On 25 April the European Commission proposed new company law rules to make it easier for companies to merge, divide, and move company seats within the EU. The EU directive proposal aims to facilitate these “with strong safeguards to protect employees’ rights and, for the first time, to prevent artificial arrangements aiming at tax avoidance and other abuses”, the official press statement detailed. As regards workers rights, the new text augments workers’ information on the impacts of any such proposed company operations and above all safeguards employees’ participation in the company management and supervisory organs when the company seat moves across EU Member States or when a company engages in cross-border division, and as such avoids any dilution of workers’ rights that may otherwise have stemmed from these operations. 

Safeguarding participation rights. The EU Treaty safeguards the fundamental freedom to establish an enterprise and as such companies should be able to transfer their company seats, merge, and divide their businesses across EU borders without having to overcome complicated and burdensome obligations relating to company liquidations and legal entity status. Nonetheless the EU Commission stresses that this essential simplification should not result in employees’, creditors’, and minority shareholders’ interests being diminished. Such company operations cannot aim to, or result in circumvention of national regulations that safeguard workers’ participation rights (employees with seats on company management and supervisory boards). Thus the 25 April proposed text, revising EU Directive 2017/1132 that consolidates EU company law, contains safeguards so that workers’ participation rights are not diminished.

The text introduces rules guaranteeing that workers’ rights when companies divide or when the company seat moves across EU borders. They are aligned to those that operate when a company changes to SE (Societas Europea) status. When a minimum threshold of employees enjoys participation rights prior to a cross-border operation, then employees should be able to continue with those rights following the operation. Directive 2017/1132 provisions on cross-border mergers already contained a mechanism protecting established participation

rights with a 500-employee threshold level. The new proposal puts a similar mechanism in place to cater for company seat transfers and company divisions when the company, in the six months prior to the change, has “an average number of employees equivalent to four fifths of the applicable threshold, laid down in the law of the departure Member State, which triggers the participation of employees” enabling seats on the company management and supervisory organs. This is in order to maintain employee participation rights and avoid companies anticipating the crossing of this threshold by relocating the company seat or dividing the company to avoid complying with employee participation rights. If the ‘Destination EU Member State’ does not recognize participation rights, or recognizes weaker employee participation rights (in Germany for example joint participation in company supervisory organs applies for large companies but in Nordic countries is only a maximum of one third participation), then companies must enter into negotiations with employees to define their own particular participation arrangements (in aligning with the highest level or by diminishing these rights with a qualified majority agreement). If no such agreement is reached within a period of 6 months then subsidiary provisions from EU Directive on SE (2001/86) will apply. In order to ring-fence these rights companies will have to preserve any employees’ participation regime at least for three years.

Strengthening information obligations. Bolstered information obligations for employee representatives will apply in all cases (transfers, mergers, division). The draft directive requires that the company in question establish a report on the key issues facing the company’s employees (impact on jobs, workplace etc.) The report has to outline and explain the employee impact of the operation in question and it should be delivered to the employee representatives, or failing that then directly to the employees. The employees’ opinion or the opinion of the employees’ representatives as well as an independent expert opinion if formulated within the set deadline will accompany a report that is addressed to the company shareholders.

View the proposal here.