7.1 Summary

At the end of the 19th century, the necessity of involving employees in one way or another in the decision-making process of the company where they worked became increasingly apparent. However, it was not until 1950 that the Dutch Works Councils Act [Wet op de ondernemingsraden], hereinafter referred to as ‘the WOR’, provided a general structure for employee participation. By then any head or director of an enterprise employing more than 25 people became obliged to establish a Works Council. It was typical of the spirit of harmony in the years after the Second World War that, pursuant to the 1950 Act, the Works Council was made up both of the head or the director and the elected representatives of the employees. It was only from 1979 onwards that the director no longer formed part of the Council. Since then, consultations between the director(s) and the ‘new style’ Works Council have taken place in the consultation meeting [overlegvergadering].

With the introduction of the WOR, the legislator decided to implement a system of direct employee participation. This allows employees to influence the course of events in the enterprise by taking part in consultative meetings and offering advice or consent to proposals put forward by the entrepreneur; a process also referred to as employee participation ‘at shop floor level’. Indirect employee participation, also referred to as employee participation ‘via the top down’ or as corporate employee participation, has been given shape in the form of involvement in the composition of corporate bodies of the entrepreneur. A good example of this is the two-tier board structure for ‘large’ companies [structuurregeling].1

The WOR hardly pays any attention to the existence of corporate structures and the inherent policies and decision-making processes. In its simplest form, the Act deals with advice on, and agreement with, the decisions ‘of the entrepreneur’. The fact that the WOR does not consider the fact that the entrepreneur can be a legal entity, creates a certain tension between employee participation law and company law, which I have expressed in the title of this research. I have also taken into account legislation on securities which is relevant to entrepreneurs listed on the stock exchange.

In the 1960s, promoting the specific interests of employees began to play a more prominent role in employee participation. This resulted in a considerable extension of the powers of the Works Council in 1971 and, in 1979, in the introduction of a right of appeal against decisions made within the meaning of Article 25 of the WOR. As a matter of fact this did not detract from the wider interests of the enterprise which were supported by the establishment of the Works Council (Article 2, paragraph 1 of the WOR). It is always advisable for the Works Council to take these wider interests into account in all its considerations. The fact that employees represented by the Works Council can, directly and/or indirectly, exert an influence on the policy-making and decision-making of the enterprise that they work at, has, from the viewpoint of the entrepreneur, the important added-value of increasing the level of support for these policies and decisions, however unpleasant they may sometimes be.

In Chapter 3, I discussed a number of concepts used in the WOR and in Book 2 of the Dutch Civil Code (Burgerlijk Wetboek) which are important to this research on the tension between employee participation law and company law. It appeared that certain concepts used in the WOR have a different meaning than those in Book 2 of the Dutch Civil Code; the concept of the “enterprise” is a good example. In Book 2 of the Dutch Civil Code, the definition of “enterprise” is based on capital, while in the WOR it is based on the organised performance on basis of employment contracts that defines whether an enterprise is enterprise or not. To call an such an organisation an enterprise within the meaning of the WOR, it must operate as an independent entity in society (Article 1, paragraph 1, and sub c of the WOR). The legislator seems to have been guided mainly by the wish to determine, on the basis of objective criteria, whether or not an organisation in which work is performed is an enterprise within the meaning of the WOR. That the Act stipulates independence as a precondition should come as no surprise, for it is in this manner that employee participation is exercised at the level where control is exercised, for instance with regard to decisions within the meaning of Article 25 of the WOR. On the other hand, the branch of a bank or a multi-store chain, which can hardly be considered an independent unit these days, is no longer an enterprise within the meaning of Article 1, paragraph 1 and sub c of the WOR. It can be doubted whether or not it was a fortunate decision to make the way in which an enterprise presents itself publicly the determining or co-determining factor in the set-up of employee participation: in my opinion, employee participation is first and foremost an internal matter.

A shortcoming in the current legislation is, without doubt, the position of the socalled “group employees”. These are employees who are formally employed by one group company but who actually perform work in the enterprise of another company, being a member of the same group. The fact that, without them having any say in it, a specific structure has been implemented by the group, makes that they are for purposes of the WOR not in the employment of the enterprise where they actually perform their work, resulting in the fact that, for the purposes of the Act, they are only counted as persons working in the latter enterprise after 24 months have lapsed. This gap could be filled by expanding the definition of “persons” referred to in the first sentence of Article 1, paragraph 2 of the WOR in the sense that also employees are included who work in the enterprise on the basis of a lasting employment relationship.

If the entrepreneur is a legal entity, it will function through its company bodies which, in public and private limited companies, are the Board of Directors and the General Meeting of Shareholders. Many companies which, either unilaterally or in a group with other affiliated entrepreneurs (Article 3, paragraph 2 of the WOR), operate one or more large enterprises have also established Supervisory Boards. In order to answer the question as to whether group connectedness is involved, the legislative history and the judgment of the Dutch Supreme Court in the TNT case show that there is no need to link up with the group definitions of Book 2 of the Dutch Civil Code. To apply Article 3, paragraph 3 of the WOR, the question which needs to be answered is whether the entrepreneurs are under joint control or if one of them exercises, or is able to exercise, control over the other(s). The relationship between the company and the parties who are involved in its organisation in accordance with the law and the articles of association is governed by the principles of reasonableness and fairness (Article 8, Book 2 of the Dutch Civil Code). The Works Council is also counted among the parties involved. This is not only the case if the Works Council has a role in the decision-making related to the appointment of the Supervisory Directors of a company with a two-tier board structure (according to Articles 158 and 268 of Book 2 of the Dutch Civil Code), but also if the Works Council is involved, on the basis of the Articles 25, 27 and 30 of the WOR, in effecting decisions taken by the bodies of a legal entity.

Determining the strategy of a company and its affiliated enterprises is, in principle, the prerogative of the Board of Directors of a company, supervised by the Supervisory Board, and influenced by the General Meeting of Shareholders, which may express its opinion pursuant to the powers granted to it in law and the company’s articles of association. Especially in private limited companies which have a sole shareholder, the General Meeting of Shareholders has the power, by dismissing and appointing directors, to exert a far-reaching influence on the strategy of the company. This power was formalised in an amendment to Article 239, paragraph 4 of Book 2 of the Dutch Civil Code effective from 1 October 2012. This alteration of the balance of power may affect the time when the Works Council must be asked to render their advice and on the possible allocation of decisions within a group of companies.

The director of the enterprise exercises direct decisive control over the labour in the enterprise (Article 1, paragraph 1, and sub e of the WOR). The legislator seems to have been on the assumption, at least in those cases in which the entrepreneur is a public or a private limited company, that the director of the enterprise is also the director of the company. If these capacities are not united in one person, this could impair meaningful consultations about the general course of events of the enterprise (Article 24, paragraph 1 of the WOR), and, even more so, about matters which, for instance because of their nature, will be decided by the Board of Directors of the entrepreneur, and not by the director of the enterprise.

In Chapter 4, the consultation meetings held between the entrepreneur and the Works Council were discussed. On the basis of Articles 23 and 24 of the WOR, subjects may be discussed in these meetings which involve the enterprise. However, the Works Council is free to address any subject involving the company, provided that this is sufficiently connected to the enterprise. In practice, it appears that many Works Councils wish to discuss group policy as well. The top holdings which are established abroad do not fall under the scope of the WOR, so in this respect, it is logical to impose an obligation on the entrepreneur. Subsequently, the Works Council may expect the entrepreneur to make an effort to acquire enough information to make sure that the consultation meeting is meaningful. The mandatory presence of the directors of the shareholder (Article 24, paragraph 2 of the WOR) may be an important contribution in this respect.

Decision-making takes place in steps. During the process the advice of the Works Council must be requested at a time when it can still significantly affect the decision to be taken (Article 25, paragraph 2 of the WOR), while at the same time the intended decision must be specific enough for the entrepreneur to indicate the probable consequences that the intended decision may have for the persons working in the enterprise (Article 25, paragraph 3 of the WOR). In order to remove the tension between these two obligations, Article 24, paragraph 1 of the WOR provides an arrangement for the decisions that the entrepreneur is considering, i.e. those for which a concrete intention to take these decisions exists. In the context of the discussion of the general course of events of the enterprise, the entrepreneur must announce any decisions that he considers in accordance with Article 25 of the WOR, and he must make arrangements with the Works Council about when the Council is going to be involved in the decision-making process. He is also obliged to do this if a third party is preparing a decision which, if eventually taken, could be attributed to the entrepreneur. This arrangement does not cover all the events for which it was intended. For instance, the number of consultation meetings where the general course of events of the enterprise is discussed, is limited. In view of this, the legislator would have done better to put this arrangement in Article 23 of the WOR.

Disregarding the obligations of Article 24, paragraph 1 of the WOR does not mean that a subsequent decision in accordance with Article 25 of the WOR is manifestly unreasonable. However, it will be harder for the entrepreneur to explain why he requested advice at a time when it could no longer significantly affect the final decision (pursuant to Article 25, paragraph 2 of the WOR). In addition, listed companies run the risk, and not a negligible one, that the confidentiality they have to keep about price sensitive information is at risk if they inform the Works Council of decisions which are being prepared. Under certain circumstances, taking into account the fact that the purpose of the obligation to inform is mainly to involve the Works Council in the advice procedure at the appropriate time, the interests served by confidentiality justify an entrepreneur electing to allow the obligation to maintain confidentiality pursuant to securities law prevail over the obligation to inform pursuant to participation law.

The arrangement for the mandatory presence of the Supervisory Directors of the entrepreneur or of the directors of a company which holds at least half the shares of the entrepreneur (Article 24, paragraph 2 of the WOR), does not always work out favourably because of the mandatory nature of the arrangement. The underlying principle that the Supervisory Directors of the entrepreneur should be present should remain. Thereafter, it should be up to the Works Council to decide whether the directors of an indirect or direct shareholder should attend the consultation meeting in their place or not. In this respect, the Works Council may prefer to invite Division Directors, as they could make a more substantial contribution to the consultation meeting than Group Directors. Additionally, it should be made possible for the Supervisory Directors of the shareholder to be invited instead of the directors of the shareholder. If a consultation meeting is held on the intended decision of the Board of Directors of the entrepreneur (in accordance with Article 25, paragraph 4 of the WOR) which is subject to the consent of the Supervisory Board of the shareholder, both the deliberations in the Works Council and in the Supervisory Board could profit from it. The exemption regulation of Article 24, paragraph 3 of the WOR also leaves room for improvement, especially where the directors of the shareholder are concerned. If they are able to invoke Article 24, paragraph 3 of the WOR, the Supervisory Directors of the entrepreneur or the directors of a shareholder at a lower level will not once again become subject to the obligation to appear. It would be preferable for the directors of the indirect or direct shareholder to consider the company where they hold the position of director as the basis: if that company has participating interests for which at least five Works Councils have been established which are governed by the WOR, their obligation to appear will lapse.

In Chapter 5, I discussed the right of advice of the Works Council, pursuant to the Articles 25 and 30 of the WOR and the right of appeal in Article 26 of the WOR. It appeared in this respect that decisions made by third parties who have a special controlling relationship with the entrepreneur, are more likely to be interpreted as instructions to the entrepreneur which will be hard for the entrepreneur to neglect because of his dependence on that third party. If the entrepreneur does not have the freedom, or does not take the freedom, to come to a decision under company law on the basis of an independent weighing-up of the interests, the decision of the third party will lose its instructional nature. By making his decision, the third party directly intervenes in the enterprise as regards the application of Article 25. For a decision of a third party to be considered a decision taken by the entrepreneur in such events, it must be attributed to the entrepreneur. The effect of attribution is not that a decision on which advice did not need to be sought previously becomes subject to advice; the only consequence is that the advice of the Works Council must be sought at an earlier time than the time when the decision under company law of the entrepreneur is formed. If the influence of the decision-making by a third party becomes systematic in nature, he may be designated as a co-entrepreneur. In my opinion, co-entrepreneurship is a qualified form of attribution.

Since October 2012, the articles of association of a private limited company may make a Board of Directors act in a manner which conforms to the instructions of another company body (Article 239, paragraph 4 of Book 2 of the Dutch Civil Code). The Board of Directors is obliged to comply with these specific instructions unless this is in violation of the interests of the company and its affiliated enterprise. If the General Meeting makes use of a granted right of instruction, the right of advice of the Works Council with regard to decisions proposed by the Board of Directors will be transferred to resolutions taken at the General Meeting of Shareholders. In addition, the shareholder who announces that he will simply formalise a resolution taken by him in the General Meeting of Shareholders of the subsidiary entrepreneur, must be prepared for his resolution to be attributed to the entrepreneur, as his attitude does not indicate that the advice of the Works Council could still have an influence on the resolution of the General Meeting.

A special condition for the attribution of the decision of a third party to the entrepreneur is that the entrepreneur should have been able to take the decision himself. However, in very exceptional cases the entrepreneur is not able to do this; the Heuga case is a good example of this. The abolition of the two-tier board structure of the parent company resulted in an important change of the division of powers within the enterprise of the subsidiary entrepreneur. However, the subsidiary entrepreneur could not have taken this decision itself; only the General Meeting of Shareholders of the parent company could take a decision such as this. In events like these, the method of identification brings a decision within the scope of the right of advice of the Works Council.

Transfer of the decisive control over the entrepreneur, which also includes the abolition or effectuation of decisive control, is deemed to be a transfer of control over the enterprise, even if the two-tier board structure applies to the entrepreneur. If a legal merger takes place or a majority of the shares are pledged and this is accompanied by a transfer, conditional or otherwise, of the voting right to the pledgee, one must also be prepared for the control of the enterprise to be transferred. Because the transfer of control over the entrepreneur does not constitute a decision made by the entrepreneur himself, the decision on which the transfer was based must be attributable to the entrepreneur. In that event, attribution takes place, not because the decision directly intervenes in the enterprise, but because the decision specifically pertains to that; the decision is intended to transfer control of the enterprise. Upon transfer of control of the entrepreneur, there will not only be attribution if the entrepreneur cooperates in this respect or gives his explicit consent, but also if the entrepreneur is a public or private limited company and there is direct involvement in the decision by one or more shareholders who hold the majority of the voting rights in the General Meeting of Shareholders. As this is not the case in the event of a public bid for the shares, the right of advice of the Works Council will, in that event, be limited to an intended decision of the Board of Directors of the target company to announce its support of the bid. If the Board of Directors of the target company reacts to a hostile bid by placing a share package with decisive control with a friendly third party, the company is obliged to offer the Works Council the opportunity to give their advice in this respect on the basis of Article 25, paragraph 1 and sub b of the WOR.

The entrepreneur is obliged to request the advice of the Works Council in relation to an intended decision to make an important change in the division of powers of the entrepreneur, if such powers relate, partly or wholly, to the enterprise. In such cases, the difference between the entrepreneur and the enterprise appears to be an artificial one, according to the Enterprise Division of the Amsterdam Court of Appeal in its Intergas judgment. If the entrepreneur is obliged, on the basis of the law, to make sure that his articles of association comply with the provisions of the two-tier board system, the Works Council does not have a right of advice; the system applies by operation of law without any decision of the entrepreneur being required in this respect. If, after the lapse of a period of time, the entrepreneur is free to decide to change or abolish the system, he cannot evade the right of advice of the Works Council. A resolution to amend the objects under the articles of association is not subject to the right of advice of the Works Council. However, if the amendment shows that the intended resolution is for the reduction, expansion or amendment of the activities of the enterprise to an important extent, this resolution is subject to the right of advice of the Works Council.

Some of the decisions proposed by the Board of Directors are not only subject to the advice of the Works Council, but may also require the consent of the Supervisory Board. When this happens, employee participation is shown to an advantage and, as may be assumed, the quality of decision-making within the entrepreneur is well served if the Supervisory Board is able to involve the advice of the Works Council in its decision. If the entrepreneur is a public limited company, the Works Council has the right to express a point of view with regard to a number of resolutions made by the General Meeting of Shareholders. For international group companies, this arrangement is, at any rate with regard to the application of Article 107a of Book 2 of the Dutch Civil Code BW, recorded in law in an unfortunate manner, as it does not show that the legislator wished to make the existence of a right to speak of the company’s own Works Council dependent on the answer to the question as to whether or not the majority of the employees of the group work in the Netherlands. If this question has to be answered negatively, there is much to be said for granting a right to speak to the Works Council or Central Works Council if the decision to be approved predominantly pertains to the Dutch enterprise(s).

In recent years, the interests of shareholders have become more important within the company. This has results for the weighing of interests by the entrepreneur, as referred to in Article 26, paragraph 4 of the WOR. When looking for a new balance, it must be accepted that the Works Council will, more than ever, act in a manner which promotes the interests of the employees. In turn, the entrepreneur may be required to consider the interests involved even more carefully and to give more insight into his decision-making processes if the weighing-up benefits the shareholder( s) more. The weighing of the interests involved must be explained in his motivation to refrain, entirely or partially, from following the advice of the Works Council, even more so than in the decision that is put to the Works Council for their advice.

The right of advice with regard to the appointment and dismissal of directors serves both the interests of the employees represented by the Works Council and those of the enterprise in its entirety. If this right of advice is neglected, the Works Council can, in addition to invoking the dispute settlement rules of Article 36 of the WOR, appeal to the Enterprise Division if the appointment or the dismissal forms part of one overall decision within the meaning of Article 25 of the WOR. If the director of the enterprise is appointed by means of a decision taken by a body of the entrepreneur, it will, in my opinion, be possible to invoke the provisions of Article 15, paragraph 1 and sub b of Book 2 of the Dutch Civil Code, as this has not, in so many words, been excluded and the character of the provisions made by the Court in this respect are substantially different from those made on the basis of Article 36 of the WOR. As the legislator consciously decided not to implement an assessment of the contents of decisions pursuant to Article 30 of the WOR, the review of a decision will, however, have to be limited to the procedure followed. When choosing between the options, the Works Council would do well to remember that a claim pursuant to Article 15 of Book 2 of the Dutch Civil Code cannot be heard by the Subdistrict Court either in substantive proceedings or in proceedings where injunctive relief is sought (Article 254, paragraph 4 of the Dutch Code of Civil Procedure (Rv).