Conference on "European Company Law: The Way Forward" and Employee Participation in a Societas Europaea

Conference on "European Company Law: The Way Forward" and Employee Participation in a Societas Europaea

The European Commission announced that there will be a conference in Brussels 16-17th May.

This two day conference will cover areas including:
1) Corporate mobility and European company law
2) A European Model Company Act
3) Workers' participation
4) Tax and company law
5) Groups of companies
6) Services and company law

All areas are of particular interest within the field of regulatory competition.

Workers' participation is something of particular interest in the European Union with countries like Germany and co-determination or the UK with no employee participation

When companies in the European Union decide to form a "European Company" otherwise known as a Societas Europaea or "SE" they can do so in four ways: 1) Merger of 2 plcs from different Member States; 2) Transformation by turning your own company in to an SE as long as you have a subsidiary in another Member State for more than 2 years; 3-4) Joint holding or joint subsidiary meaning the founding companies will still exist as well. The latter may be appropriate when two companies wish to pursue a specific venture but not combine all their business.

When an SE does form however, there are employee participation rights under the SE Regulation 2157/2001, and Employee Participation Directive 2001/86

Article 12(2) of the Regulation states no SE shall be registered unless
1) There has been an agreement on employee participation
2) The employees have waived their rights to participate
3) The Standard Rules have been triggered

The first two are fairly self-explanatory. However, Standard Rules under the SE require a little more elaboration.

The Standard Rules make clear that where two companies where the Member States require no participation, then under the Standard Rules there will be no employee participation.

If both Member States of the founding companies require participation then the "highest standard" applies. This does not require some subjective analysis. It is merely an arithmetical one. If one Member State requires 20% employee participation on the board and the other 21% then the latter is the higher standard.

However, it may become more confusing when employees have different rights that are not synonymous with one another. i.e. one Member State may allow employees to vote one third of the members on to the board whereas another may be able to recommend half the member's of the board.

There will also be the situation where one Member State requires participation but the other does not.

Here we can apply the no-escape and no-export principles. The no-escape principle works with "highest standard". The fact that one Member State requires participation will mean that under the Standard Rules that is the highest standard. The company cannot "escape" employee participation by merging with a company that does not require employee participation.

On the other hand there is the no-export principle which attempts to counter-balance the no-escape principle. The Directive provides that when the total of the workforce - that is the employees of all companies merging - covered by employee participation is less than 25% then the Standard Rules will not automatically apply.

However, in such a situation the employees may unilaterally decide to apply the Standard Rules, which they presumably would do if they cannot negotiate anything better.

One other exception does allow for the parties to decide that the Standard Rules will not apply but if such a decision is reached there must be an agreement on participation or the employees waive their rights to participate.

This in theory is likely to leave two positions under the Standard Rules. Either the SE will not have employee participation because neither company requires it; or at least one company does require it and so there will be employee participation to the highest standard.

It will be interesting to see how the discussions on employee participation in Europe goes and what suggestions are put forward. Unfortunately for me I am likely to have to keep my eyes posted rather than attend due to prior commitments.

For more commentary on directors' duties and shareholder litigation, visit Gibbs: Law and Life, a blog centering on directors' duties and company law, particularly on interpretation and practicality of directors' duties in the 21st Century.

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