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Belgium – The effect of a hard Brexit on European Works Councils

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What will happen to European Works Councils (EWCs) based in the UK in the event of a no-deal Brexit? And what wider effects would a hard Brexit have on EWCs in companies with ties to the UK? This article explores the issues for employers and gives recommendations on preparing for a possible hard Brexit.

It appears increasingly likely that the UK will leave the EU on 29 March 2019 without a transitional agreement being agreed upon and receiving UK Parliamentary approval. If both the EU and the UK approve the transitional withdrawal agreement, nothing will change on 29 March 2019 or in the immediate future. Unfortunately, the former seems to be the more likely scenario at this point in time. If the UK leaves the EU with a no-deal Brexit, there will be an impact on most existing EWCs whether currently subject to British law or not. For EWCs that are not UK based, the impact is likely to be minor; for EWCs with their central management (or representative agent) in the UK, the impact will be major.

The main impact will be on EWCs that are established based on the UK law implementing the EWC directives and that are headquartered in the UK. This will be the case for companies (or more likely groups of companies, also known as concerns) with their actual HQ in the UK. It will however also affect any Japanese, Korean or US companies with HQs outside of the EU or the EEA who have appointed a UK company to act as the company’s representative agent for EWC purposes. The EWC agreements that they concluded are subject to UK law.

In the event of a hard Brexit, these companies will find themselves no longer having the required HQ (or representative agent acting on behalf of their HQ) within the EU or EEA. This means they will suddenly no longer satisfy the requirements of the EWC directives and national implementing legislation. These companies will have to find another EU or EEA country in which to locate their representative agent.

The choice of the entity within the EU or EEA that will act as representative agent for central management of a group that is located outside of the EU and EEA is up to central management. It is not up for negotiation with the EWC or with the relevant trade unions: it is the sole responsibility of central management to decide where it wants to locate itself for EWC purposes. This management prerogative is best exercised and formalised before Brexit even takes place, because if no explicit choice of location for EWC purposes is made, the group will be deemed to be located (for EWC purposes) in the country where the entity with the largest number of employees within the EU and EEA is established. This may well be France or Germany….

A simple letter from central management clearly indicating that their representative agent is company X, located in, for example, Ireland or Belgium may be enough to formalise the choice of representative agent. As a result, the law of the country where the representative agent is located will become the law applicable to the EWC agreement.

Changing the legislation applicable to the EWC agreement will not invalidate it, as it existed before the move. However, it may be best to do a ‘health check’ in order to verify whether all requirements under the different, newly applicable national law are satisfied.

Simply moving the EWC to another member state should not be seen as a significant structural change which would allow the employee representatives to ask for a (three-year) renegotiation of the EWC agreement while keeping the current EWC in place and functioning. It is only the territorial scope of the EWC directives that changes, since the UK will no longer be part of the EU or EEA. In terms of the structure of the company or group of companies (or concern), nothing changes, at least not merely as a result of Brexit.

Whether or not employee representatives from the UK, representing the UK workforce for EWC purposes, can continue to participate in the EWC or the Select Committee will depend entirely on the language of the EWC agreement that is in place. If the agreement explicitly describes its territorial scope as being the member states of the EU and EEA in which the company employs workers, then a hard Brexit will disqualify UK representatives from being on the EWC or Select Committee.

The same holds for agreements relating to EWCs that are not headquartered in the UK and that are therefore not subject to UK law. UK members will no longer be entitled to have a seat on the EWC, unless the language of the EWC agreement explicitly foresees this. After a hard Brexit, the UK position would be exactly the same as that of any third country outside the EU or EEA: Russia and Switzerland will have exactly the same status as the UK for EWC purposes. Unless the EWC agreement foresees a UK presence (not as an EU or EEA member state), there will be none and central management cannot just decide to ‘continue’ to allow a UK presence. This would require a modification of the EWC agreement, for which the modification procedure would of course have to be followed. The agreement of employee EC representatives (minus those from the UK) would be required to modify the agreement, changing its territorial scope of application to include UK representatives. Not all continental European employee representatives may be ecstatic about a continued UK presence. If central management wants to allow a continued UK presence, it may well be confronted with questions as to why the Swiss or Russian workforce is not represented.

A hard Brexit may have additional, even more far-reaching effects even on EWCs that are not located in the UK. This may include smaller companies that only reach the numerical threshold for establishing an EWC because of the inclusion of a UK workforce. Removing the UK workforce from the overall number of employees may mean that the group or company’s EU and EEA workforce would fall below the required minimum level. Companies would need to check whether and/or when the EWC would stop functioning and disappear, depending on the applicable national law.

Taking all the above into account, UK-headquartered companies or companies with a representative agent in the UK should decide where to locate their central management for EWC purposes. Of course, it is possible to decide on a ‘conditional’ move, if a hard Brexit happens. But in any case, it is better to formalise this process now, in advance of 29 March 2019, or risk the EWC being deemed to be located in the country where the company or group of companies has the entity that employs the largest number of workers.

But where to move the EWC? There seems to be a general tendency for foreign English-speaking groups to avoid France and Germany. In France (among other things) the courts have shown a willingness to impose injunctions undoing central management decisions if the proper consultation process with the EWC is not followed. Germany requires central management to fund legal costs for German-based EWCs that take them to court and practice shows that some EWCs do not hold back on doing so. Ireland seems to be an obvious location of choice, but there are other countries, such as Belgium, that are also attractive EWC locations. The absence of an obligation to fund legal action and hence the almost-complete absence of any such cases, is just one of the reasons. Besides the legal issues and in the absence of any specific requirements for an entity to be able to act as representative agent, a company’s choice of location should (from an industrial relations perspective), be logical and acceptable for the employees, their representatives and the relevant trade unions. Companies have significant freedom of choice, but they would be well advised to make use of it before 29 March 2019.

Chris Engels
Chris Engels
Partner - Belgium
Claeys & Engels