Last week the Commission presented the new company law package. The fact that the presentation of the Commission’s proposals had been delayed several times indicates that this is a politically sensible issue. On the one side, companies and their associations request that they are given the opportunity of setting up corporations anywhere in Europe, if possible at the push of a button. On the other side, trade unions have been pointing out for years that under the cover of freedom of establishment, the rights of employees, and in particular the model of operational codetermination, which has been successfully practiced in Germany and Austria, would be undermined.

The last peak in the dispute between market freedoms and labour rights was the Polbud judgment of the ECJ from autumn 2107. Based on this judgment, the European Court of Justice makes it easier for companies to transfer their headquarters to another Member State; even if a company does not actually operate in another Member State. In doing so, the bypassing of national provisions - among them also regulations on workers participation -, which were regarded as a nuisance, was made significantly easier. This would turn the nightmare of trade unions into reality: the setting up of letterbox companies to bypass trade unions' codetermination rights.

The now presented proposals by the Commission, do at least to a certain degree address the justified concerns of trade unions. Hence, the Commission refers in several places of its proposal expressly to the Polbud judgment, by on the one hand welcoming the fundamental option of free transfer of seat within the Union, but at the same time aiming to make sure that this system is not abused.

In concrete terms, the Commission intends to strengthen the rights of employees in case of cross-border splits or conversions. This shall be guaranteed by better information and consultation rights as well as by the protection of codetermination. The company is obliged to inform its workforce of all relevant changes and to take their concerns into account.

Even though in case of a change of the headquarters, the company has the right to follow the laws of the country of destination; however, if the country of destination does not provide any equal codetermination rights, workforce and company have to enter negotiations to solve the issue of codetermination. If no solution has been reached within 4 months, those rules will apply, which were applicable before the cross-border operation.

However, as first analyses show, the proposals of the Commission are far from being adequate to stop the trend of escaping regulations on worker’s participation. What would be needed here – as also demanded by ETUC in an initial assessment – is the establishment of an effective “real seat” principle. The simplification of setting up a company per mouse click, which is now provided for by the current proposals, is still dominated by the idea to reduce both the administrative workload and the costs for companies. However, from the point of view of trade unions and to act as a counterbalance, European minimums standards, such as a Framework Directive for the codetermination of employees are required to urgently to get a grip on bypass constructions.

Further information:

European Commission: Company Law Package

A&W Blog: Polbud: New ECJ judgment has negative effects for employees

A&W Blog: Workers participation: Not only its practice, its reputation is also good.

ETUC Position Paper on company law

EGB: Company law proposals provide grounds for progress – but clearly need improvement