statements of the ECJ, there would be an extended term of office for the previous representatives, until the transferee has taken appropriate measures to install a new representative body that represents the entire workforce. It is questionable whether the ‘old’ representatives will only represent the transferred employees in that period of time that is necessary to install a new representative body, or that they represent the employees of the transferee too for a limited period of time. The Directive only aims at safeguarding the rights of the transferred employees; hence there will not be a right to be represented based on the Directive for the employees of the transferee. Furthermore, from a democratic point of view I believe the transferred representatives will only represent the transferred employees, as the employees of the transferee were not involved in their elections.
80 Another issue would be the lack of knowlegde of the transferred body on the overall state of business of the transferee.
Another situation would be that, after the transfer, the transferee does not have an obligation to install a representative body. In that case I believe that the employees, who were previously represented, will not immediately lose their representation, but that this representation will be limited to a certain period of time after the transfer. The Directive does not oblige the new employer to preserve the previous representation for an unlimited period of time, only for the time directly after the transfer. A solution would be to discuss this with the workers representation and create an agreement on how this issue will be dealt with.
With regard to both scenarios I believe that differences in the systems of representation between the transferor and the transferee are irrelevant, as the ‘old’ system of the transferor’s representation will be preserved for a certain period of time after the transfer. This period is not dependent on the applicable law/system of the transferee.
(iii) N-WR WR
What would happen in case the transferor did not have a representative body, or something similar, but the transferee has? The Directive only aims to safeguard existing rights of employees and not at creating new rights for transferred employees. A situation like this, where the transferor did not have a representative body, would fall outside the scope of Art. 6 of the Directive.82
(iv) N-WR N-WR
In case both the transferor and the transferee do not have a representative body installed, there won’t be a right that has to be safeguarded with regard to representation for the transferred employees. It depends on the national law that is applicable whether there will be an obligation to install a representative body by virtue of the law for the transferee after the transfer. However, this is something that falls outside the scope of the Directive.
