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Digging Deeper: Brexit and the EWC, is a company free to move its central management out of the UK?

In our blog Brexit: On the way to the end, we explained that EWCs under UK rules may end up with having two systems of legislation that are not compatible with each other. On 1 December 2020, the UK government published a number of guidelines (Making an application or complaint from 1 January 2021 – GOV.UK (www.gov.uk) that explain how the UK EWC Regulations (TICER) will remain in force for existing EWCs under UK law. A company under UK law therefore does not seem to have the right to simply abolish its EWC under UK law. At the same time, this company has to designate a country within the EU to take over the central management’s obligations for the EWC arising from the directive. This has been clarified in a ‘Notice To Stakeholders’ that the European Commission published in April 2019.

We explained how that chaos brings the EWC opportunities. In exchange for the EWC agreeing to transfer out of UK jurisdiction, the EWC can stipulate that at least the UK colleagues will remain in scope for the EWC. Another demand from the EWC could be hat the EU country which the company designates for the role of central management is one with robust EWC legislation (e.g. France, Germany or the Netherlands) rather than Ireland, for example, which has a lesser reputation in this area.
In this blog we will dig a bit deeper.

What did the European Commission say on companies with an EWC under UK legislation?

‘After the end of the transition period, either the role of central management will have to be transferred to a Member State or the central management will have to designate a new representative agent in a Member State. If the central management fails to take one of these steps before the end of the transition period, as of that date, the role of representative agent will be automatically transferred to the establishment employing the greatest number of employees in a Member State, which will become the ‘deemed central management’.

According to this text, the initiative management is with management and no agreement is needed for the transfer. However, the Commission also states that: ‘While it is not necessary from a legal point of view to amend agreements referring to the legislation of the United Kingdom to remain in conformity with Directive 2009/38/EC, it is highly recommended to amend such agreements and stipulate explicitly the law of a Member State for the sake of clarity and legal certainty.’

Why would you not want the Irish EWC rules?

Irish legislation gives the EWC and SNB weaker rights. It is, for example, unclear under Irish rules whether the company would have to reimburse the costs that the EWC would incur if it were to seek legal support. In addition, very few EWC cases have been referred to official arbitration in Ireland, let alone to the Labour Court. So, where possible, the EWC has good reasons not to simply agree to the company designating Ireland as the country under whose law the EWC is to work.

Did the CAC not rule that companies have complete freedom to choose its legislation for the EWC?

Indeed, there has been a very specific case before the CAC (Central Arbitration Committee), the UK body that deals with EWC litigation. See: Decision . This case dealt with HPE, that during the negotiations to establish an EWC, wanted to move its representative agent for information and consultation purposes from the UK to Ireland, in view of the outcome of the June 2016 referendum in the UK. It terminated its appointment of its UK subsidiary as its representative agent and replaced it with an Irish subsidiary on 12 October 2016.

The CAC stated that in accordance with the fundamental EU principle of freedom of establishment, a multinational company headquartered outside of the EU does have the right to change its representative agent. However, this does not include a ‘wholly unfettered right’ to change its representative agent. For example, it could not change its representative agent on a daily or minute-by-minute basis in order to frustrate its employees’ information and consultation rights. The CAC stated that a multinational company acting in bad faith could have its redesignation of its representative agent denied. To the CAC however, it was clear in this case that HPE had not sought repeatedly to re-designate its representative agent to escape its information and consultation obligations or to confuse its employees’ representatives. Instead, it had acted for a plausible and rational reason of reducing uncertainty in the light of the outcome of the UK’s referendum on EU membership. So, this was not a case of bad faith. Neither was the CAC convinced that a move to Ireland would lead to diminishing the employees’ information and consultation rights.

Note that there are two very specific circumstances here, that do not allow any generalisation of this CAC decision. First of all, this case dealt with a SNB, not a EWC. There was no agreement yet stipulating the ruling legislation. Under the EWC Directive, the Agreement takes precedence in many issues. This seriously limits any rights for central management to change a negotiated agreement that explicitly specifies which jurisdiction the EWC is governed by. The EWC can not challenge the move to another country, as this what the company should do according to the European Commission. However, the EWC can very well challenge the cancellation of the UK jurisdiction in an existing agreement.

Secondly, this happened in 2016, before the UK government provided clarity by publishing the guidelines under which EWCs and SNBs can continue to operate under UK legislation (Making an application or complaint from 1 January 2021 – GOV.UK (www.gov.uk) . According to the HPE Decision, it seems that a complainant must be able to either prove bad faith, or that the cancellation of the UK jurisdiction would lead to a serious diminishing of the employee rights. Otherwise, the freedom of establishment principle would be decisive in the view of the CAC. The document that the UK Government published in December makes clear that under the UK jurisdiction the UK reps still have the right to representation after 1-1-2021. Cancellation of UK jurisdiction would deny this right.

Sjef Stoop, EWC trainer and advisor