UK CAC upholds the relocation of European Works Council arrangements to Ireland due to Brexit
21 June 2019
The Central Arbitration Committee (“CAC”) has ruled that multinational companies headquartered outside of the European Union are not prohibited from relocating their European Works Council (“EWC”) arrangements from the UK in anticipation of Brexit. Relocation does not undermine employees’ information and consultation rights and is in accordance with the fundamental EU law principle of freedom of establishment.
HPE is a multinational company headquartered in the United States. It voluntarily decided to start the process of establishing a EWC in November 2015 and appointed a UK subsidiary company as its representative agent to take responsibility for this process. This meant that its negotiations on the terms of its future EWC agreement and any such agreement would be governed by UK law.
The people of the UK voted on 23 June 2016 to the leave the EU. HPE considered that this threatened to hinder its negotiation of a long-lasting EWC agreement as its EWC agreement might not have been able to continue to be governed by UK law after Brexit. It wished proactively to mitigate the damaging uncertainty caused to it by Brexit. It therefore terminated its appointment of its UK subsidiary as its representative agent and replaced it with an Irish subsidiary on 12 October 2016.
HPE’s special negotiating body of employees’ representatives (SNB) challenged HPE’s change of its representative agent. The SNB claimed that, as a matter of law, HPE could not terminate its UK subsidiary’s appointment and so its EWC arrangements remained governed by UK law. They then requested further training on UK law, a request turned down by HPE on the basis that such training was not necessary as Irish law now applied. The SNB proceeded to complain to the CAC about this refusal as it is the independent body with statutory powers to resolve disputes about EWCs.
The CAC ruled that HPE was able, as a matter of law, to terminate its appointment of its UK subsidiary as its representative agent. It therefore found that it did not have jurisdiction to hear the SNB’s complaint about training as HPE’s representative agent against which any claim had to be brought was its Irish subsidiary.
The CAC indicated that a multinational company headquartered outside of the EU does not enjoy 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 was clear that a multinational company acting in bad faith could have its redesignation of its representative agent quashed.
However, the CAC was also clear that a company acting in good faith may change its representative agent. It found that it was abundantly clear 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. Indeed, it had made it clear at the time that it was neither seeking to restart the three year period for negotiating a EWC agreement nor taking any other detrimental act. The CAC even noted that HPE has irrevocably submitted to the jurisdiction of the Irish courts so its employee representatives could bring a claim before them if they wished to do so.
Finally, the CAC also addressed the issue of alleged “forum shopping” by companies to choose the most favourable national law for their EWC. It found that HPE had not done this on the facts in question. However, it agreed that the ECJ’s decision in Polbud meant that a company would not be prevented from changing their representative agent even if it were acting for the purpose of enjoying the benefit of more favourable legislation. This reflects the fundamental right of companies to enjoy freedom of establishment across the EU.
This decision is extremely welcome for all companies given the ongoing uncertainties over Brexit. The CAC has agreed that it is in accordance with one of the most fundamental principles of EU law that a company acting in good faith is not prohibited from relocating its EWC arrangements from the UK in light of Brexit uncertainty.
Lewis Silkin advised HPE on its redesignation in October 2016 and on defending it before the CAC. We are also working with a large number of other companies who have made or are still making contingency plans for relocating their EWC arrangements from the UK in anticipation of Brexit. As we have previously written, each company with EWC arrangements under UK law needs to choose the best option for it based on its particular circumstances.
For example, unilateral relocation from the UK before Brexit without employee representatives’ consent will normally only be an option for multinational companies headquartered outside of the European Union that are currently negotiating their EWC agreement or that have a EWC operating under the default “subsidiary requirements” (as opposed to under a negotiated EWC agreement). It is also not an option for multinational companies headquartered in the UK although these companies, and multinational companies headquartered outside of the European Union with a negotiated agreement, can conditionally nominate a representative agent with effect from Brexit.
This decision should nevertheless give all companies comfort that, so long as they are acting in good faith, they may proactively minimise the damage to them from at least one aspect of Brexit uncertainty.