New European Works Council Directive: Goodbye "Article 13" Status

Significant reforms to the 2009 European Works Council Directive will become law on 31 December 2025. One of the most significant changes is the removal of the "Article 13" and "Article 3" status exemptions, bringing hundreds of multinational companies under the scope of EWC legislation.

For the past 30 years, hundreds of multinational companies have been exempt from national laws on European Works Council (EWC). In the first of two articles on the draft directive, we explore what this reform means for those businesses.

Our second article examines the new legal regime that will be applicable to all businesses.

Background on "Article 13" status and "Article 3" status

A European Works Council (EWC) is a body that facilitates information and consultation with European employees of large multinational businesses on transnational issues. EWCs are composed of employees' representatives from each country that is a member of either or both of the European Union and the European Economic Area (Member State), in which a business has employees. They operate separately from national information and consultation bodies.

The concept of an EWC dates from 1994, when Directive 94/45/EC was enacted. However, that legislation was designed to reward businesses that already engaged in transnational information and consultation of their European employees by 22 September 1996. It did this by exempting them from the scope of national laws on EWCs. As this exemption was contained in article 13 of Directive 94/45/EC, businesses that benefited from it became known as enjoying so-called "Article 13" status.

Upon the UK opting into the European Social Chapter after the election of its New Labour government in 1997, a similar exemption was created for businesses which would only fall within the scope of national laws on EWCs based on their UK employees now counting towards the relevant employee headcount thresholds. It did this by exempting them from the scope of national laws on EWCs if they already engaged in transnational information and consultation of their European employees by 15 December 1999. As this exemption was contained in article 3 of Directive 97/74/EC, businesses that benefited from it became known as enjoying so-called "Article 3" status. However, there are far fewer businesses with "Article 3" status than "Article 13" status and, in practice, they are also commonly, albeit incorrectly, described as having "Article 13" status.

Upon Directive 94/45/EC being recast as Directive 2009/38/EC in 2009, the exemptions for businesses with "Article 13" status and "Article 3" status were generally preserved. Confusingly, the provision doing so was contained in article 14 of Directive 2009/38/EC and the sole carve out from the general exemption was contained in article 13 of Directive 2009/38/EC.

Position under the new directive

Under the new directive, these exemptions for businesses with "Article 13" status and "Article 3" status will be abolished on 1 January 2028.

It follows that, from 1 January 2028:

• a business with "Article 13" status can be required to establish an EWC, irrespective of its existing arrangements. Further, it will only have two years to negotiate an EWC agreement or else face the application of default rules for establishing its EWC, instead of the usual three years allowed for such negotiations when businesses are first establishing an EWC; and

• a business with "Article 3" status can also be required to establish an EWC, irrespective of its existing arrangements. However, in an apparent oversight in the directive, these businesses may still have the usual three years to negotiate an EWC agreement.

Implications for businesses with "Article 13" status or "Article 3" status

Businesses with "Article 13" status or "Article 3" status have now enjoyed that status for 30 years. In that time, many of them have developed effective relationships with their transnational information and consultation bodies. Nonetheless, pressure from the European trade union movement has now resulted in these businesses' general exemption from the obligations imposed by national laws transposing Directive 2009/38/EC being abolished.

As a first option, these businesses could adopt a "wait and see" approach. This reflects that all that will happen is that they will lose their exemption from complying with national laws transposing Directive 2009/38/EC. There will not, however, be any automatic obligation on them to establish an EWC under national laws transposing Directive 2009/38/EC. If everyone is happy with the current arrangements, it is possible that these businesses will not be requested by their employees or their representatives to establish an EWC.

As a second option, these businesses could look to update their existing arrangements to at least more closely reflect the minimum standards set by the draft directive. If an EWC agreement would not deliver a higher standard of transnational information and consultation, then there would be little incentive for employees or their representatives to request the establishment of an EWC. The business could also note that, if it were to receive a valid request to establish an EWC, it would immediately terminate its existing arrangements and that there might be a consequential period during which it would not engage in any transnational information and consultation pending the establishment of the EWC.

As a final option, these businesses could plan to terminate their existing arrangements with effect from immediately before the provision of the new directive abolishing "Article 13" and "Article 3" status comes into effect. This option is most likely to be appropriate for a business where, for example, the existing transnational information and consultation body is frustrated that its arrangements currently fall below the minimum standards set by Directive 2009/38/EC. This approach would ensure that the business:

• avoids the risk of simultaneously having to engage with two separate transnational bodies of employees' representatives. (That said, if such a situation were to arise, the business could minimise for how long it had to do that by terminating its existing arrangements immediately upon its receipt of a valid request); and
• has three years instead of two years during which to negotiate an EWC agreement.

With a view to managing any potential adverse labour relations consequences of this final option, the business could note that it is acting in response to recent legislative reforms. It could even proactively initiate the establishment of an EWC immediately upon its loss of its "Article 13" status or "Article 3" status as a sign of its ongoing commitment to social dialogue.

If the ultimate parent company of a business is situated in a country that is not a Member State, such as Japan, Switzerland or the United States, then, irrespective of whichever option it chooses, the one step that it should certainly take before January 2028 is to appoint a representative agent in a Member State of its choice for EWC purposes. If it has not appointed a representative agent, then its obligations following any valid request will arise under the national laws of the Member State in which the member of its group which employs the most employees in any single Member State happens to be situated at the time of the request.

In our experience, if they have any presence in Ireland, multinational businesses consider it best to appoint an Irish representative agent. This is because Ireland conducts business and any legal proceedings in English, the European language most commonly understood by managers at businesses' global headquarters. For the avoidance of doubt, the appointment of an Irish representative agent does not need to be notified to employees, their representatives or any public authorities. However, it is important that the necessary formalities are followed and that the process is properly documented, such as that the signatory has legal authority to bind the group's ultimate parent company.

We consider the remainder of the provisions in the new directive in our second article.

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.