The Works Constitution Act furnishes a German works council with many rights of information, consultation, veto and co-determination, in a variety of social, personnel and financial matters that concern the employees of a company. German works constitution law and the rights of the works council and its additional panels are highly complex and largely defined in more detail by the case law. Below is a summary of the key issues in relation to the formation and rights of a works council in Germany.
What are the prerequisites for establishing a works council?
A works council is elected for an establishment. Employees may elect a works council if the establishment employs no less than five employees on a regular basis, and three of those employees are eligible to vote for a works council. Employees are eligible to vote if they have reached age 18 and they have been employed at the establishment for six months or more.
How many members are on the works council?
The number of works council members depends on the number of employees who are eligible to vote and who are regularly employed in the establishment. In establishments with five to 20 employees eligible to vote, the works council has one member; in establishments with 21 to 50 employees eligible to vote, it has three members; in establishments with 51 to 100 employees eligible to vote, it has five members and so forth up to 35 works council members in establishments with 7,001 to 9,000 employees. From 9,000 employees onwards, two more members are added to the work council for each additional 3,000 employees. In addition, there are substitute members in case a works council member is temporarily unable to carry out their works council duties. In establishments with 200 or more employees, a certain number of works council members are entitled to paid leave from their ordinary duties in order to carry out their works council duties.
What are the other panels of a works council?
In companies which employ more than 100 persons on a
non-temporary basis, the works council has to form an economic
committee. The economic committee's task is to consult with the
employer regarding economic affairs and to keep the works council
informed of any issues regarding economic affairs. The economic
committee has its own rights under the Works Constitution Act that
serve to give the works council advance information on financial
affairs.
While a works council is elected for an establishment, several
works councils of a company with several establishments may form a
company works council. If at least two works councils of a company
form a company works council, the company works council will also
be in charge of establishments outside their own works councils. In
addition, company works councils of several companies may form a
group works council situated at the German top management level of
the group. Once formed, the group works council will also be in
charge of affiliated companies outside their own company works
councils and establishments outside their own works councils.
Who bears the costs of works councils?
As a rule, the employer bears all costs of a works council. This includes costs of materials such as equipment and specialized literature, as well as the costs of required traveling and education. Larger works councils may be entitled to secretarial support. There is a huge body of case law on the required costs of a works council
Agreements between works council and management
In certain circumstances, a works council and an employer may enter into collective agreements (Betriebsvereinbarungen). Such agreements are not valid unless made in writing and signed by both parties. It is important to note that, generally speaking, agreements with the works council cannot be entered into where the subject-matter is already regulated by law or a collective bargaining agreement. Collective agreements with the works council directly affect the employment relationships of the individual employees. However, any terms and conditions to the employee's disadvantage are applicable only to the extent the individual employment contract does not contain an express provision which directly contradicts these terms and conditions.
Are works council members especially protected against dismissal?
Members of the works council, members of the election committee, election candidates and employees who are invited to the works/election meeting enjoy (at least for a limited duration) special protection against dismissal, as their role on the works council or election committee, etc., shall not be affected by the employer's decision to terminate their employment. Generally speaking, they can only be dismissed "for cause" as defined under German case law or in the event of a total closure of business and, in the latter case, may claim to leave their employment with the very last group of employees. In case of a partial closure, members of the works council may claim to be employed within one of the remaining parts of the business, instead of another employee who is not protected against dismissal.
What are the main tasks of a works council?
Notwithstanding the many rights of a works council, the main
tasks relate to social, personnel and operational matters.
Social Matters
With regard to social matters, the works council has a
co-determination right. If an agreement between the employer and
the works council cannot be reached, a so-called conciliation board
(Einigungsstelle) is to be put in place which, after
further negotiation, becomes the final decision-making body. Social
matters include, among others, working hours and their temporary
increase (overtime) and reduction (e.g., short-time work);
vacation (general guidelines); the introduction of monitoring
devices (e.g., software); salaries and wages including
bonuses, commission, incentive payments, company pensions and
voluntary benefits (general distribution principles).
Personnel matters
The works council furthermore has the right to be
involved in personnel matters, for example personnel planning, the
introduction of employee questionnaires, selection guidelines etc.
In particular, the employer has to keep the works council informed
of, and supply it with, all relevant documentation prior to any
hiring or dismissal. With regards to hiring employees, if the works
council refuses to consent, the employer must apply for a court
approval in order to override the works council. With regards to
dismissing an employee, if a works council refuses to consent, this
refusal does not prevent the employer from dismissing the employee
but the employer may face severe economic disadvantages due to the
works council's objection. In addition, if an employee is
dismissed without the employer having consulted with the works
council, the employee may bring unfair dismissal proceedings,
claiming that the decision to dismiss him was invalid. Pursuant to
relevant case law, employers are under an obligation to ensure that
they have sufficiently consulted with the works council.
Operational changes
In companies that regularly employ more than 20 employees
who are eligible to vote, the works council has to be informed and
consulted with at an early stage of the employer´s
deliberations on operational changes. The employer and works
council have to negotiate a reconciliation of interests
(Interessenausgleich) and a social plan
(Sozialplan). The employer is not allowed to take any
measure if the works council has not been properly informed about
the measures that are being considered. Nor can an employer take
any steps if the reconciliation of interests and social plan are
not agreed. Otherwise, the employer's actions may be prohibited
by court injunction.
Operational changes which require works council negotiation prior
to implementing the change include:
- limitation or closure of all of the works or essential parts thereof;
- relocation of the works or of important parts thereof;
- mergers with other works or splitting of works;
- fundamental changes in the works´ organization, purpose or equipment;
- introduction of fundamentally new working methods and production procedures; and
- mass dismissals (as defined under German case law).
In practice, the reconciliation of interests usually covers only a few matters, for example, the timing of the planned measures, the number of employees concerned, etc. The social plan mainly defines compensation for employees affected. If the parties fail to agree on a settlement, a conciliation board decides. Its decision replaces the agreement between the employer and the works council. Negotiation of a reconciliation of interests and a social plan may take between three and six months.
Asset deal
In an asset deal, the works council does not have particular rights unless the asset deal involves operational changes as outlined above. An operational change in the form of a split of the work divisions is generally involved if only parts of the assets of an establishment are transferred to another employer. However, an operational change can also be involved if employees will be made redundant or will relocate as part of the asset deal. In these events, a reconciliation of interests and a social plan need to be entered into prior to implementing any such measures as outlined above.
Share deal
In a share deal which directly involves the German employing entity, the economic committee of a company, or, if there is no economic committee, the works council, has to be informed and consulted with. The information and consultation process generally has to be conducted before the share deal is concluded. The employee representation body needs to be informed about the potential purchaser and his intentions relating to future business activity, the consequences for the workforce and working conditions. Information does not include particular contractual conditions (for example, the purchase price). If the competent employee representation body believes that the necessary information was not provided in good time or was insufficient, it can apply for the establishment of a conciliation board. A failure to comply with the obligation to inform and consult may result in an administrative fine of up to EUR 10,000.00. However, it will not result in a delay of the sale process.
Union Involvement / Strikes
Other than works councils, unions are rarely involved in a
company's day-to-day issues. However, collective bargaining
agreements between a trade union and an individual employer or
between a trade union and an employers' association can contain
comprehensive provisions governing the conditions of employment. To
encourage an employer or an employers' association to enter
into collective bargaining agreements, the unions can call on
employees to go on strike. Generally speaking, strikes which have
been initiated by a union are only permitted with regard to
subject-matters which can be part of a collective bargaining
agreement either in a situation where the current collective
bargaining agreements have to be renegotiated upon their
termination or where the unions wish to enforce negotiations on new
subject-matters which have not been addressed yet. Otherwise, the
employer can apply for a preliminary court injunction preventing
the union from implementing a strike. Furthermore, the employer
does not have to pay employees during a strike which is
unlawful.
Trade unions also have developed a strategy of responding to
redundancy programs with strikes in order to enter into a
collective bargaining social plan (comparable to the social plan to
be concluded in such scenarios with the competent works council).
The union's claim must relate to the operation, content or
termination of employment relationships (for example, provisions on
severance payments, extension of notice periods or vocational
training of employees). Hence, collective bargaining social plan
arrangements often result in higher social plan compensation or
severance for the employees affected. The union is not entitled to
require the employer to refrain from implementing the change to the
operation. Such a strike would be unlawful and could be prohibited
by the employer by way of preliminary court injunction.
Works Councils in France
Works councils in France have wide-spread prior information and/or consultation rights, not only concerning directly employee-related matters, but also in circumstances such as a change of control, merger control procedures, certain M&A deals and other economic or financial decisions that impact the company. The rules governing works councils and their rights and prerogatives are set out in the French Labor Code. These rules have been subsequently elaborated upon by complex case-law. Below is a summary of the setting-up and the rights and prerogatives of works councils in France.
What are the prerequisites for setting up a works council?
A works council is in principle elected per company (legal
entity), when its full-time-equivalent (FTE) headcount reaches or
exceeds 50 employees. This threshold is measured over a certain
look-back period: it must be reached during any 12 out of the last
36 months. As soon as this threshold is reached, the employer is
bound by law to take the initiative to organize works council
elections.
Works councils are elected for a four-year term. However, the term
can be reduced by company collective agreement down to a two-year
term.
How many members are on the works council?
The number of works council members depends on the FTE headcount
of the company. At a headcount level of 50 to 74 employees, three
current and three replacement members are elected. Between 100 to
399 FTEs, the number of current and replacement members is five
each, and between 1,000 and 1,999, the number is eight each. It
increases by one for each additional 1,000 FTEs, up to a maximum of
15 incumbents and 15 replacement members.
In companies with a headcount between 50 and 199, the employer may
decide that another kind of elected employee representative, the
staff delegates, who have fewer rights but must be elected from an
FTE threshold of 11 employees, will automatically be the members of
the works council, thus acting in a double capacity as staff
delegates and works council members.
The designated employer representative (often the H.R. Manager) is
by law also a member of the works council, holding the position of
Chairman. However, generally speaking he does not have voting
rights. The employee members of the works council are represented
by the secretary of the works council whom they elect among
themselves, but each member has an individual voting right. In
addition, unions may appoint a union representative to the works
council. The union representative attends works council meetings,
but has no voting rights.
What are the other forms of works council?
Although works councils are in principle elected within the
company, they may sometimes need to be established within other
frameworks. When a company has several separate establishments
reaching the 50 FTE threshold, each separate establishment elects
an establishment works council. The establishment works councils
are then headed by a central works council composed of
representatives of the establishment works councils. The
prerogatives of central and establishment works council depend on
the issues that are subject to their information and consultation.
For example, decisions of the central management are subject to the
central works council's information and consultation whereas
local management decisions are subject to the relevant
establishment's local works council, and if a central
management decision requires local implementation, information and
consultation will need to be carried out at both levels.
Another framework of works councils is the social and economic
unit. When several companies which are technically separate legal
entities, have strong operational, H.R., economic and financial
ties, they can be deemed to be a social and economic unit. Works
council elections occur within this broader framework. Social and
economic units have been developed by case law in response to the
issue of employers who have separate legal entities that each have
fewer than 50 FTEs, but together exceed this threshold.
Who bears the costs of works councils?
The employer bears all costs of a works council, by means of an
annual works council budget equal to 0.2 percent of the
company's annual total gross payroll. In certain circumstances,
the works council may use external accounting experts to assist and
advise the works council. The cost of such experts is directly
borne by the employer.
The works council also has a specific, separate employer-provided
budget for certain social and cultural activities for the benefit
of the employees.
Agreements between works councils and the company
French law separates the role of unions, which involves collective bargaining, potential strike movements and the entering into of collective agreements, and the role of elected works councils, which involves information and consultation on certain decisions taken by the management. Therefore, works councils do not, strictly speaking, have a role in the negotiations of collective agreements, and still today, many areas of collective bargaining (wages, flexible working time agreements, etc.) fall in principle within the unions' remit of collective bargaining. However, case-law has recognized the validity of certain agreements negotiated with the works councils (so-called "untypical agreements") and certain areas of collective bargaining are explicitly open to works councils, such as profit-sharing plans.
Are works council members given special protection against dismissal?
Yes, members of the works council, election candidates, i.e., employees who request elections when an employer fails to take the initiative, and former works council members (during a six-month cooling-off period from the end of their term) benefit from specific protection against dismissal that requires prior authorization from the labor inspection before he/she can be dismissed. Breach of such requirement makes the dismissal null and void and exposes the employer to criminal sanctions (so-called délit d'entrave).
What are the main tasks of a works council?
The main prerogatives of a works council are information and/or
consultation.
Information
The works council has the right to be provided with
regular information such as information on the company's
economic/balance sheet situation, the number and structure of the
headcount, a comparison between male and female employees,
etc.
The works council can also use its accounting expert (see above) as
a way to access confidential company information. Indeed, any such
expert is entitled to the same investigative powers as the
company's statutory auditor.
The provision of information to the works council is also required
when the company is party to a merger-control procedure in France
or at the EU level; when the company is the target of a public
take-over bid; and prior to the approval of the annual accounts by
the general shareholders' assembly.
Consultation
The concept of consultation is defined as the exchange of views
with the works council resulting in the works council formulating
its opinion (avis) on a contemplated management decision.
Consultation, in order to be respectful of works council
prerogatives, requires that (i) sufficient information is provided
to the works council to allow the works council to form its
opinion, and (ii) the works council's opinion is requested
before management is due to take the relevant decision and more
precisely at a time where the works council's opinion could
still arguably influence the management's decision (whether or
not this is actually the case). Consultation does not however mean
a veto right nor a co-determination or decision-making right. The
works council's opinion is indeed "only"
consultative, and not binding for the management.
Timing
In practice, timing can be a major issue in any decision-making
process that requires a prior works council opinion, because
legislation does not prescribe any maximum time limit for the works
council consultation procedure. Works councils do therefore have a
certain bargaining power in that they can refuse to provide an
opinion. This is because they can argue (rightfully or abusively)
that the information provided by management is not (yet)
sufficient. Whether such delay is rightful or an abuse of the works
council's position, is determined on a case-by-case basis. If
it is rightful, management must comply first with its works council
obligations, before being allowed by law to take the relevant
decision. Breach of such requirement exposes the employer to civil
and criminal sanctions (délit d'entrave).
Works council consultation procedures should therefore be started
sufficiently in advance when considering a tentative timeline of
business decisions to be taken.
It is usually considered that it would be "too early" to
start a consultation procedure at a time when the project concerned
is insufficiently advanced, i.e. where the parameters of
the project are insufficiently determined or determinable. No
meaningful information can be given at this stage to the works
council, management will be unable to answer precise questions and
consequently, the works council will be unable to render a
well-informed and meaningful opinion. On the other hand, it is
considered that it is too late to conduct a consultation procedure
when the project is so advanced that it has reached an irreversible
state, in particular if the company has already made legally
binding commitments or decisions.
Matters subject to prior consultation
Not surprisingly, certain matters that directly impact on
employees are subject to prior consultation, such as collective
redundancies ("collective" meaning more than one
individual employee), terms and conditions of employment, transfers
of business implying a transfer of contracts of employment,
professional training, a significant change in technology if it
affects the headcount or working conditions, training, or the
entering into of a collective bargaining agreement.
In certain circumstances, works councils should also be informed
and consulted with in relation to economic and financial management
decisions that do not have a direct impact on the employees such as
the acquisition of a company or the sale of the shares of a
subsidiary (share deal), and, according to the vague definition
provided by law, "matters relating to the organization,
the management and the general operations of the
company." Case-law has assessed what matters are covered
by this generic provision, on a case-by-case basis, mostly based on
the magnitude of the decision and its potential impact, which has
resulted in some legal uncertainty.
In addition, the works council may even need to be consulted in
relation to decisions to which the company is not a party and for
which the company's own management has no decision-making
power, for example the decision of the company's shareholders
to sell the shares of the company in an M&A transaction,
resulting in a direct change of control. Whether an indirect change
of control also requires prior works council consultation is again
decided on a case-by-case basis.
Employee Strike Action in the UK
As the UK Government attempts to reduce expenditure in a bid to
address the UK budget deficit, public sector trade unions have
reacted to proposals, in particular proposed cuts to public sector
pension schemes, by threatening industrial action. A number of
trade unions in the UK have called for a collective day of strike
action on 30 November. This 24-hour walk-out could involve up to
three million public sector workers, including teachers, nurses and
careworkers.
In order for industrial action to be legal in the UK, employee
representatives (e.g., trade unions) are required to give
the employers notice that they intend to conduct a ballot where
they will ask their members to vote in favour of the proposed
industrial action.
Therefore, employers are given some warning that the strike is a
realistic threat, and can start thinking about a contingency plan
if the ballot is a success and the strike action goes ahead. This
is generally concurrent with ongoing talks with the trade unions
with the hope that an agreement can be reached before the date the
strike action is scheduled for.
At present it seems that it is only public sector workers who are
threatening strike action, but it may be that in the coming months,
as more and more private sector employers propose to introduce
cost-saving measures, we start to see a wave of industrial action
across unionised private sector workforces in the UK as well.
However, in the meantime, whilst many private sector employers may
assume that these looming public sector strikes may not affect
them, the reality is that schools, courts, care homes etc., may all
be facing days of closure which could potentially be extremely
disruptive for numerous businesses.
The largest issue is likely to be lack of childcare when employees
are faced with school closures. There are a number of ways
employees and employers together can try to deal with this.
Firstly, employees may request annual leave on the days of planned
strikes. Employers should try to grant these requests to as many
employees as possible, without materially disrupting the day-to-day
running of their business. Similarly, employees may apply for
unpaid time off to care for dependants. The unplanned circumstances
of strike action could be classed as an emergency and therefore the
right to time off would apply. It should be noted that this right
to time off to care for dependents applies not only to children but
also to elderly relatives, etc., as well who may be deprived of
their public sector care services due to strike action.
Employees may try to take advantage of an employer's sick leave
policy in circumstances where they need to cover childcare
responsibilities. In particular, employees may choose this route in
order to avoid using any of their annual leave allowance. If an
employer suspects that the employee may not genuinely be sick,
formal disciplinary proceedings may be appropriate. As a deterrent,
employees should be warned prior to the proposed strike dates that
employers will treat this type of abuse of company sick policy
seriously.
A more conciliatory approach may be to introduce temporary changes
to the work patterns to assist employees with dealing with their
childcare responsibilities, etc. For example, shorter working days,
temporary flexi-time or working from home may be appropriate and
would help minimise the disruption to the day-to-day running of the
business, whilst helping the employees meet their personal
needs.
Employers should be mindful of proposed industrial action
generally, even if it does not at first appear to have a direct
impact on their business. It is advisable to introduce contingency
plans as far in advance as possible to deal with the potential
disruption that strikes can cause, even when it is not your
employees who are striking.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
