9.3 The Dutch context

The next issue was how the European regulations would specifically affect Dutch employees whose employer has decided on a cross-border merger. Part two of the research focused on employee participation at company level. Although the research concentrated on Dutch employees, knowledge of foreign law is indispensable for ascertaining the participation rights which Dutch employees have. This has to do with the system set out in Article 16 Tenth Directive. First, the scope and substance of employee participation in a cross-border merger (that is, the specification of the criteria in Article 16 Tenth Directive) depend on the national legal systems of the participating companies and the company resulting from the merger. Second, Article 16 Tenth Directive is for the most part applied based on the law of the Member State where the company resulting from the merger has its registered office, the ‘country of establishment’. This may, but does not have to be, the Netherlands. Consequently, Article 16 may be applied on the basis of foreign implementation law.

The national participation law of three Member States – the Netherlands, Germany and Belgium – occupied centre stage in Chapter 4. The explanation there demonstrated that the Dutch, German and Belgian laws have developed the concept of employee participation in their own, divergent ways. There are certain commonalities between the Dutch and German laws. Under Belgium law, the employees’ influence on the appointment of the supervisory element within the company has been designed entirely differently. The right to object to a proposed appointment of a supervisory director (the accountant) does not stem from the idea that employees should be involved in the legal structure of the company, but can be traced to the supervisory director’s relationship with the works council. In terms of the appointment of the independent managing director, the Belgian legislature sought to have employees be involved in putting together the management board in a listed public company, Although, giving them notice of the candidate’s name was considered sufficient.

Traditionally, greater attention has been given in the Netherlands and Germany to the participation of employees. In this respect, it is not surprising that participation occupies a more prominent position within these countries’ company law. Still, there are more differences than similarities between the Dutch and German approaches. For instance, the particulars of the employees’ influence, and the duties and rights of the members to whose appointment the rights relates, differ. What’s more, participation in the two Member States originally pertained to supervisory bodies in two-tier management structures, but can likewise apply to one-tier management structures in the Netherlands since 1 January 2013. Another striking difference is that participation is treated as a separate area of law in Germany, which has its own place within company law. Employee participation is governed by separate concepts and rules, and has its own system. In the Netherlands, participation is an integral part of company law and is set forth in Book 2 of the Dutch Civil Code.

The manner in which the Netherlands, Germany and Belgium have implemented Article 16 Tenth Directive was analysed in Chapter 5. The Member States struggled in implementing this complex subject. Some provisions have been copied into the national law from the relevant language version of the Tenth Directive without paying attention to the particular details of the rules within the existing system. Strikingly, as regards the provisions which were fleshed out, the implementation can be characterised as one in which the Member States maintained their own national outlooks. Implementation has usually occurred based on the Member States’ own traditions and ideas, with little thought being given to foreign systems. Although the technique of a directive typically affords opportunities to do this, this is less evident with the implementation of the Tenth Directive. The Tenth Directive concerns mergers in which companies and employees from different Member States are involved. By extension, Article 16 Tenth Directive includes several transnational provisions which regulate the legal position of not only domestic companies and their workers but also other Member States’ companies and their workers. Moreover, companies, employees and participation systems from various Member States are involved when transnational provisions get applied. An approach which is too nationally-focused runs the risk that specific ‘exotic’ elements from foreign legal systems will wrongly be ignored.

Such a risk is especially apparent as regards the interpretation of the European concept of employee participation. At its core, the concept embraces the ‘before and after principle’ and, as shown in Chapter 3, constitutes the common thread in applying Article 16 Tenth Directive. The way in which the Member States have implemented Article 16 demonstrates that there are different ideas about whether (i) the employees’ influence on the corporate bodies of the company ought to lead to a ‘genuine’ employee representative, (ii) the extent to which the result of the participation rights should be legally enforceable and (ii) which interest arises with employee participation within corporate groups. Different perspectives regarding the notion of the European concept of participation increase the chance that participation systems in the one Member State will not be recognised in the other Member State and that the participation rights existing before the merger will not receive the protection which Article 16 Tenth Directive advocates. A complicating factor is that, with an outbound merger, foreign authorities monitor whether Article 16 Tenth Directive have been applied properly and, generally speaking, these bodies are unfamiliar with other Member States’ employee participation systems.

The issues examined in Chapters 4 and 5 converged in Chapter 6, and the focus shifted to the potential consequences which a cross-border merger can have for Dutch employees’ participation rights. At the forefront was the question whether Article 16 Tenth Directive protects the employees rights which need to be protected from the Dutch point of view. To keep the discussion manageable, I answered this question from two perspectives. First, with regard to the application of the criteria in Article 16 Tenth Directive (the situation prior to the merger), and then, as concerns the specifics of the result to which Article 16 leads (the situation after the merger is completed).

When the criteria of Article 16 Tenth Directive are applied, the position of the Dutch participation rights is not always easy to determine. The reason is that Article 16 Tenth Directive, as well as the implementation laws in the Netherlands, Germany and Belgium, has not been formulated unequivocally or precisely in various respects. Another reason has to do with the system laid out by Article 16. The system assumes that the participation rights will be proportionate in number and of a certain form. However, this distinction is not always easy to make with regard to the Dutch participation rights. Problems crop up if, with regard to the appointment of a supervisory director. In that case, the works council has both a right to speak and an (enhanced) right of recommendation. It is also thinkable that the participation rights are directed at the composition of additional corporate bodies. The Tenth Directive does not take into account employee participation in a corporate group, either.

Relying on the ‘before and after principle’, I have tried to devise solutions to the problems. In this manner, most aspects of Dutch participation law have been given a place within the system laid out by Article 16 Tenth Directive. Protection of the participation rights existing prior to the merger ‘trumps’ a strictly literal interpretation of Article 16 Tenth Directive, which is permissible. The one-dimensional approach which Article 16 endorses has little to do with the freedom of establishment, but rather, was more a consequence of the desire to achieve a compromise. The fact that substantive participation law has been regulated nationally so far and Article 16 Tenth Directive merely plays a coordinating role means that the criteria in Article 16 need not be interpreted strictly. In addition, the solutions fulfil the Tenth Directive’s overarching objective. The willingness to enter into cross-border mergers grows the more the various parties come to understand which law will apply to the transaction.

Problems arise, too, after the merger is completed. My findings show that, under certain circumstances, it is difficult to flesh out the result of Article 16 Tenth Directive within the frameworks of the company law applicable to the company resulting from the merger. These problems are based on the fact that Article 16 Tenth Directive does not take heed of the corporate environment within which the employee participation manifests itself nationally. This is particularly an issue if the statutory standard rules dictate the solution. This solution does not take into account at all the company-law context within which it will be applied after the merger. As a result, it is hard – and, in some cases, even impossible – for a transnational employee participation system to gain a position after the merger which does justice to the notion of protection found in Article 16 Tenth Directive. The notion of protection does not extend so far that the company-law environment within which the participation applied prior to the merger will become part of the system set forth in Article 16 Tenth Directive.

Part three of the research examined the issue of the involvement of the Dutch workers in the undertaking. This form of involvement is characterised by a more national approach and takes shape through the influence of the (central) works council or the European works council on a cross-border merger decision which has been proposed. Both bodies’ rights are limited to information and consultation rights and, by extension, the right to issue a recommendation. The entrepreneur’s (commercial) decision-making power is not fundamentally effected under either the Dutch or Community legal system. At most, the procedures fashion the entrepreneur’s dominant discretion by restricting its power procedurally. Partly because of this, the rights of the Dutch employee representatives does not conflict with the freedom of establishment on which the Tenth Directive is predicated.

The absence of decision-making power does not alter the fact that the rights offer the employee representatives a potential opportunity to have an effect on the proposed merger decision. The (central) works council derives its powers from the Dutch Works Council Act (‘WCA’). A cross-border merger decision touches on the area of tension between the company and the undertaking. The case law by the Amsterdam Enterprise Chamber teaches that the distinction between the undertaking and the company should be regarded as artificial for purposes of Article 25 WCA. In principle, the works council has a right to issue a recommendation under Article 25 WCA, since the merger will effect a transfer or acquisition of the control over the undertaking. This will only be different if the Dutch company is the acquiring company and the foreign exception rule applies. In such situations, a right to issue a recommendation is not as necessary, either. The techniques of attribution (of the decision-making authority) and co-entrepreneurship ensure that the employees’ rightful say under the law does not get lost in the legally complex (foreign) corporate group relationships. One might think that cross-border mergers raise specific problems under the WCA, but that turns out not to be so. The problems are not substantially different from those associated with domestic mergers. The existing case law can therefore rather easily be used to find solutions. This satisfies the Tenth Directive’s basic principle of putting the application of national law first and foremost, so as to facilitate cross-border mergers.

The WCA does not apply beyond the Netherlands. Insofar as the company participating in the merger is part of a transnational business structure, all employee representatives ought to be informed and consulted in an equivalent manner about the cross-border merger decision. The European works council fulfils this role. To my mind, the added value of the European works council for Dutch workers is especially apparent in situations in which the merging company is part of a corporate group and the merger is one element of a more-encompassing transnational restructuring decision. While the Amsterdam Enterprise Chamber’s case law makes clear that the participating Dutch subsidiary should independently weigh the interests at stake in a reasonable manner in its own decision-making, the group strategy will generally be an important factor. The European works council is able to exert influence on the decision-making at the corporate group level. The risk is low that the European works council will undermine the rights of the Dutch works council. A positive recommendation by the European works council will not discharge the Dutch subsidiary’s management at all from its obligation to explain why it is proposing a cross-border merger.

The rights of the Dutch works council will not be extinguished as a result of the cross-border merger. If the Dutch company is the acquiring party, there will be no change of employer, and the WCA will continue to apply for that reason. The result is the same under Article 6 of Directive 2001/23/EC if the Dutch company is the party which will cease to exist. Because the cross-border merger as such will not cause the undertaking to be moved, this result is already achieved, too, through the WCA. An exception arises if a decision is taken to move the business activity and this decision is closely related to the cross-border merger. Foreign implementation law will then regulate the manner in which the Dutch employees will continue to be represented. Unlike the Netherlands, Germany and Belgium have regulations relating to this issue. Although the regulations were written for domestic transfers of undertakings, under an interpretation consistent with the directive, they apply to cross-border transfers as well.

Similarly, Article 6 of Directive 2001/23/EC protects the rights of Dutch employees in connection with the European works council. That the transferor and central management are not necessarily the same does not change this. The right to continued participation does not seem to be limited to direct employee-employer relationships. European lawmakers would be wise to take another look at the regulations on adjustment of the transferred European works council within the corporate group context.