Information document on amendment to Article 31 of the Dutch Works Councils Act

Transcription

1 COMMITTEE ON THE PROMOTION OF EMPLOYEE PARTICIPATION Information document on amendment to Article 31 of the Dutch Works Councils Act SOCIAAL-ECONOMISCHE RAAD (Social and Economic Council) Bezuidenhoutseweg 60 P.O. Box NL-2509 LK Den Haag T + 31 (0) E communicatie@ser.nl Juli 2014, Sociaal-Economische Raad SOCIAL AND ECONOMIC COUNCIL

2 Information document on amendment to Article 31 of the Dutch Works Councils Act (WOR) (obligation on international groups to provide information) Works councils do not always know what the power structure is like within international groups. The amendment to the Dutch Works Councils Act [WOR] dated 19 July 2013 expanded the works council s right to information to include international power structures. A more detailed explanation follows. Background to the new paragraph 3 of Article 31, WOR As an enterprise continues to branch out internationally and its decision-making processes increasingly take place at international group level, decision-making becomes increasingly distant from the reach of Dutch employee participation rules. This is because the territoriality principle means that Dutch legislation and therefore the WOR has no validity outside its national borders. However, the WOR does apply in full to companies based in the Netherlands, even if their management is in another country. In general, it is certainly possible for Dutch employees to have their voices heard and discuss the consequences of decisions taken abroad, at least with local managers. However, works councils do not always know what the power structure is like within international groups. Article 31, paragraph 2, WOR states that entrepreneurs must inform works councils about the power structures within the organisation. Nevertheless, this text does not make it very clear how far this information should extend. The reason for this is that when this provision was included in the Act, international branches in trade and industry were significantly less common than they are now. The new paragraph 3 of Article 31, WOR Since 9 July 2013, Article 31, WOR, has had a new paragraph 3, which reads: Paragraph 2 (d) shall also apply to any entrepreneur forming part of an international group of enterprises. Paragraph 2 (e) shall also apply to any entrepreneur who, other than by reason of the power structures mentioned in the previous sentence, maintains long-term relations with foreign entrepreneurs or organisations. This paragraph forms part of Article 31, which concerns works councils general right to information. The article itself in turn forms part of the section of the WOR that deals generally with the provision of information to works councils. Paragraph 2, to which the new paragraph 3 refers, concerns works councils passive right to information. This is information that the entrepreneur has to supply to the works council on his own initiative, i.e. without the works council having to ask for it. More specifically in this case, the entrepreneur must provide the works council with information in writing on any major legal or organisational aspects of the enterprise at the beginning of each term of office (of the whole works council or part of it). This information is the information referred to in paragraphs 2 and 3 of Article 31, WOR. The new paragraph 3 of Article 31 now specifies how much information the entrepreneur must provide on the group: the works council also has a right to information on international power structures. After all, the works council has to be aware of the way in which control is structured within the group and the name and address of the person who exerts actual control of the Dutch enterprise. Because the director of this Dutch enterprise the person who can exert actual control is the contact person for the works council, it must be clear to the works council to what extent the local director has control within groups of companies. This information can help the works council to exert influence in a timely manner, even where decisions, for example, to carry out a reorganisation are taken by a parent company with headquarters outside the Netherlands. It is this time factor that allows the works council to fulfil its role. Unfamiliarity with, or a lack of clarity about, the power structures within the international group should not mean that the works council is unable to exercise its powers, or to do so in time. The importance of the supply of information in an international context Information is of great importance to a works council. A works council cannot exploit the rights conferred on it to the full if the background information is not available to it. Information is required before the works council can take any decisions.

3 The new paragraph 3 of Article 31, WOR the provision of more information cannot be regarded as the solution to all a works council s problems within an international group. However, it is the most far-reaching obligation that can be imposed on a Dutch entrepreneur forming part of an international group. What is important is that it should be clear what the issues are in respect of which the Dutch (subsidiary) enterprise can and cannot be held to account. Who has control as the director in specific cases and acts as a contact point must be clear before a crisis situation arises, e.g. where the parent company outside the Netherlands decides to carry out a reorganisation that also affects the Dutch subsidiary or subsidiaries. In addition, timely information on the control position of the Dutch director can also lead to the exploration of different channels of international decision-making to seek a conclusion, e.g. through contact with the supervisory board. In this way, the works council receives information from different sources on the direction of the group and the possible consequences for the Dutch enterprise. The fact that the works council has been informed and knows which director is the contact point is also important for the consultation meeting with the entrepreneur/ director, which is also used as a basis for a discussion of the general operation of the enterprise and its financial and social policy (Articles 23 and 24, WOR). Article 16, WOR, states that the works council can invite one or more supervisory directors to attend a consultation meeting where the enterprise is carried on by a public or private limited company, a cooperative or a mutual insurance association. If the enterprise is carried on by an association or foundation, one or more members of the executive committee of the association or foundation can be invited or where the executive committee is the board of directors one or more members of the supervisory board. The works council can also invite these persons to be present at the works council meeting. Article 24, paragraph 2, WOR, states that these persons are in principle required to attend any consultation meeting at which the general operation of the enterprise is discussed. The above-mentioned supervisory directors and executive committee members must be present not only at the six-monthly consultation meetings referred to in Article 24, WOR at which the general operation of the enterprise is discussed, but also at the meeting at which consultation takes place concerning a proposed decision, as specified in Article 25, paragraph 1, WOR. In any case, it is good to know which director within the group can or cannot be held to account and invited. Moreover, when the enterprise is carried on by a company which is a subsidiary (or sub-subsidiary) of another company, the requirement to attend meetings does not apply to the supervisory directors of the subsidiary (or sub-subsidiary) but to the directors of the parent (or grandparent) company. Where the parent company is a legal entity based in another country, the directors of this legal entity can be represented at the consultation meeting with the works council by the group officer who oversees and therefore has regular contact with the management of the Dutch subsidiary. How can the information be supplied efficiently? How does the works council ensure that it is informed of the way in which control is structured within the group and the issues in respect of which the director of the Dutch enterprise can or cannot be held to account? The works council (including the group works council and the central works council) and the entrepreneur can enter into agreements with each other in this respect. These agreements can take many different forms. They can be made both orally and in writing. They can, for example, take the form of a report or the minutes of the consultation meeting at which the undertaking or agreement is recorded. Another way of recording what has been agreed is a formal agreement. At any rate, it is recommended that agreements whatever form they take should be recorded in writing.

4 Appendix Article 32, paragraph 2, WOR contains a specific provision for written agreements between the entrepreneur and the works council, the principal aim of which is to provide these agreements with a clear legal status: what has been provided in a written agreement between the entrepreneur and the works council under Article 32, paragraph 2, WOR (often referred to as the works agreement) is deemed to be provided by operation of law. This means, inter alia, that the settlement of disputes is governed by Article 36, WOR. The parties may also decide to agree on mediation, arbitration or binding advice and record this in writing in the works agreement. In addition, the entrepreneur and the works council can themselves make agreements about the supply of information, which go beyond the obligation imposed on the entrepreneur in Article 31, WOR. It is also reasonable to make agreements about the attendance of supervisory directors and board members at the consultation meeting to be held twice a year at which the general operation of the enterprise (and any matters expected to require advice and endorsement) are discussed 1. Although the supervisory directors and board members are in principle required to attend the consultation meetings (Article 24, paragraph 2, WOR), the entrepreneur and the works council may decide in particular cases not to apply the attendance requirement (and record this in writing). Furthermore, agreements may also be made and recorded in writing with regard to the attendance of supervisory directors at consultation meetings other than those specified in Article 24, WOR. Appendix The appendix contains: - a brief explanation of some terms; - a brief explanation of the terminology used in the new paragraph 3; - a detailed explanation of the contents of paragraph 2 (d) and (e). Some terms used in Article 31, WOR Article 31, WOR, contains a number of terms, which are defined briefly below. Entrepreneur This is any natural person or legal person who carries on an enterprise. Legal form The legal form is the legal status of the entrepreneur. The entrepreneur can be a natural person and, as such, the owner of the enterprise, in which case he is operating a one-man business. The entrepreneur can also have the legal form of a general partnership, a partnership or a limited partnership, or a legal entity under private law such as a public limited company, private limited company, foundation, association, cooperative, mutual insurance association or church. The entrepreneur can also be a legal entity under public law and even have a foreign legal form. The WOR also applies to enterprises carried on in the Netherlands by a foreign entrepreneur. Enterprise An enterprise is any organisation operating in the community as an independent entity in which work is performed on the basis of a private-law or public-law employment contract, according to Article 1, paragraph 1 (c), WOR. Specifically, an enterprise can be a factory or workshop, a shop, an office, a branch office or a subsidiary, as well as a Dutch operation or subsidiary of a foreign group. In short, it can be any work organisation that presents itself as an independent entity in social transactions. Director A director is an individual who, alone or jointly with others, exercises the highest direct authority in managing work within an enterprise. 1 For more about the consultation meeting (Article 24, WOR), see Appendix I to the Model Rules of Procedure for Works Councils, geactualiseerde_bijlagen/b28531-formulier--vbreglement-bijlage-i.ashx

5 Specific terms used in paragraph 3 of Article 31, WOR International group of enterprises In practice, the term group is also used for this concept. An international group of enterprises can therefore be described as an international group. The term group is not a legal term but an economic phenomenon. In the literature, a group is defined as a group of associated legal entities or companies devoted to long-term participation in economic life 2. The formation of a group therefore means accommodating corporate activities in different legal entities or companies. These legal entities/companies are closely interlinked. The principal characteristic of a group is that it has centralised management. This applies to both Dutch and international groups. A Dutch group can be described as an organisation of legal entities/companies whose management is based in the Netherlands. In the case of an international group, the centralised management is in a different country, where the management and other decisions are taken. The same applies to the specific phenomenon known as the Netherlands structure in which international enterprises of Dutch origin construct an international holding company, to which a Dutch operating company is appended. The parent company therefore becomes a subsidiary company. The works council or central works council then consults with the director in the Netherlands; there is no national employee participation at board level of the international holding company where the important decisions are taken. Long-term relations These are contacts/relationships/agreements which the entrepreneur maintains or enters into for a prolonged period and which could be vital to the continued existence of the enterprise. Examples include the bank that provides continuous credit, important customers and suppliers, funding providers, etc. Foreign enterprises This concerns both the category of enterprises which are based outside the Netherlands and the category of enterprises with a non-dutch legal form which are based in the Netherlands. An enterprise from another country can therefore also do business in the Netherlands. A UK private limited company (Ltd) can, for example, own a restaurant in the Netherlands. Other examples of foreign companies are the German GmbH, the French SA and the Delaware Corporation from the US. What do Article 31, paragraph 2 (d) and (e) mean? Paragraph d reads: The entrepreneur is required to provide the works council with written information at the beginning of each term of office with regard to: ( ) d. if the entrepreneur forms part of a group of entrepreneurs: the entrepreneurs forming part of the group, the power structures linking them and the names and addresses of those who in consequence of the said power structures are able to exercise actual control over the entrepreneur. Paragraph e reads: The entrepreneur is required to provide the works council with written information at the beginning of each term of office with regard to: ( ) e. any entrepreneur or institution with whom the entrepreneur, other than by reason of the power structures mentioned under (d), maintains long-term relations of fundamental importance for the continuation of the enterprise, as well as the names and addresses of those who, as a result of such relations, are able to exercise actual control over the entrepreneur. 2 Bartman en Dorresteijn (2009) Van het concern, p. 1 e.v.

6 Control is the ability to exert decisive influence on an enterprise s activities either de facto or on the basis of legal capacity 3. Control ultimately rests with the persons who, by reason of their powers, may have a decisive influence on the appointment of the majority of the members of the centralised management of the enterprise 4. Power structure is the link that exists between a parent company and one or more subsidiaries, or the power relationships within the group, at the centre of which is on the one hand the influence of the parent company on the decisions to be taken by its subsidiary or subsidiaries and on the other hand the specific responsibility of (the management of) the subsidiary or subsidiaries. The combination of a majority of votes, the power to appoint or dismiss directors and the right to issue instructions is often what gives the parent company the highest level of authority. The parent company of a large group will often have its headquarters outside the Netherlands. Whether a parent company has its headquarters in the Netherlands or another country does not affect the power structure. Who has actual control in an organisation? This can be read as: the person(s) who is/are charged with the management of the company or parent company 5. 3 Article 26 of the Dutch Competition Act [Mededingingswet]. 4 Dorresteijn en Van het Kaar (2012) De juridische organisatie van de onderneming, p Honée (1981) Concernrecht en medezeggenschapsregelingen, p. 110.