[Podcast] Works Council and Why it Matters in the EU

[Podcast] Works Council and Why it Matters in the EU

In this Globig Podcast, we’re discussing Works Councils in the EU, what they are, and why they matter much more than most companies are prepared for when entering into foreign markets, especially the EU and countries such as Germany, UK, Belgium, Italy, Luxembourg, Austria, France, and Spain.

Our guest expert is Nathan North, the Director of Global Payroll at Global Upside. Nathan oversees payroll processing for over 5000 employees from different clients across 45 countries.

Some of the important discussion topics we cover and the questions we answer in this podcast include:

  1. What exactly is a Works Council and how are they different from a Trade Union?
  2. What are the areas of business that Works Councils influence?
  3. What are some of the hardest aspects of Works Councils for companies to comply with?
  4. What are the benefits of having Works Councils?
  5. For companies considering going into Germany, there is a concept called ‘co-determination’ or ‘Mitbestimmung’, which is an even more robust version of typical Works Councils. What is it and how does it apply?
  6. How important is having a good working relationship with Works Councils for a company expanding abroad?
  7. Are all companies required to participate in Works Councils? Can companies choose not to participate in Works Councils? What are the requirements?
  8. What are the costs for a company associated with running Works Councils, including the participation of their employees?
  9. How and when to set up the Works Councils in an M&A

TRANSCRIPT

Introduction

Anke:

Welcome to the Globig podcast where we talk to international expansion experts from around the world to make it faster and easier for you to take your business global.

Hello everyone, I am Anke Corbin, your host today on this Globig podcast. Our hot international expansion topic is – What Is a Works Council and Why Does It Matter When Expanding Into the EU?

Our expert today is Nathan North, he is the Director of Global Payroll at Global Upside. So, Nathan oversees payroll processing for over 5000 employees from different clients across 45 countries. Now today we are going to talk about these works councils primarily in the EU, what they are and why they matter much more than most companies are prepared for when entering into foreign markets primarily the EU and countries such as Germany, UK, Belgium, Italy, Luxembourg, Austria, France, and Spain.

Welcome, Nathan. Thank you so much for joining us today.

Nathan:

Thank you Anke. I am happy to be here.




What is a Work Council?

Anke:

All right. So, Nathan exactly what is a works council and how is that different from a trade union?

Nathan:

So Anke, the works council is an organization that is comprised of workers at the company. Now obviously it depends via country by country. So, the EU has standards, in reality, more so, general standards, of when a company needs to create a works council. However, the specific countries also have their requirements and so we want to look at making sure that our clients are compliant with both the EU and the specific country that they are entering in.

Typically, the workers are voted in for a 4-year term, their part of the company’s decision-making body. They may or may not represent a trade union at the local company level.

Trade unions are industry-wide political and economic organizations.  So, they are not into the ground level items that are happening within a company. They represent many different companies and employees from a political and economic standpoint.




Work Council Influence

Anke:

Very interesting. So, you had mentioned that these folks that go into works councils are actually involved in the company’s decision making. So, what are the sorts of topics that they will have an influence on?

Nathan:

So, it depends on the size of the company, depends on the country but what I can do is tell you just a couple of brief stories of how this has an effect on how it’s hard for companies to comply especially coming from let’s say the US or coming from outside the EU, going into Europe.

So, one of the stories I will tell you is regarding Merger and Acquisition and the company that was spinning off employees into a new organization, they had thousands upon thousands of employees. Until they were completely set up, they had their works councils, everything was working great.

Then the employees that were spun off or literally they have to go through the complete process again. What’s often missed is that whether the requirements again from the EU standards vs the country standards.

Anke:

Yeah, I imagine it’s really hard for a US company, for example, because that’s just so unfamiliar, right? We would not even know that’s really important to pay attention to.

Nathan:

Exactly and so the employees will start to ask and, in this situation, they were shut down completely and that.

Anke:

So, the company was shut down by the works councils.

Nathan:

No, no. The employees were shut down by company management saying, ‘Oh no, no, we don’t need to do this. We don’t have thousands of employees,’ and from an EU standard that’s absolutely correct but from a country’s standard that was not correct because the minimum was a 100 employees.

Anke:

Interesting.

Nathan:

So, in that, you have the situation of, that is one of the hardest points is to understand – why you need a work council, what are the standards of the works council, what are they gonna cover such as pay levels, hiring criteria, benefits in the sad event – layoffs, or even in some countries company’s strategy. I can give you the example of Germany where they authorize and appoint those that are on the Board of Directors.

Anke:

That’s very powerful, isn’t that?

Nathan:

Yes. The second level that is a second story, a short story that I will tell is of another organization that unfortunately had the situation of layoffs. And layoffs or closing a company that has a work council is extremely challenging because the work council does hold a lot of power and their data that must be disclosed depending on the country, of the reason for the layoff or complete shutdown and what are the payouts gonna be for the employees.

How many months are they going to have supplemental benefits for example? So, this company had a really hard time working through a process from a US standpoint and really understanding that yeah, the works council does have this authority.

Anke:

Somewhat unexpected and really doesn’t leave that much open negotiation. Right? It’s pretty detailed around what they need to do in different situations whether it is hiring people or changing corporate strategy or having layoffs. Already fairly decided, isn’t it?

Nathan:

Correct, correct.

Anke:

Which of course is opposite of anything you know that companies are familiar with they wouldn’t expect that.

Nathan:

No, no.




Why are Work Councils Set Up? What are the benefits?

Anke:

So now you have these works councils and why are they set up and what are the benefits for having works councils. I am just curious about kind of the intent if you will.

Nathan:

Yeah, so I’m going to give France as an example. You know France and Germany have the most data in regards to what are the benefits or what are some of the continual challenges just because there is a works council does not mean that there is not a collective bargaining agreement as well. So, then you have an additional component on top of, you have an employee entering the company negotiating their wages. That’s level number 1.

Level number 2, you have the collective bargaining agreement.

Level number 3, you have then the works councils. So, there is a lot of compliance that has to be reviewed even before hiring an employee because even though the works councils promote higher wages and even more than what an employee would get during collective bargaining. You have to maintain and management has to maintain a good relationship with works councils. If they maintain a good working relationship with the works councils, this really solves a lot of tough challenges when they arise just like 2008.

If it wasn’t for a lot of companies having good relationships with their works councils and ultimately their employees, they were able to work through how to get through the downturn in 2008.

Anke:

Interesting. So really having this language if you will and process to communicate and collaborate even in difficult times makes it kind of one of those reasons why they have it. Would you also say that maybe they help, maybe people that are, you know, whether it’s like women and foreign workers, like do they have a little bit more fairness built in some ways? Does that impact?

Nathan:

Yeah, there is an impact to really having an organization that has the diversity but not only that when you have a place for the employees to go to, you know, a group of people to go to and it may be just something that’s just not understanding, but productivity also goes south.

And you know, what we are finding out more and more each year is that the foreign workers, women, men are able to go to the works council and say ‘Hey, you know it would be better for us to, and you know, we would save the company XYZ dollars if we do this or ‘Hey, you know, has the company ever thought of XYZ?’ instead of directly going to management which could be really intimidating for all workers at times. But you know the company does have to correlate between the level of profitability.

Because higher wages does lower the profitability of companies which does affect the investors and there may not be as many benefits in the smaller companies as in larger ones due to the fact that it’s not affordable.

Anke:

So, but you know you have got pros and cons on one side. Maybe you have got more productivity, you have got more fairness, you have got people feeling more comfortable but on the other side because they do negotiate how wages that they are also maybe not gonna have that same level of profitability. That’s actually another big point I think for especially US companies or foreign companies when they model out their investments is just recognizing that those margins might be a little tighter. Right?

Nathan:

Correct, correct.




Example: German Work Councils

Anke:

You know one of the countries that you had mentioned earlier that is kind of, you know, unique to setup is Germany. I was doing a little homework on this and I think it’s something we have heard a number of times and I am not sure that I fully understand it because there is this concept called co-determination or Mitbestimmung, so it’s kind of this even more robust version of a typical works councils. Can you share a little bit about what that is and how it applies because I think I understand a little bit about it but I am not sure that I kind of get the scope of it.

Nathan:

Just in my opinion, Germany has one of the most seamless and well-produced programs of setting up works councils and operating works councils. And in most companies nowadays, the employees are not even employing collective bargaining agreements. So, in recent years there has been a huge decline in union memberships. So, what the unions are originally afraid of, in the 1920s has not happened until and we have not seen until the recent years.

Anke:

And that’s because they are so collaborative and it’s working really well at the local company level that they almost don’t need the industry level. Is that what you are thinking or what might that be?

Nathan:

Yeah, so the works councils are working so well and management is working so well with works councils and you know to give you an example, any company with more than 2000 employees in Germany can select up to half of the members of that company’s supervisory board of directors. So, it gives workers a powerful say and how the companies are run and that in itself really sets the tone and addressing your initial question, co-determination in Germany is basically a concept that involves a right of workers to participate in the management of the companies they work for.

So instead of creating the chasm that we normally see between employees and management, you actually have a merging of the employees into, so really, we talk in the US about organic growth. So that’s a buzz word or words. We are gonna hire within, our management is gonna be hired from within.

Now that’s not always something that can be done but Germany has found a great way of doing it through the works councils and so, as a result, this, and there is a lot of information in, we could talk just a whole 30 minutes or an hour just on Germany but again in Germany there is actually, there is data behind works councils being shown to help women and help foreign workers at a higher rate compared to the West German man. And so that’s a huge thing. So, we talk a lot about diversity here in the US. They are told that most European companies are using for making sure that they are diverse, is through the employees themselves, through the works councils.

Anke:

I think what I like about this is that you know, oftentimes in companies, you have this misalignment between what the corporate initiatives are and what the employees’ initiatives are. Where and then the things they prioritize and what they find important whereas if they are co-determining their path, then they have to be aligned, they have to have that conversation and those conversations don’t always happen here and I like that they are actually being put at the forefront. The employees recognize the challenges that management has, they are onboard with sometimes tough decisions because they are included in making those tough decisions.

Nathan:

Correct, absolutely.




Drawbacks of Work Councils

Anke:

Yeah, so that working relationship is probably key too. Have you seen where that working relationship may be does not work as well?

Nathan:

Yeah, I mean, you know, human nature comes into play and I think you gave a good example, Anke about talking about the chasm that we see here in the US. Now there are companies here in the US that the employees and management will talk and the co-determining, I am putting that in quotation marks.  Let’s say the goals for the year.

However, where resources are given rather its budgets, whether it’s personnel, whether it’s additional resources outside the company, you name it. That’s where a lot of companies get misaligned. And so, if I turn this over, have I seen where there are challenges between management and the works council.

If I speak again about Germany for example, the way things are built, you really can’t get away from it, you may not like each other because at the end of the day the management team or  team’s executive branch, they have to not only please the employees but they are also having to please the investors.

Anke:

Sure.

Nathan:

Even if they are a private company, doesn’t matter. So then there is kind of this tight rope of knowing they have to comply with some of the items that work councils can bring up that the company is not bound to implement. You know whether it is due to the budget, you know, you have to have a good reason. It can’t be just because they don’t want to.

Anke:

Sure.

Nathan:

So, in that regard, yes, and when there are challenges between management and employees, works councils, it could create a tough environment within the company but usually it wears itself out.

Anke:

Well, it’s in their interest to do that right?

Nathan:

Exactly and both parties have to resolve it.

Anke:

Right. That makes a lot of sense. You know that they have got these works councils. I would imagine there are some costs associated with running them. Whether it’s the just the time that people have to spend on this or do they get compensated or is this a volunteer position for years like what are some of the things that companies should be aware of, just as far as the costs of running these councils.

Nathan:

So, it depends on the country. If, for example, you have to pay an employee for their time on the works council.

Anke:

So they continue to get paid and this is just the same as the job?

Nathan:

Yeah, it’s same as getting paid. There are rules that are put in place that they have to spend in, like France. They have to spend at least 20 hours of delegation per month and depending on the CBA they are under or depending on what the works council has negotiated. They do get paid because a lot of times those 20 hours are usually spent not always during work hours.

So, your daily working hours and so that would be, you know, in all sense they need to be prepaid and so if they are working 20 hours over and that’s 20 hours over the standard hours of the month then there is, you have to pay them over and above, it’s not just straight time.

So, there is that, and then as far as higher wages come into play, more benefits come into play but most work depends on the works council are pretty reasonable. They know, look, if they push wages too high, push benefits too high, they are gonna be without a job.

Anke:

Right, it harms their jobs and their companies. So, but they know enough about the company to see that. Right?

Nathan:

Yeah absolutely, absolutely.




Closing Thoughts

Anke:

Now this is such an interesting topic and I imagine we could talk about this for hours but for this podcast specifically is there anything else that our listeners should know about works councils before they go in any kind of whether it’s a warning, whether it’s advice or how they learn more, like what should they know before they kind of jump in the first.

Nathan:

So, a lot of what we see a lot of companies just want to jump into a particular country and you have companies that are going to have a couple of employees. Works councils do not apply to them and so it’s understanding when works councils come into play and being proactive and already having in play that the employees and the employees have to go through a certain process.

And a work council can be declined. And I say all that because this is a complex topic and you really need somebody on your side, a company on your side such as Global Upside that can help you walk through the process of a works council.

Anke:

Makes sense. I would not wanna go in alone because you are just going to make way too many mistakes.

You know, absolutely Nathan, I think this is a fascinating topic. I am going to make sure that we share your resources and the ways to communicate with the company just to learn more because I think that like you said that there is so much more than they need to know and I just wanna thank you so very much for joining me today on this podcast. That was definitely a pleasure to have you as my guest and look forward to having you on here again.

Nathan:

Anke, definitely thank you for the invitation.

Anke:

Absolutely and listeners please make sure to join the free resource hub on globig.co. If you are serious about doing business internationally, we have got the Globig international business, HR, and data privacy management platform that connects you to great international expansion experts like the Global Upside team and they just make your day-to-day much more productive. So, subscribe to this podcast channel for more fantastic international expansion podcast. We will talk to you soon.