European business leaders often talk about the need for good labour relations. But you just have to look around Europe right now to realise that things are not quite going to plan.
Since the start of 2023, there have been strikes about pay, pensions reform, and the cost of living in France, Germany, Italy, Greece, Spain, the UK and beyond.
It is a bad time for labour relations to be going sour. The Weil European Distress Index measures quarterly financial indicators of 3,750 companies against market conditions. According to the index, corporate distress is at its highest for two years because of slowing global growth, record inflation and Russia’s war in Ukraine. Company restructurings, usually involving job cuts, are definitely on the cards.
Which is one reason for business to worry about proposals before the European Commission, which would give workers in large multinational companies more power to influence decision-making on cross-border issues — for example, on restructuring.
European works councils were created almost 30 years ago to bring together employees from two or more member states to deal with central management on transnational issues affecting their jobs and conditions. The remit covers anything from restructuring to health and safety, acquisitions to digitalisation. The councils have the right to be informed and consulted on transnational decisions, but management is not legally obliged to act on their opinions.
Under the proposals put forward to the commission this month, financial penalties would be based on the formula used for breaches of Europe’s data protection laws. This means that companies could face fines of between 2 and 4 per cent of global turnover for failing to inform or consult European works councils. For an unintentional breach, a company like Amazon could in theory face a fine of $7.3bn or IBM $1.2bn, according to Tom Hayes, executive director of the Brussels European Employee Relations Group.
Companies would also be obliged to foot the bill for any legal challenges by EWCs and could be forced to suspend any restructuring plans while the case is examined.
These radical proposals received overwhelming support from MEPs this month and the commission is obliged to consider them. BusinessEurope, the European lobby group that initially opposed the idea of EWCs, argues that they would hobble decision-making and scare away investment. But it is worth noting that they have not been shaped in a vacuum.
Studies by both the European Commission and the European Trade Union Institute have found that while employers have come to appreciate the convenience of EWCs for sharing information and building a common vision across national boundaries, there are still significant weaknesses in the councils’ ability to enforce compliance.
There is evidence that many companies are not engaging seriously with their councils. In 2018, three-quarters of EWC representatives surveyed by the European Trade Union Institute said they were only informed and consulted after management had decided on a course of action, and sometimes even after implementation.
That suggests that, for many, the councils are little more than talking shops.
Financial penalties for transgressions are paltry in many countries — as low as €23 in Malta or €30 in Lithuania, according to an assessment of the value added by EWCs last year. EWCs are also constrained in 15 member states from going to court when they believe they have not been properly informed or consulted.
No wonder there is substantial support for radical reform of the existing rules. But it would be a mistake to adopt them as they stand.
The aim of the staggering financial penalties may be to deter bad behaviour. But such fines are excessive for failing to inform or consult a works council whose opinion is not legally binding in any case. And demanding that companies foot the bill for any legal challenge risks inviting deliberate delays.
The biggest incentive to engage with an EWC should be obvious — especially now as workers across the EU take to the streets in protest. Having to deal with the disruption of a strike is far more costly than making sure all stakeholders are informed and consulted as the existing directive demands. The directive does need to be revised to provide greater clarity on the rules over worker consultation. But such preposterous fines are not the answer.