The Central Arbitration Committee (‘CAC’) has ruled that multinational companies headquartered outside of the European Union are not prohibited from relocating their European Works Council (‘EWC’) arrangements from the UK in anticipation of Brexit. Relocation does not undermine employees’ information and consultation rights and is in accordance with the fundamental EU law principle of freedom of establishment.
HPE is a multinational company headquartered in the United States. It voluntarily decided to start the process of establishing a EWC in November 2015 and appointed a UK subsidiary company as its representative agent to take responsibility for this process. This meant that its negotiations on the terms of its future EWC agreement and any agreement concluded would be governed by UK law.
The people of the UK voted on 23 June 2016 to the leave the EU. HPE considered that this threatened to hinder its negotiation of a long-lasting EWC agreement, as its EWC agreement might not have been able to continue to be governed by UK law after Brexit. It wished proactively to mitigate the damaging uncertainty caused to it by Brexit, so it terminated the UK subsidiary’s appointment and replaced it with an Irish subsidiary as representative agent on 12 October 2016.
HPE’s special negotiating body of employees’ representatives (SNB) challenged its decision to change representative agent. The SNB claimed that HPE could not legally terminate its UK subsidiary’s appointment and so its EWC arrangements remained governed by UK law. They then requested further training on UK law, a request turned down by HPE on the basis that such training was not necessary as Irish law now applied. The SNB complained to the CAC about this refusal (the CAC is the independent body with statutory powers to resolve disputes about EWCs).
The CAC ruled that HPE was legally able to terminate its appointment of its UK subsidiary as its representative agent. It therefore found that it could not hear the SNB’s complaint about training, as any claim had to be brought against its Irish subsidiary, now the representative agent.
The CAC indicated that a multinational company headquartered outside of the EU does not enjoy an unlimited right to change its representative agent. For example, it could not change its representative agent on a daily or minute-by-minute basis to frustrate its employees’ information and consultation rights. The CAC was clear that a multinational company acting in bad faith could have a decision to change representative agent quashed.
However, the CAC was also clear that a company acting in good faith can change its representative agent. It found that it was very clear that HPE had not tried repeatedly to change representative agent to escape its information and consultation obligations or to confuse its employees’ representatives. Instead, it had acted for a plausible and rational reason of reducing uncertainty in the light of the outcome of the UK’s referendum on EU membership. Indeed, it had made it clear at the time that it was not trying to restart the three-year period for negotiating a EWC agreement or in any way negatively affect the SNB and its interests. The CAC even noted that HPE’s employee representatives could bring a claim before the Irish courts if they wished to do so.
Finally, the CAC also addressed the issue of alleged ‘forum shopping’ by companies to choose the most favourable national law for their EWC. It found that HPE had not done this on the facts in question. However, it agreed that the European Court of Justice’s decision in Polbud (Polbud Wykonawstwo, C-106/16) on the freedom of establishment of companies across the EU meant that a company would not be prevented from changing their representative agent even if it did so to enjoy the benefit of more favourable legislation. This reflects the fundamental right of companies to enjoy freedom of establishment across the EU.
This decision is extremely welcome for all companies given the ongoing uncertainties over Brexit. The CAC has agreed that it is in accordance with one of the most fundamental principles of EU law that a company acting in good faith is not prohibited from relocating its EWC arrangements from the UK in light of Brexit uncertainty.
Each company with EWC arrangements under UK law needs to choose the best option for it based on its particular circumstances. For example, unilateral relocation from the UK before Brexit is only possible for multinational companies headquartered outside of the European Union that are currently negotiating their EWC agreement or that have a EWC operating under the default ‘subsidiary requirements’ (that is, the minimum standards that apply when an agreement cannot be finalised) as opposed to a negotiated EWC agreement.
This decision should nevertheless give all companies comfort that, so long as they are acting in good faith, they can proactively minimise the damage to them from at least one aspect of Brexit uncertainty.