Jean Monnet Center at NYU School of Law

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The Deficiencies of Coordinated Citizenship

The European Works Councils Directive does not establish integrated European citizenship rights, let alone contribute to supranational state formation, and in the end was no longer intended to. But what does it accomplish in terms of supranational regulation of national industrial citizenship regimes, especially with respect to equal treatment of non-nationals? And to what extent does its studied non-interference with national regimes actually protect these, given their continued exposure to regime competition? History and results of the long conflict over industrial citizenship in Europe impressively confirm the claim that there is no substitute for unified state capacity as an institutional condition of advanced forms of citizenship in an integrated economy.

Incomplete Inclusion

In the firms to which it applies, the Directive creates a dualism of representative bodies, by adding a European works council to existing national councils. The structure of the former and its relationship to the latter are left to negotiation. In these the representatives of a firm's home country workforce are likely to play the leading role, not only because they will usually represent the majority of the workforce but also because of their longstanding bargaining relations with central management. European works councils can therefore be expected to be heavily colored by the national system of a company's home country. In fact, European works councils in French-based firms are more similar to French works councils than to European works councils in German-based firms, which above all resemble German works councils.[27]

Rather than European institutions proper, European works councils are in reality international extensions of national systems of workplace representation. In line with Weiler's model of internationally pooled citizenship, the Directive makes multinational firms include representatives of their foreign-based workforces in an extended version of their domestic representation system. Such inclusion does not, however, take place on equal terms. The inevitable dominance of home country representatives in the negotiations on the structure and status of European works councils offers them rich opportunities to protect their privileged access to central management. Indeed one reason why so many voluntary agreements on European Works Councils were concluded before the Directive took effect seems to be that up to this time they could be negotiated directly by national unions and workforce representatives in a company's home country, acting also on behalf of the non-national workforce.[28] This may explain why some of these agreements remain below the fall-back standards of the Directive, which would have automatically applied only a few months later (although only after a delay of three years; see Hall et al. 1995, 31).

The special negotiating body prescribed by the Directive must include representatives from all affected plants. It will therefore typically give higher proportional representation to foreigners than to home country nationals. Still, given the minimal statutory rights the Directive creates, the effective strength of a European works council in relation to central company management is likely to continue to depend on whether home country workers and unions are willing to invest their political capital in it. It also depends on management, whose resistance to formalization of rights above the legal minimum may in itself be enough to preserve the asymmetry of access between nationals and non-nationals. All in all, the Directive does little to check or change the interest of home country workforces, potentially shared with management, in containing the impact of the European works council on industrial relations at headquarters. Indeed it presents them with a temptation to make concessions on the rights of foreign workforces in return for continued privileged access to information and collaborative relations. The unchanged existence, parallel to the European works council, of national representation systems to which only nationals have access further serves to limit the stake of the latter in European-level participation. Here as always, voluntarism does not favor the weaker party.[29]

The consequences of voluntarism at multinational and institutional dualism at national level can best be observed in a country like Germany where national participation rights are strong. First, since the Directive founds European participation rights only in labor law and disregards company law, workforce representation on the board of a large German company will remain confined to its German workforce which, under German co-determination law, elects one half of the members of the supervisory board from among their ranks. As board-level co-determination exists in national law only, this holds even if the vast majority of a company's workforce is employed outside Germany.

Second, European works councils in German companies will typically coexist with a central works council in German law (Gesamtbetriebsrat) which has extensive legal rights to information, consultation and co-determination (Lecher and Platzer 1996; Niedenhoff 1996). In large firms, all members of the central works council will be full-time, and as a body they are likely to have use of a professional staff. The central works council will be meeting regularly in short periods, perhaps once every two weeks. It will be in daily contact with central company management, and its leading members will at the same time serve as elected workforce representatives on the company's supervisory board. The central works council is also likely to be in close contact with the industrial union that organizes the company, and will be receiving advice from it on a current basis. Unless management wants it otherwise, meetings of the European works council will thus be not much more than extended special sessions of the central works council, especially since most of the members of the latter will also sit on the European council. Usually the agenda of European works council meetings will have been structured by the German central works council in previous contacts with central management, and what management will say at the meeting, under its residual European obligations to inform, will long be known to the German participants.

Generally, the contrast between uniformly weak supranational rights and differently strong national rights may give rise to complex politics. On the labor side, conflict may emerge between workforce representatives in the company's country of origin and from foreign subsidiaries, especially if these try to use their new position aggressively. Where national participation rights are stronger in the country of origin, such conflicts are likely to take a different course than in the reverse case. Generally, subsidiary representatives from countries with strong representation rights would seem to stand a better chance of making themselves heard in European works councils than those from countries where workplace participation is weak, on account of the former's superior resources and experience. Home country representatives confronted with the possibility of well-endowed non-nationals wielding too much influence on a European works council would, therefore, seem to have an incentive to keep the rights of the latter limited, in particular if their own, national rights are strong. Another factor in this context is likely to be the numerical relationship between the company's home country and subsidiary workforces.

All of this reflects the fact that the European works councils of the Directive are in fact no more than European extensions of national systems. Within them, the distinction between nationals and non-nationals remains fundamental. While non-nationals are represented only through the European works council, nationals are represented through it and, in addition, their respective national representation system where, in all countries except one, rights are much stronger. As it remains nationally fragmented, the European system of workplace representation provides for no more than second-class industrial citizenship for non-national workforces.

Continuing Competition

Regime competition persists under the Directive and, indeed, is likely to increase, in a variety of ways.

1. Precisely because the Directive leaves national participation regimes unchanged, it does nothing to take them out of competition. The increase in bargaining power within national systems that economic integration confers on employers, by enabling them to extract concessions from workforces with threats to relocate work to countries with weaker regimes (Mueller 1996), remains unchecked. To the extent that this leads to a ,,hollowing out" of national rights, as a result of workforces abstaining from using them, this trend continues unabated[30].

2. Another way in which national fragmentation fosters regime competition is by implementation of the Directive being left to national legislation. National implementation laws vary with respect to the rights they assign to European works councils and the obligations of employers in relation to these. While such differences are slight, there seem to be tendencies among firms that have a choice - especially firms from outside the European Union - to designate their Belgian operations as their European headquarters for the purposes of the Directive, affording themselves the advantages the Belgian works council regime offers to management.[31] Accordingly, the German debate on the implementation of the Directive was in part structured by the issue of competitive advantage, with firms and employers associations clamoring for legal minimalism in line with a strict reading of the Directive, to protect German multinationals from having to fulfill more demanding obligations in relation to their European works councils than their foreign competitors.

3. Furthermore, the dualism between weak European and strong national systems may induce multinational companies to seek a stricter distinction between national issues that must be dealt with under national participation regimes, and European issues that can be discussed with the European works council.[32] Here, regime competition is between the national and the supranational regime coexisting within the same firm, and over the allocation of substance matter between them. Where a European works council exists, demands from home country workforces to be consulted on the company's international business may be more legitimately rejected by management. Indeed the Europeanization of participation as instituted by the Directive may accelerate tendencies in companies to split into a multinational ,,holding" with a European works council, and national production companies that remain subject to national participation regimes. To the extent that the latter are stronger than the European regime - which all but one of them are - such change would reduce participation rights on balance.

Given the fragmented character of European industrial citizenship, management efforts to transfer substance from strong national to weak multinational participation may meet with the support of non-domestic workforces, which stand to gain from any increase in the significance of the weak multinational system, as they have no status in the strong national system in the company's home country. By siding with central management, foreign workforces may thus be able to improve their access to information, at the expense of the national workforce's access to consultation or co-determination. While this may contribute to evening out the difference between national and multinational participation rights, it would do so by preempting the former rather than reinforcing the latter.

4. European works councils are accepted by firms to the extent that they can be regarded as efficiency-enhancing. That they can indeed be so regarded was an important reason why a number of European employers were in the end no longer opposed to them and urged their association, UNICE, to mute its opposition. European works councils seem to offer European multinational companies an opportunity to develop a multinational corporate identity and comprehensive, non-parochial human resource management. As their ,,customized" institutional design is subject to negotiation in the shadow of the market, they are unlikely to become vestiges of anti-competitive social protection or redistribution, as indicated by the fact that unions have not been able to gain a single European works council agreement providing for participation rights above the legal minimum (Krieger and Benneton 1995).[33]

Beginning Erosion

As the Directive essentially extends national systems of workplace representation beyond national borders, its impact must differ by country, making it difficult at first to assess its overall effect.[34] Especially in countries with high national standards, however, like Germany and the Netherlands, the Directive must be expected to reinforce tendencies towards erosion of such standards.[35]

In the German case, this is beginning to happen as a consequence of the European move from company to labor law as the site of industrial citizenship. In late 1995 the European Commission issued a consultative document (Com(95)547) which, along the lines of the 1989 and 1991 revised proposals of a European Company statute, recommended to resolve the deadlock on European company law by eliminating from current proposals all provisions for workplace participation. In their stead, the Commission suggested, in characteristically opaque language, to adopt a single new instrument on national-level information and consultation. Alternatively, it proposed to designate the European Works Council Directive as that instrument, as all European multinational companies were already covered by it. If successful, this initiatve would end for good the quest for integrated European industrial citizenship in corporate governance, in favor of the European Works Council regime of ,,pooled" national citizenship based in labor law. While there is as of now no evidence for this, it may be suspected that employer toleration of the Works Councils Directive was conditional on the Commission's subsequent undoing of the political nexus between the Europeanization of company law and the incorporation in it of participation rights for workforces.[36]

With the European works councils in place, prospects are that German unions will not for long continue to be able to secure the support of the other European unions for their resistance to European Union company law without strong provisions for co-determination. Increasingly isolated in the ETUC, the DGB may also lose its hold on the German government position on this matter. In fact, anticipating defeat it is presently beginning to lower its sights. Rather than continuing to seek organizational provisions for workforce representation written into the constitution of European corporations (Organmitbestimmung), the tendency now is to demand rights for unions to negotiate company-specific participation arrangements for a legally specified list of subjects. Just as under the European Works Council Directive, the concrete form of such participation would be left to the parties at the workplace (Küller 1996).

Whether a satisfactory solution will at all be possible along these lines must be more than doubtful given recent experience. But from the perspective of German unions and the German government, it would avoid a long struggle for an, inevitably highly complex, provision in European Company statutes allowing the German legislator to bind German companies to German co-determination even if they chose to incorporate in European law. Given the way European ,,pooled sovereignty" works, it is likely that German demands for a special national arrangement would not go unheard. But inevitably that arrangement would be far from watertight. Not only would the unions have to accept compromises and expend valuable political capital in the national arena to get the necessary national legislation passed. It would also be difficult, and probably impossible, to extend the provisions of such legislation to new firms, or to prevent existing firms from moving their seat to more liberal political jurisdictions. The result would inevitably be company-level co-determination turning into a ,,grandfather system", like the coal-and-steel version of co-determination in Germany already is.

Remarkably, then, the voluntarism of the European Works Councils Directive is beginning to find its way even into the national system that more than any other relied on statutory law to create strong rights and obligations of industrial citizenship insulated as best as possible from market pressures. That participation arrangements in Germany will slowly become more negotiated and more pro-competitive is now widely regarded as inevitable among German unionists; hopes to export German co-determination to Europe in order to preserve it have effectively been given up.[37] Correspondingly, employer objections to company-law co-determination in Germany now center mainly on the fact that the system will remain unique in Europe, and may therefore constitute a competitive disadvantage both for German firms and for Germany as an investment site.

Still insufficiently understood is the possibility of an eventual conflict between the voluntarism of the European participation regime and the uniquely German distinction between legally based workplace participation and collective bargaining. Such conflict would become acute if European works councils were to turn into vehicles of some sort of European collective bargaining, dealing with subjects that in Germany are regulated by industrial agreement. This, of course, is exactly the future that unions in other European countries would find attractive. Even short of it, European works councils are likely to assist multinational firms in building company-centered human resource management regimes, helping them loosen their ties with national industrial relations systems, especially those that try to bind them into obligatory sectoral or national regulation. In Germany, this could reinforce the erosion of industry-level collective bargaining and contribute to further divergence of wages and conditions between workers in different firms, especially international and local ones.[38]

In a world of competitively interdependent national industrial orders embedded in an internationalized market economy, regime erosion in countries with high standards is likely to be followed by regime erosion in countries with lower standards. Hopes that the alternative to harmonization at the highest level would be some sort of convergence at a middle level, averaging out national systems by redistributing participation rights from the strong to the weak, seem unfounded given the weakness of European-wide redistributive institutions and the operation of regime competition. Precisely to the extent that participation regimes are not merely market-driven devices for increasing productivity, but are to limit managerial prerogative, not least in order to protect workforces from excessive intensification of work, erosion of a strong regime may enhance the competitiveness of the firms subject to it.[39] This explains why firms under competitive pressure tend to seek such erosion. But it also suggests that weaker regimes must then lower their standards in response, or become more productivity-enhancing, to compensate for their loss of relative competitiveness. Rather than making national systems ,,meet in the middle", if European fragmented sovereignty fails to protect strong national regimes from competitive erosion, it is likely to weaken all regimes, beginning at the top and continuing down to the bottom.[40]

[27]French European works councils are labor-management forums whereas German European works councils are labor-only bodies. See Bonneton et al. (1996).

[28]The frustration on the part of the TUC about the British opt-out seems to be related to the fact that it made British employers less willing to negotiate advance voluntary agreements with British unions only, and indeed with unions as opposed to freely elected workforce representatives (TUC n.d.).

[29]Potentially balancing the influence of home-country workforces and unions are the sectoral European union confederations. For these the voluntaristic elements of the European Works Councils Directive represent the first opportunity to insert themselves in bargaining with employers, especially and precisely when councils are created. It is not by accident, however, that unlike the German Works Constitution Act, the Directive never mentions unions (Däubler 1995, 156). It remains to be seen who will prevail in the emerging conflict over their respective roles between external (European) unions and internal (national) workforce representatives. For an unusually honest account of some of the tensions that have already arisen, see Gerstenberger-Sztana (1996).

[30]For examples see Mueller and Purcell (1992).

[31]In Belgium the Directive was transposed in national law by an agreement between the social partners, in accordance with national practice. ,,While the agreement, of course, follows the obligations laid down in the Directive, it adds nothing, and seeks to provide as much flexibility as possible (...) in the areas which are left to member states' discretion. Commentators attribute this to a wish on both sides to avoid complex or burdensome requirements and provide an attractive environment for foreign investment and multinationals wishing to establish their European headquarters in Belgium." (European Industrial Relations Review, 266, March 1996, p. 4)

[32]For an initial view on this see Lecher (1996, 267).

[33]The vast majority of the European works councils that existed in 1996 were joint labor-management bodies chaired by a representative of the employer (Rivest 1996).

[34]In other words, this effect is governed by Stanley Hoffmann's (1966) ,,logic of diversity".

[35]As yet little is known on the way supranational regulation and international regime competition together affect national social policy, and in particular how the voluntarism of supranational social policy ,,softens" the hard obligations on which it is typically based. Very likely, one reason for the liberalizing impact of supranational governance on national regimes is that integration under fragmented sovereignty amounts to a supranational extension of national political arenas - which seems to offer more oportunities to forces and tendencies of liberalization than to their opponents. National regime change would then have to be explained as a consequence of a dynamic interaction between the specific political selectivities of national and supranational institutional constraints and opportunities, adding to the effects of interdependence between national systems competitively embedded in an encompassing common market.

[36]Already in January 1995, a high official of the German labor ministry had promised German employers that ,,the issue of co-determination at European level would be put to rest with the passage of the (European Works Council) Directive" (Hornung-Draus 1995, 90).

[37]European works councils themselves tend to be regarded by German unions, not as vehicles for internationalization of interests, but as substructures of international ,,networks", not costly as they are funded by multinational companies and the European Commission and usable for limited purposes of information gathering and, above all, international relations among organized worker interests. That European works councils are perceived mainly from a national perspective reflects their correspondence as an institution to a ,,logic of national diversity"; exactly the same can be observed in all other countries.

[38]The above is not meant to be an exhaustive discussion of the future of industrial relations or workplace participation in Germany; it merely serves to illustrate how certain institutional properties of the emerging European participation regime may erode high national standards. As pointed out, to understand the full dynamic of this process one would have to look in detail at the interaction between ongoing ,,endogenous" trends at national level and the dynamics of supranational institutional development. One would also have to factor in the impact of direct regime competition.

[39]While strong workplace participation regimes in European countries have turned out to be far from incompatible with firms being competitive in some respects, they are also clearly anti-competitive in others. For example, German co-determination admits and indeed supports competitive strategies based on product innovation, customization and the use of skilled labor, while making it difficult for firms to achieve competitiveness through process innovation or downsizing. In this way, it serves significant although largely latent social and employment policy functions. Employer dissatisfaction with co-determination is not because it makes firms uncompetitive, which clearly it does not, but because it limits their ,,flexibility" under market pressures to explore competitive strategies for which consensus is more difficult to get. Regime competition erodes primarily those elements of national participation regimes that are anti-competitive; the others remain in place or re-emerge on a voluntary basis. This is another reason why regime erosion is likely to proceed mainly gradually.

[40]To the extent, of course, that national regimes are stronger than the supranational regime. This is the case in all European countries subject to the Directive. It is not the case in Britain where, however, due to the Maastricht opt-out the Directive does not (yet) apply. If it did, Britain would be the only major country where there would be no dualism between the national and the European system of industrial citizenship, as the former does not, or not any more, exist. It is also, and for this reason, the only country where the European Works Council Directive might raise national standards.

Building on this an argument for the general benevolence of European works councils would, however, be somewhat excessive. The main reason for the high regard in which British unions hold European social policy, including the Works Councils Directive, is their own extreme weakness. It was only after the destruction of their shopfloor power under the Thatcher government that British unions have sought some sort of legal underpinning of their status. The British political system, however, cannot really provide this as there is no written constitution, and any Parliament can with simple majority undo any law made by its predecessor. This is why, in the absence of a domestic possibility for labor rights to be legally locked in, the British union movement has historically not bothered to seek such rights, and has rejected legally based co-determination through works councils even in periods of political strength when they might have been possible to get.

,,Europe," which they have always also rejected, British unions came to embrace only when Thatcher had left them desperately in need for legal rights of organization and recognition - rights that they could secure for themselves regardless of the Conservative majority and that would remain beyond the reach of the ,,Westminster system" of Parliamentary sovereignty. It was for this objective, and only for it, that British unions developed an interest in supranational legal regulation of their national industrial relations - a distinctly national interest that has little to nothing to do with Europeanizing industrial relations or, for that matter, workplace participation. It also happens to be the case that the voluntarism of the European works council regime meshes well with British traditions, just as the latter are not incompatible with minimal legal rights to union recognition. The fact that no strict distinction is made in the Directive between union and workforce representatives, or between co-determination and collective bargaining, further adds to its affinity with the British system. Moreover, company-based industrial relations are by now the rule in Britain.

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