Employee participation in multinationals

Layered participation structure

The Works Councils Act ("WOR") is largely set up for the situation of one entrepreneur with one employee participation body. In practice, company structures are often more complex.

The WOR offers employee participation solutions for companies of different sizes. With the possibility of establishing a central works council ("COR"), group works council ("GOR"), and joint works council ("GemOR"), in addition to an ordinary works council ("OR"), the entrepreneur can create a layered employee participation structure. In this way, business-related issues in large companies can be assessed by the appropriate works council, meaning that the entrepreneur does not have to involve several works councils for one decision.

Territorial effect of the WOR

The WOR has territorial effect: the law operates only on Dutch territory. This means that the WOR applies to all enterprises established in the Netherlands, regardless of where the entrepreneur is located. Dutch-based enterprises maintained by a foreign entrepreneur are also subject to the WOR. Conversely, the WOR does not apply when a foreign enterprise is maintained by a Dutch entrepreneur.

Netherlands-construct

International groups fall (partly) within the scope of the WOR if part of the group is located in the Netherlands. Yet in practice, it is often difficult to determine how far the control of the works council extends. Especially if the group management is located abroad and decisions that affect the Dutch company are taken at a higher (international) level.

If the group management is based in the Netherlands, the Dutch (C)OR gets a seat at the table more easily. The distance between group management and the employee representative body is literally and figuratively small. The decision-making of the Dutch group management which (also) affects the Dutch company is subject to the WOR. The (C)OR can exercise its influence in this way.

Many international groups evade this influence by using the so-called Netherlands-construct. This legal construct splits the (interests of the) international and Dutch branches of the group at the top holding company level. At the top of the Dutch branch, a subholding is installed with a COR, in which the structure regime is generally (voluntarily) applied. The group management deals with the strategy of the entire group, while the management of the subholding focuses on operational matters for the Dutch branch. The group management no longer deals directly with the COR, because the subholding is the entrepreneur within the meaning of the WOR and is therefore the COR's conversation partner.

The COR is thus partially sidelined with regard to, for example, international strategy, the advisory right or right to information on major investments abroad, the advisory right on the appointment and dismissal of group management, and the speaking rights at the level of the top holding company. Despite the major impact on employee participation, the Netherlands-construct is permissible. The Enterprise Chamber has confirmed this as early as 1989. This also fits with the territorial effect of the WOR.

If a COR already exists in an international group structure, then the establishment of the Netherlands-construct is in principle subject to the COR’s advisory right. The COR could then enforce a company agreement on international employee participation – going beyond the limits of the WOR –  during the advisory process. This way, the COR retains participation in (some) matters that would normally fall outside its scope.

Attribution and co-entrepreneurship

Even if the Netherlands-construct is applied, or if the group management is located outside of the WOR’s territorial scope, the COR is not left completely empty-handed. Because the WOR itself contains no provisions to allow the (C)OR to participate in decision-making at a higher level than its “own entrepreneur”, in case law the doctrines of attribution and co-entrepreneurship have been developed to allow a works council to have an advisory right, even if the decision is not taken by its own entrepreneur but elsewhere within the group structure.

In the case of attribution, the decision of the group management is attributed to the entrepreneur who has the works council. This gives the works council an advisory right with respect to its own entrepreneur, as if (part of) the decision had been taken by its own entrepreneur. Attribution is possible when:

(i) the decision taken at higher level directly affects the enterprise for which the works council was established; and
(ii) the enterprise’s own management is involved in the decision-making.

The decision must have a direct effect on the company, meaning the works council would have had an advisory right if the entrepreneur had taken the decision himself. There is involvement of the enterprise’s own management when, for example, the enterprise’s own director also is a director or supervisory director at the higher level, or if his cooperation is required to implement the decision.

With co-entrepreneurship, the group management becomes the works council’s own entrepreneur within the meaning of the WCA, giving the works council a direct advisory right vis-à-vis the group management. The works council could then take legal action against the group management in the same way it could against its own entrepreneur. Co-entrepreneurship occurs when:

(i) the nature and scope of the decision directly affects the enterprise for which the works council was established; and
(ii) the group management exercises - or can exercise - such systematic influence that it is deemed to also be the entrepreneur.

The same applies to directly affecting the enterprise as in the case to attribution. The focus for co-entrepreneurship is therefore on systematic influence. This may be the case if the group management has the power to dismiss and appoint the local director, or has a right of instruction or approval for local decisions. Also relevant may be how far the representative power of the local director extends; does he have any room to make important strategic decisions or is it the group management in charge?

Attribution and co-entrepreneurship are carefully applied by the courts, because they step outside the framework of the WCA for the legal concepts of entrepreneur and enterprise. Nevertheless, these legal doctrines regularly offer a solution if the court considers it necessary for the proper application of the WCA. This is especially the case when the level at which the decision is taken and the level at which the decision has consequences are not far removed from each other.

Other matters in the international context

Apart from concluding a company agreement, the (C)OR in international group structures has other possibilities to strengthen its position. One example is the right to information. The (C)OR can request all the information it reasonably needs to perform its duties through its own entrepreneur. Provided that the request for information is properly substantiated, this can also include information relating to the international part of the group or the group management. In addition, the (C)OR may require the presence at consultation meetings of a member of the supervisory board and of a representative of the management board of the parent company. In international groups, the members of the supervisory board are often persons who are part of the group management. This way, the (C)OR can still meet with them systematically. Finally, a good relationship with the European Works Council ("EOR") offers added value for the Dutch (C)OR. The EOR deals with cross-border issues. As a result, the EOR often has information that the local (C)OR does not have. However, many multinationals that should have an EOR do not have one set up. In early 2024, the European Commission made a proposal to amend Directive 2009/38 to, among other things, more easily facilitate the establishment of an EOR.

Employee participation in multinationals is complex

In multinational organisations, it is not always clear how far the co-determination of the works council extends. This often leads to discussions and court proceedings. In complex situations, the (C)OR is given a helping hand by the courts, which dare to step outside the framework of the WOR. Discussions can be partly avoided by making a good company agreement with the (C)OR about its rights in advance. Still, the WOR remains open to multiple interpretations. Moreover, international corporations are rarely inclined to grant powers to the Dutch employee participation; this employee participation is often foreign to them.

Questions about employee participation in multinationals? If so, please contact our Employment Law Department.

Not a subscriber yet? Then sign up for our newsletter here.