CUITREPJT TOPICS

The Works Council in the Context of International Offshoring Survey of France

Ming Henderson-Vu Thi

ecently, companies in the metal and services opinion of the Works Council is not binding on the R industries such asJVC, Alcatel, Alstom and Bosch employer, therefore, the unfavourable decision of the have been faced with the issue of moving their Works Council will not stop an undertaking from workforce to territories where the cost of work and pursuing its offshoring objectives. This does not mean taxes are lower. The phenomenon of relocating a however that the Works Council’s positions or domestic business activity abroad with the aim of proposals can be ignored. exploiting international factor cost differentials is The purpose of this article is to provide a general often referred to as offshoring’ or outsourcing’. i overview of the role of the Works Council at national Both terms will be used as synonyms for the purpose and European level and to provide guidance on how to of this article. avoid that the Works Council blocks an outsourcing In 2003, a special report commissioned by the process. We will therefore examine in this article the French Prime Minister analysed the attractiveness of essential questions relating to: France for locating the headquarters of multinational • the main steps of the consultation procedure with corporations.’ In that report, among the ten proposals the Works Council prior to going forward with an made to encourage corporations to invest and remain offshoring project; in France was the modernisation of French labour law • the adverse outcome to not duly consulting the by inter alia promoting negotiation at company level, WorksCouncil; reducing statutory rights to the minimum and • the types of legal action the Works Council can take; introducing more flexibility in the workforce. and 7 More recently, a survey revealed that amajority of the role of the European Works Council. French people considered ofI~horinga serious (88 per cent) and long term (70 per cent) trend and 82 per The main steps of the consultation procedure with the cent of those surveyed believed that reducing labour Works Council prior to going forward with an costs would be the answer to offshoring. Though there offshoring project is no official data that directly measures offshoring, this survey indicated that 11,000jobs have been Council Directive 2002/14/EC of the European offshored from France in the last 12 months principally Parliament and the Council of 11 March 2002 to North Africa, Asia and the new European Member established an EU framework for the information and States. consultation of employees at local level. This Directive In such situations, what is the role of employee is in force and the deadline for implementation into representation and can employees interfere efficiently national legislation for most Member States— including and on along-term basis with the process? France — is March 2005. The Directive provides among In France the most structured body of employee other rules that multinational companies should form representation for all economic issues relating to the in-house WorksCouncils in the larger work places in cogipany is the Works Council. It is an institution the Member States. The Works Council is required to where trade unions sit and have representation either be informed of any proposals that are likely to affect as elected members or consultative members. The the terms and conditions of employment in the local

20 BA Legal Practice Division EMPLOYMENT AND INDUSTRIAL RELATIONS LAW COMMITTEE NEWSLETTER March 2005 CURRENT TOPICS

work places, in the case for instance of a reduction in be precise and in writing’ (Article L431-5 LC) and the workforce, restructuring, offshoring or a merger. courts will consider the elements at stake to decide Without actually having to negotiate with the Works whether the requirements were fulfilled, in practice, Council, employers have a duty to hear in good faith depending on the size of the project, its complexity or Works Council’s suggestions and opinions. the number of employees affected, the information The laws of France do not differ radically from the should reach the representatives anything between principles set forth in the Council Directive and three days to three weeks prior to the first meeting. therefore it is considered as being already transposed The Works Council will open a discussion on the into French law. In practice, French laws relating to the basis of the documents prepared by the company for role and duties of the Works Council tend to be more their understanding. During the meeting, or in the constraining and often have a criminal penalty course of subsequent one, the employer has a duty to attached to them. respond to the questions of the Works Council and to provide a reasoned decision to the alternative proposals made by the Works Council. A broad definition of the Works Council’s economic role Furthermore, the information and consultation The Works Council in France is an elected employee process is required to take place prior to the project representation that is mandatory when the headcount being finalised and sufficiently in advance for the in a company reaches the equivalent of 50 full-time consultation to serve its purpose. Though there are no employees for a period of 12 months’ continuous or specific dates, the courts have developed two very 3 discontinuous employment over a three-year period. strong principles: Its purpose is to enable the expression of the (1) the consultation should take place before the employees and ensure their wellbeing. The prior outsourcing begins; and consultation of the Works Cotancil on all issues relating (2) the consultation should take place before the to the general functioning of the company has existed decision of outsourcing is final, ie at astage where since 1946 and is one of the corner stones of the Works outsourcing is only being contemplated. To the Council’s existence. i’herefore, the members of the extent the project is not finalised and that no Works Council will be expected to express their implementation has taken place, the consultation is opinion as to whether such projects are well founded not too late (Cass. Soc. 24 May 2004). In particular, and economically sound. if the outsourcing is envisaged in several phases, If the company is spread out over several the consultation should take place at each step establishments, the central Works Council and each of and notjust once (Cass. Soc. l8June 2003). the establishment’s Works Councils affected by the It is only once all questions have been reasonably project should be consulted. answered that the Works Council will issue an opinion, Pursuant to Article L432-1 of the French labour whether favourable or unfavourable, and that the code (LC), it is mandatory to consult the Works process may continue. If the Works Council refuses to Council on any issue concerning the organisation, the issue an official opinion, the employer may carry on management and the general business of the company. the outsourcing, insofar as the Works Council was duly Though this article does not expressly refer to and fully consulted. offshoring’, case law developed by the High court On the other hand, if the company fails to consult considers that any offshoring project falls within the the Works Council in the proper manner, such as by scope of the Work Council’s responsibilities. Also, as not responding to the Works Council’s proposals or offshoring is often a form of restructuring, it is obvious leaving some questions unanswered in the case of such that any restructuring or any decision that has an effect transfer, the Works Council is entitled to withhold its on the headcount falls within the scope of the Works opinion. Council’s duties. Article L439-15 LC on European In that case, should the company decide to start WorksCouncil on the other hand expressly refers to implementing the outsourcing project, it would ‘offshoring’ and ‘transfer of productions’ and likewise commit an offence considered as interfering with the considers that it is mandatory for the European Works operation of the Works Council dilit d’entrave. This is a Council to be consulted on such issues. criminal offence sanctioned by a penalty of €3,750 due as many times as the number of employees concerned and/or up to one year of imprisonment for the A prior and precise information and consultation of the company representative, both sanctions being doubled Works Council in cases of recidivism (Articles L32 1-1 1 and L483-l LC). Though some employers would sometimes prefer The company representative would usually be the this was not the case, it is not enough that the Works person that is or represents the employer, ie the chair Council was aware of the project or that the question of the company, the general manager, the liquidator in had been raised in previous meetings for the cases of bankruptcy or any individual that has power of consultation to be satisfactory. The information should attorney to act as an employer.

BA Legal Practice Division EMPLOYMENT AND INDUSTRIAL RELATIONS LAW COMMITTEE NEWSLETTER March 2005 21 CURRENT TOPICS

The adverse outcome to not duly consulting the (LCS), which entered into force on l8January 2005, Works Council any claim on the consultation process of the Works Council should be filed by the representatives within 15 Pursuant to Article L122-12 LC (and Council Directive days from the day on which the meeting was held, equivalent 2001/23/EC) in case of a transfer of whereas the individuals made redundant will have up undertaking, employment contracts should be pursued to 12 months from the notification of their redundancy in the entity where the activity is transferred, including to challenge the consultation and economic in the case of subcontracting or outsourcing of justification of the restructuring, instead of five years functions. However, offshoring to adistant country formerly. If the employee does not request such where wages and working conditions do not match reinstatement or if the employer refuses such measure, enables in practice to avoid the constraint of the employee may be allocated damages amounting to transferring the employment contracts, as the at least 12 months’ salary for the loss incurred (Cass. employees will not wish to be transferred. In this Soc. 13 February 1997, Samaritaine). situation, offshoring will merely result in a mass redundancy due to the closure of the plant or business unit concerned. Types of legal action the Works Council can take The French labour code provides for two types of There have been caseswhere companies managed to consultation in that case: consultation on the economic move part of a plant without the Works Council being 1 project including reduction in force without any aware of such a plan, but in most situations, if the redundancy in accordance with ‘Book IV’ of the Code Works Council is alerted of an offshore project before and a separate consultation on the redundancies and the information is officially released, it can take action the restructuring plan according to ‘Book III’ of the and force the opening of discussions with Code. management, whilst suspending the transfer. Both consultations should be separate (ie appear separately on the meeting agenda) though the Courts allowfor each to take place on the same date or Right of alert and verification of the accounts during the same meeting (Cass. Soc. 9 February 2000) The Law of 1 March 1984 on the prevention of provided the minimum consultation time that is the bankruptcy significantly reinforced the powers of the most favourable to the employees in either Works Council. On top of having access to certain consultation is followed. financial documents, the Works Council may launch Prior to approving a restructuring plan involving a procedure known as ‘right of alert’ to the board of large scalejob cuts, the company will need to present a management or board of control wherebyit is entitled ‘social plan’ (ie a retraining and alternative to ask the company to provide explanations on certain employment programme) to the Labour Inspector who events which theWorks Council believes could will not only veri~~that the Works Council has given its potentially lead to adverse consequences on opinion on the project and that the company has employment and finances. The company will have responded to all questions and proposals made by the a duty to answer the questions raised and if it is Works Council, but also that the overall plan is sound uncooperative, the Works Council may file an and provides retraining and facilitatesjob emergency claim in court. opportunities for the effected employees. The Labour The Works Council may also request a special Inspector can require an entity to complete the meeting and decide the agenda of this meeting proposed measures without which the outsourcing may (Article L434-5 LC). not take place. In all these situations, a chartered accountant The Works Council may also file suit against the who will provide technical support by analysing the company before the civil courts (Tribunal de Grande financial and accounting data will very often assist Instance) that will render a decision on the validity of the Works Council (eg budgets, tax returns, annual the social plan and may even rule that it is null and reports, etc). Appointed by the Works Council, such void. The unions may also file such suit, even after the accountants are by law often financed by the company Works Council has given its opinion on the project (Article L321-7-1 LC). (Cass. Soc. 6July 1999). Furthermore, if the social plan is found null and Provisional emergency court orders void, the labour courts may immediately grant the reinstatement of the employees who were improperly As a general principle, the Works Council may request terminated in their former position, even if the plant is the courts to suspend a transfer of business until the closed (Conseil de Prud’hommes Soissons, November consultation is completed and the proper information 2004). provided. Pursuant to Article L321-16 LC created by the Social In the particular context of offshoring, the Works Cohesion Act Loi deprograinmation pour La cohesion sociale Council may file a combined action of emergency

22 BA Legal Practice Division EMPLOYMENT AND INDUSTRIAL RELATIONS LAW COMMITTEE NEWSLETTER March 2005 CURRENT TOPICS

claim and right of alert (TGI Nanterre, 10 September Council first in order to enable the local Works Council 2004). In this case, thecourt considered that the to take a position knowingly (TGI Nanterre, 1 August employer was to allow and finance the report of the 2003 Alstom). chartered accountant appointed by the Works Council The French courts consider that the Europeans and once this report was obtained, requested that Works Council is not necessarily convened prior to management provide adetailed and precise the decision being finalised, the consultation should presentation of the project, thus prohibiting the only take place ‘in good time’ (Appeal court Versailles,

company from outsourcing the business until the 7 May 1997) — in this particular case, the consultation above steps were completed. had taken place after a public announcement. Finally, in extreme situations, the Works Council may In any event, the company may not avoid consulting file an emergency claim before the Commercial courts the French Works Council by arguing that the and obtain a court order whereby an administrator is European Works Councils should be consulted first appointed to convene the General Meeting of (TGI Paris, 9 April 2001, Marks & Spencer). Shareholders (Article L432-6~-1LC) and obtain the remittance of certain documents. The limited intervention of the European Works Council Overturning the principle ofjoint establishment of the Works Council meeting’s agenda, the Law on Social The attributes of the European Works Council are Cohesion reinforced the autonomy and the right of limited compared to the powers of the Works Council initiative of the Works Council by enacting that when in France. consultation of the Works Council is made compulsory For instance, the European Works Council is only by law, a decree or acollective bargaining agreement, consulted on issues of a community-scale, meaning the secretary of the Works Council (appointed by the involving any undertaking with at least 1,000 employees employee representatives) may decide alone the within the Member States and at least 150 employees in 5 agenda of the next meeting. Covering virtually every each of at least two Member States. Strictly speaking, situation given the wording of Article L432-1 LC° this means that outsourcing to a country where the (though litigation may arise as to what is to be company is not established or from a Member State to understood by ‘mandatory consultation’), this reform a non-Member State would not fall within the scope of means in effect that all significant issues will be the European Works Council’s duties. One could argue discussed with the Works Council. however, and this question has not been decided by the courts, that if such outsourcing seriously impedes on the overall functioning of the group of undertakings at Secondary role of the European Works Council European level, theEuropean WorksCouncil should A European Works Council should be established be involved. in community-scale undertakings or groups of Furthermore, the consultation of the European undertakings in order to improve the right of Works Council is deemed to be an exchange of views information and consultation of employees. In the on the economic and social situation of the group of context of most international offshoring operations, undertakings. A formal opinion is not required to be the European Works Council will therefore have a role issued by the European Works Council, though for to play. Whether the consultation takes place prior to significant transactions, the courts indicate that the the consultation at Member State level its role remains meeting may be closed (and this is optional) by avote however marginal. in due time and within a reasonable time period. The internal regulations of the European WorksCouncil may of course provide more restrictive consultation What consultation comesfirst? rules and particular means, such as the assistance of Offshoring is one of the specific duties of the auditors and abudget that the companies within the European Works Council as set forth in Article group will have to comply with, but here again this is L439-6 LC transposing Directive 94/45 of 22 optional. September 1994.’ In this context, the question has Also, if there is a major violation of the European been raised as to whether the European Works Council Works Council’s role by an undertaking, its members should be consulted before or after the local Works may still file an emergency claim in court. Council. The European Works Council resembles in many There is no established rule answering this question, ways the national Group Works Council as provided by though it would be logical to go from general the French labour code since it has no consultation consultation to specific. The courts decide on a case-by- attributes and is more a representation that filters case basis, following the principle that the intervention economic information and ensures a dialogue between of the European Works Council should take place theundertakings concerned (except for a public offer ‘adequately’. In most cases however, the courts seem where it can play an active role similar to the Works to favour the intervention of the European Works Council).

IBA Legal Practice Division EMPLOYMENT AND INDUSTRIAL RELATIONS LAW COMMITTEE NEWSLETTER March 2005 23 CURRENT TOPICS

Conclusion Notes I Report to the Prime Minister olErance: the Attractiveness orrrance for As French law curremstly stands, since the Works Headquarters ofMultinational corporations — Sehastien I-luvgue — Council only has consultative powers rather than co- October 2003. management powers, there is at present no provision 2 Source: CSA-L’Expansion survey carried out on 6 and 7 October 2004. 3 In companies with fewer than 50 employees or ifthere were no that may ultimately stop an undertaking from carrying candidates at the last Works Council elections, the employee delegates out its outsourcing project, provided however that (dittguis do fscoen,sr0 will hear the role of the works Council and should proper informatioms is provided and that each step of thererore be consulted on ohhtshortng projects in a similar manner consultation is followed throughout, as the sanctions (Article 1.422-I Lc). 4 rlodor: clandestine transfer ofa 200 etnployee-factory overnight whilst for not applying the process are otherwise harsh, the companywas closed for annual leave (source: Nosiest Obsenjoo’ur4 However, even at Group or European level, the September 2003 no. 2026). employee representation enables a dialogue to take 5 The chair of the Works council appointetl by the employer also has such place between the parties and increases the chances for tights. 6 Article L432-l LC; ‘In the economic order, it is ttsandatory to consult employees to find adequate employn’sent Or training and inform the works Council on all issues relating to the organisation, 5 alternatives. Certain eminent experts are keens to the management and the general business of the company, including on recommend that in extreme situations, the Works all measures that are likely to bear conscqssences on the number and structure of the hesdcount, the working hoisrs, the work and Council should have the right to decide hand-in-hand employnsent conditions and the vocational training ofstaffmetnbers with the employer, but this is not the path that the i Council Directive 94/45/EC on the Establishment or European Works recent legal reforms on restructuring have taken in Council should not be confused with Council Directive 2002/14/EC France. Establishing a general framewoi’k for inrorming and consulting employees as the latter deals with consultation ofemployees at local level (see section 1 above) whereas the formerdeals with the establishment ofrepresentation at European level for undertakings of significant size present in several Member Sutes. 8 Maurice Cohen, Seminar on outsourcing. 17 November 2004, Paris Bar employment & labour cotninission.

This Newsletter is intended to provide general information regarding recent developments in employment and industrial relations law The views expressed are not necessarily those of the International Bar Association.

24 IBA Legal Practice Division EMPLOYMENT AND INDUSTRIAL RELATIONS LAW COMMITTEE NEWSLETTER March 2005