The European Works Council Deficit in Germany

Contents

Abbreviations

1. Introduction

2. European Works Councils

3. The EWC Deficit in Germany – a Case for the Lack of Value of EWC?
3.1. Where is the Deficit?
3.2. Knowledge and Transparency
3.3. Expected Value and Limited Resources
3.4. The Maze of Capitalism and National Thinking

4. Is there Value in a European Worker Representation?
4.1. Enough Value to Prosper?
4.2. Room to Improve

5. Bibliography

6. Figures

Abbreviations

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1. Introduction

Globalization is the driving force which propels human kind into an ever faster, more complex and interwoven economic system. Today business is international. Every day companies merge, build new facilities or shut down factories and make business decisions that affect thousands of workers all around Europe. In 1994 the European Works Councils Directive (EWCD) passed by the Council of the European Union and 2016 marks the 20 years anniversary since the Directive came into force in 1996. The adoption of the Directive was marked by widespread debate and critics argued that the EWCD was a flawed means to generate transnational employee participation, while proponents saw great potential for an institution that fosters social dialog (cf. Waddington 2011a: xix). The legislation was also controversial among policy makers. The European Commission envisioned a significant step forward for the development of the social dimension of industrial relations in Europe, while employer organizations opposed the EWCD and lobbied conscientiously to reduce the coverage of the Directive (cf. ibid: XX). For the last 20 years there has been controversy around the effectiveness of the policy and the modest adoption of the Directive. This paper seeks to spread light on whether there is enough value in European Works Councils for the institution to prosper. Therefore the underlying issues concerning the low number of European employee representation are explored. Surprisingly, Germany is one of the countries with the lowest EWC coverage rate among its European partners. Consequently, Europe’s biggest economy can serve as reverence point for problems with European Works Councils and is of special interest investigating the institution. This analysis shall serve as a steppingstone in order to figure out whether European Works Councils are of little value for workers, or whether the institution is still in the process of reaching its full potential.

2. European Works Councils

European Works Councils (EWC) were established by the European Works Councils Directive (94/45/EC) on the establishment of a European Works Council or a procedure in Community-scale undertakings or Community-scale groups of undertakings for the purpose of informing and consulting employees and adopted in 1994 by the Council of Ministers of the European Union (EU) (cf. Waddington 2011a: 1). The legislation covers trans-European companies,

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Figure 1: Number of EWC 1985-2015

Source: European Trade Union Institute (ETUI), EWC database, 6/2015

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Abbildung 1: Policy-Cycle.

Quelle: Eigene Darstellung.

which employ at least 1000 workers in the European Economic Area and, at the same time, at least 150 employees in two or more member states (cf. ETUI). The idea of EWCs is to bring together employee representatives from the different European countries in which a multinational company has operations to foster dialog with management on transnational issues of concern to the company’s employees. Thereby workers in different countries can be informed about transnational policies as well as plans and at the same time give local worker representation the opportunity to consult with each other in order to develop a common response. Management can consider proposals and recommendations for the worker representatives but legally does not need to comply with any demands (cf. Waddington 2011a: 1). The EWCD was the culmination of a process that begun 20 years prior. Attempts to harmonize participation arrangements via hard law garnered strong opposition by both governments and employers. The legislation of 1994 was a shift to a soft law approach comprised of relatively humble standards and left considerable leeway to the actors involved in negotiating EWCs (cf. ibid: 1-2). Within the commission the Directive was seen as a “European industrial relations system which is coherent with the European social model” (ibid: 2). After the EWCD was passed in 1994 and came into force in 1996 it seemed like an astounding success. There was a steep rate of new EWC being created and in a matter of a few years more than 700 EWC were active (see figure 1). But in the 21st century a rapid decline in the growth rate of EWC can be noticed. The initial success was tarnished by the continuously slow rates at which the institution grew. In 2009 the EWC Directive was revised by the Council and the European Parliament. The changes aimed at improving the legal framework for the operation of EWCs, including the amended definitions of information and consultation (cf. Romuald 2011: 210). Furthermore the new Directive underlines the obligation of the central management to transmit information required for commencing negotiations on an EWC, which aims at increasing the number of EWCs (cf. ibid: 210).

3. The EWC Deficit in Germany – a Case for the Lack of Value of EWC?

Germany is one of the most important economies in Europe, yet it is no frontrunner in setting up EWCs. The following chapter tries to analyze the German EWC deficit in order to understand why Europe’s biggest economy, a country considered to be a leader in industrial relations, does not embrace the EU´s legislation as much as many other European nations do. Three main problem areas were identified, which the fowling chapter will look at closely. The first focuses on information distribution the second on resource allocation and the third on the mindset of workers and the organizational framework they are operating in. Understanding these issues will serve as the first step to understand, whether there is reason to believe that EWC have enough value for worker representatives in order to be a thriving institution.

3.1. Where is the Deficit?

Germany currently has established by far the most EWC of any European nation (cf. figure 2). At first glance it seems that Germany should be the posterchild of European worker representation. However a closer look at the coverage ratio reveals that Germany, the powerhouse of the European Union, joins the ranks of Greece, Ireland, Portugal and Spain in terms of EWC implementation. About two thirds of all European companies covered by the EWCD have not implemented the Directive. Current coverage rates per country fall mostly between 34 and 40 percent (cf. Kerckhofs 2006:32), which in itself shows that the EWCD is not completely successful in incentivizing MNC and employee representatives to set up EWCs. However in Germany compliance rates remain steady at 28 per cent (cf. Whittall et al. 2015: 12). This gap is particularly important considering that approximately 460 German multinationals – by far the highest number of companies covered by the EWCD – are affected by the legislation (cf. ibid: 13). The overall low implementation of EWC is therefore disproportionately a German problem. If Europe’s strongest economy could boost its EWC levels to or above the average, the EWCD as a whole would be significantly more successful. On the other hand Germany has had successes in European employee representation and it is Europe’s strongest economy, giving home to the highest number of multinationals of any European country. (cf. ibid: 14).

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Therefore comparisons with significantly smaller economies have to take the country’s economic position into account. Nonetheless Germany is vitally important for the success of EWCs and consequently a more detailed look at the comparably low implementation rate of the EWCD is necessary.

3.2. Knowledge and Transparency

One of the reasons for the deficit is simply the lack of awareness about the EWCD. A survey by Whittall et al. (2015:43) found that 20 per cent of employee representatives of companies without an EWC had no knowledge about the legislation. The study suggests that there is a strong correlation between the presence of a trade union within the company and knowledge. The dual character of the German industrial system and the strong ties between works councils and trade unions seem to heighten the awareness level about the EWCD (cf. ibid: 107-108). Hence, those 20 percent do not solely constitute the deficit, which leaves a majority of survey respondents that have at least basic knowledge about EWCs. Another problem, especially prevalent in Germany, is the lack of transparency. The study finds that 20 percent of survey respondents were convinced that their company does not meet the requirements to set up an EWC, even though the EWCD did apply to all examined companies and 45 percent stated that they don’t know whether that is the case (cf. ibid: 49). This is particularly interesting considering that in Germany about 80 percent of privately owned companies covered by the EWCD have not established an EWC. One reason is that these privately owned enterprises are not required to make information on management structures and revenue public (cf. ibid: 51). Employee Representatives and workers do not only need to know about the EWCDs existence but also whether their company is covered by the Directive. The respondents had insufficient knowledge concerning their company’s corporate structure within Europe. They often did not know how many sites are in the different European countries, how many people were employed and whether these were represented by a works council or trade union (cf. ibid: 110-111.). Companies use corporate structures to actively promote in-transparency at a European level which leads employee representatives to think that a EWC application is doomed to failure and therefore a waste of time and resources.

3.3. Expected Value and Limited Resources

Another aspect of the below-average coverage rate are the resources that have to be allocated for setting up a EWC as well as the value employees are expecting to gain from the institution. Germany is usually considered to have a well-established employee representative infrastructure (cf. ibid: 54-55.). However, a lack of resources is a quite prevalent argument for not setting up a EWC. Despite several full time employee representatives equipped with expertise and resources, setting up a EWC is often seen as a lengthy laborious negotiation process and thus requires a lot of energy that is also needed for the already existing structures. One interviewee gets right to the heart of the problem: “These are our struggles at the moment. Thus this story about a European Works Council is only on second or third place” (ibid: 55). Even tough resources are available they are needed elsewhere and EWCs are pushed back on the agenda. But this is just one side of the same coin. Resource allocation is always about balancing the costs versus the potential gains. German representatives seem to see more benefits in investing in the already existing national structure than in setting up a new transnational institution. But why is that? One reason is the Modell Deutschland through which German employees enjoy various advantages that are special to the countries industrial relation system. Modell Deutschland empowers German works councils with certain co-determination rights, whereby they can participate in the management of the companies they work for and are allowed to elect representatives for almost half of the supervisory board of directors. This makes employee representatives feel confident in their position and immune to potential aggressive practices of central management (cf. ibid: 54-55.). Furthermore German works councils, unlike their foreign counterparts, potentially have easy access to management, because a widespread open-door policy enables personal contacts with management, which plays an important role in company strategy (cf. ibid: 62-63.). These rights and privileges are in stark contrast to the EWCD which is centered on informing and consulting employees. When asked 60 percent of EWC survey respondents suggested, that the institution had no real effect on their work at the national level (cf. ibid: 59). Furthermore management benchmarking, a reason for trade unions to show interest in EWC, does not encourage survey respondents to set up a EWC (cf. ibid: 59). All in all it seems that when German workers calculated the cost and expected value for setting up a EWC the equation came out negative.

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