Dealing with the challenge of works councils

Derek Jones began his professional career as a research scientist before moving into HR in his mid-twenties. He subsequently held a number of positions with Nortel, ending as the company’s director of employee relations in EMEA. After a spell as an independent consultant he joined BT where he is currently HR Director, Middle and Eastern Europe. Having worked in a wide range of countries across Europe he has in-depth experience of  dealing with works councils, both at local and EU-wide level. In this article he passes on some of the key lessons he has learned along the way.

A path through the minefield

For many HR professionals who have spent their working lives in UK or US organisations the first encounter with works councils, either at a pan-European level or at a national level in individual European countries, can be a confusing and potentially painful experience. Since 1994 large companies – defined as organisations with more than 1,000 employees overall and at least 150 employees in each of two EU states – have been directed by the Council of the European Union to establish a European Works Council, if their employees or their representatives formally request one. The idea behind the directive is to establish a direct line of communication with top management to make sure that workers in different countries are all told the same thing at the same time about transnational policies and plans and to give workers’ representatives the opportunity to consult with employers and develop a common European response to international initiatives.

In essence the legislation requires employers to inform and consult with their European Works Councils on business financials and major changes afecting employment, such as redundancy, offshoring, outsourcing or divestiture projects. And it’s now backed up by the European Information and Consultation Regulations 2002, which set minimum standards for information and consultation at the national level in each of the member states, whether a company has a European Works Council in place or not. The actual driver for this additional national level legislation was in response to some spectacular cases of failure to inform employees and  their representatives by some companies implementing closure of operations, such as the closure of the Volvoorde plant in Belgium in 1997 or the closure of Danone plants across Europe in the late 1990s.

However these EU level legislative requirements to inform and consult are relatively lightweight compared to national level requirements in certain European countries, such as Germany, France and the Netherlands. And where local provisions are stricter than pan-EU ones they always take precedence. The provisions of European Works Councils are there to provide a basic level of protection, not to overrule more robust local legislation. With that in mind let’s look in more detail at how the two types of works council compare.

The sting in the national tail

As can be seen from the table below, the scope of Works Councils in some ‘old’ European countries far outweighs that of their pan-EU counterparts:

Level of intervention by Country and Issue

* Key: I = Information | C = Consultation | N = Negotiation | * = Approval Required from French data protection authority

So what do we actually mean by the terms ‘information’, ‘consutlation’ and ‘negotiation’?

• Information – a need only to provide information on the relevant issue.

• Consultation – an obligation to discuss the information provided and then allow the expression of opinions with a view, at least in some, if not all, cases to reach a consensus. In general, further action is not conditional on consensus, however in some countries (France and Holland) receipt of some form of opinion or advice – whether positive or negative – is necessary.

• Negotiation (also known as co-determination in some countries e.g. Germany) – the necessity to inform, consult and then reach agreement on an action or decision prior to any implementation. If agreement cannot be reached through conventional negotiation then recourse to the courts may be necessary. In Germany, for example, failure to agree can lead to legal arbitration presided over by a judge. The judge will make recommendations on a solution which is then voted on by representatives of both sides with the judge casting the deciding vote. Many organisations consequently try to avoid this final resort as it can lead to the original proposal being watered down to such an extent that it becomes unworkable in practice.

The need to inform, consult or negotiate will depend upon a combination of the issue and individual country. You can see from the matrix above that, in general, for countries such as Germany, France and the Netherlands there are more issues that require agreement with the respective works councils. This basically means, when it comes to matters such as downsizing, outsourcing or offshoring work activity, it is going to be more difficult and time consuming to implement global initiatives in the countries of ‘Old Europe’ , with France and Germany being the most challenging in my own experience. Even the divestiture of certain operations, such as the sale of manufacturing plants to another company can be extremely difficult in a country like France. I had the experience of being responsible for managing the HR aspects of the sale of a number of Nortel production plants to a global electronics manufacturer back in 2005, including one of the largest based in a small town about 150km form Paris. The French unions were extremely concerned about this move as they believed that the new employer would ultimately downsize and move work to the Far-East, significantly impacting employment levels in the town where Nortel was the largest employer. As the unions controlled the works council they were able to block the information and consultation process by not giving an opinion on the divestiture until we reached a deal with them on the transfer arrangements. These potential delays could have resulted in the whole divestiture deal being cancelled because the sale of the French plant was a key component due to its profitability and workload forecast.

By contrast, when you come to a country like Germany, you find that all kinds of other things require negotiation with the works council. A good example is performance management. If you wish to introduce or change an existing performance management system you are probably facing months of negotiation with the works council and probably with experts it has appointed to represent its interests. The reason for this sits in German employment law which states that any system or process that determines the distribution of pay must be negotiated and agreed with the works council. As a consequence companies can often end up in the situation where a ‘global’ rating system has been changed and implemented in most countries, yet in Germany employees are still being assessed against the old definitions.

The seven point guide to getting the best out of works councils

Feel a headache coming on?

Fear not. Yes it is a minefield, but it can be navigated. And here is my seven point guide on how to do it:

1. If you are setting up a European Works Council remember that the employer can choose the jurisdiction where courts will
settle disputes as a matter of last resort. Most will choose one of the more relaxed jurisdictions such as the UK or Ireland. A few have elected for countries such as Germany or France. They have lived to regret the decision. Consider hiring an external expert such as
EIRI Associates.

2. If you are planning on making any changes concerning general personnel management, bonuses, other pay, offshoring, redundancy or divestiture which will affect countries in the European Union then start planning well ahead of any projected action. Things will always take longer than you have anticipated.

3. Always operate on the presumption that no so-called global initiative which encompasses the EU will be implemented simultaneously everywhere. And France and Germany will probably take longer than anywhere else.

4. Prepare all relevant documentation well in advance such as the business rationale behind a transformation initiative and submit
it to the works council as soon as you engage with it.

5. Make sure that the function behind an initiative is fully engaged with local management and human resources to provide information, insight, knowledge and back-up.

6. Ensure that all key players in your corporate HR understand at least the basics of EU obligations.

7. And finally, if you have sizeable operations in ‘Old Europe’ locations, ensure you have strong employment legal and employee relations capability in your local HR team.