Legal issues in the EP’s recommended revised EWC Directive

This alert is a follow-up to the one published on 30 January 2023 (‘An (unexpected) revision of the EWC Directive underway?’).

In the meantime, on 2 February, the European Parliament (‘EP’) indeed approved with a large majority a resolution calling for a thorough revision of EU Directive 2009/38 on European works councils (‘EWC’, ‘the Directive’). In annex to the resolution, the EP spelled out recommendations, including a proposed text of the revised Directive.

1.

The primary features of the revision have been listed in the previous newsletter and relate to substantive, procedural and governance issues. In recent press reports, however, one feature takes the headlines, i.e., the enforcement and remedy mechanisms outlined in the EP recommendations (Financial Times, 15 February 2023).

The text of the resolution, as voted in the EP, stresses that the provisions governing penalties need to be strengthened in order to improve compliance with the Directive, while at the same time ‘ensuring that it does not create a burden to the business’ (point 19, resolution).

2.

What this apparently means is set out in the proposed new Article 11a of the Directive: unintentional infringements of the Directive or of the EWC agreement at stake will lead to financial penalties that are equivalent to those provided for in the General Data Protection Regulation (‘GDPR’) (the higher of €10 million or 2% of worldwide turnover). In case of intentional infringement, the penalties will be the higher of €20 million or 4% of worldwide turnover. If that does not create a burden to any business…

3.

Irrespective of the political choices or substantive comments that can be made here (see below), the approach calls for some legal, or shall we say constitutional, comments.

The substantive basis for any EWC regulatory framework is article 153 TFEU, i.e., the EU shall support and complement Member State activities both for the information and consultation of workers, as well as for the representation and collective defence of the interests of workers. The legislative competence of the EP and the EU Council in this area is to establish minimum requirements, for gradual implementation, by means of directives.

Specifically in connection with the suggested remedies and sanctioning of any infringement of an EWC agreement, the question arises whether the proposed fines – as specific and constraining as they are - can be part of a directive as a legislative instrument. In other words, since the legislative competence of the EU institutions (EP, the Council and the Commission) in this field is limited to harmonisation and approximation of laws, to what extent can this legislative instrument contain fixed financial sanctions across the board, without making it the Member States’ responsibility to set the ‘proportionate, effective and dissuasive’ sanctions? It is striking that whenever the EU legislator deems it necessary to enforce its rules by imposing fines, it does so by means of a regulation (GDPR, antitrust, etc.), not by means of a directive.

There is no predefined content of a directive, nor is there any fixed limit on how stringent a harmonisation process at EU level (induced by a directive) can go. However, with the proposed text of the revised Directive in hand (copying the fines set forth in the GDPR), this clearly is no longer an exercise of harmonisation, nor does it support or supplement Member States’ activities. It is a disguised regulation, imposing fixed rules on all Member States and fixed sanctions on all their citizens.

And that is exactly the ‘constitutional’ problem: in the field of social policy (Part 3, Title X of the TFEU), the legislative powers of the EU institutions are limited and do not encompass regulations as legislative instruments, only directives. So, in our view, the argument could clearly be made that the EP, in its recommended revision of the Directive (and at least on the point of enforcement and penalties), has incorrectly used – or ‘overused’ – its legislative powers by trying to pass this measure in the form of a directive off as a legislative instrument which has the obvious content of a regulation.

In fact, this discussion comes down to a balance of legislative competence and power among the EU institutions, where the EP has now apparently taken an overly assertive stance which will most probably result in a ‘bounce back’ effect once the EU Commission and the EU Council become actively involved in the legislative process.

4.

The above legal discussion also does not do away with other comments on the suggested remedies. According to the text, any infringement of an EWC agreement can lead to financial penalties, irrespective of its scope, content, effect, impact or damages caused. The intentional nature of such infringement accounts for doubling the financial penalty, but who is to assess intentionality and on what basis, with which evidence?

Also, the subject matter of the Directive (and the ensuing EWC agreements) is to regulate the content and timing of information/consultation processes on transnational corporate transactions, reflecting the balance between freedom of enterprise and the workers’ rights to I/C (art 16 vs 27 of the Charter), as expressly spelled out in the current Directive. This domain is of a different societal dimension than the absolute protection of personal data via the GDPR and may not objectively warrant the same level or degree of sanctioning.

Finally, it is hardly reconcilable with the voluntary contractual nature of any EWC agreement (to be negotiated freely once a request is filed) as enshrined in the Directive (also in its suggested revised version) to see any infringement of such private agreement (between central management and representatives of the workforce) lead to substantive financial penalties. Nevertheless, in the EP’s view, all of this should lead to the imposition of draconian fines (up to 4% of worldwide turnover of any organisation with an EWC).

The story of a bazooka and a mosquito?