WORKS COUNCIL

An important feature of European labor-management relations, works councils are committees of labor representatives within companies which consult with management and may even have certain decision-making powers. They take on a number of forms, but in general they are seen as democratic bodies that give voice to worker concerns and interests. In their strongest form, works councils are said to have codetermination rights with management in some areas of corporate policy. In the broader context, works councils are conventionally credited with reducing labor conflicts and promoting harmonious labor practices, particularly concerning changes in the workplace.

Under European Union law since the mid1990s, large multinational companies operating in EU countries generally must sponsor transnational councils or so-called European Works Councils (EWCs), which bring together members of an enterprise's workforce from each country it has operations in. These relatively recent creations have historical roots in national and regional works councils, which have been prevalent in parts of Europe, notably Germany, for decades. Similar entities exist outside Europe, but the concept is mostly closely associated with European practices. Within the United States there has been periodic interest in instituting such a practice.

Works councils in Europe are generally separate from collective bargaining activities and don't involve wage negotiations, although actions taken in works councils may be complementary to collective bargaining efforts. Legally, works councils are required to be formally independent of industrial labor unions, creating, symbolically at least, a dual system of labor representation. In theory, unions are supposed to deal with issues such as wages and working hours, while works councils take up issues such as working conditions, safety and health, and general policy communications. In practice, however, a high percentage (approaching three-quarters according to one study) of workers who are representatives in works councils are also active in trade unions, and the interests of the two labor organizations are closely aligned.

DEVELOPMENT OF WORKS COUNCILS

THE GERMAN SYSTEM.

Works councils flourished in various countries of western Europe in the immediate post-World War II period (later losing momentum in many places), but they have always been strongest in Germany. German industrial unions were first legally recognized in 1918 and works councils in 1920 under the Works Councils Act. After World War II, the legal foundation for works councils was reestablished by the Works Constitution Acts of 1952 and 1972.

The 1972 act called for all German businesses with five or more permanent employees to establish a works council, although in practice not all companies did. Councils were normally organized at the plant or establishment level. The number of employees on the council and its exact powers were dictated by the company's size. For instance, a firm with 5 to 20 employees would have a one-person council, while a workforce of 9,000 would have 31 representatives. Representatives on the councils served four-year terms, and all elections within companies were held at the same time throughout the country. Further, works council activities were financed by the company and conducted on company time.

The law also specified employment policy domains in which the councils were to have codetermination rights—the right to veto proposed corporate policies. If the council didn't approve a management proposal, the issue was to be settled by a special committee consisting of an equal number of workers and managers. Ultimately, if the dispute couldn't be resolved internally, it might be taken to a special labor court. Areas where works councils enjoyed codetermination rights included working hours (e.g., hours of labor, overtime, employee leave), health and safety, and performance monitoring and appraisal. Councils also had lesser rights (right of consent, right of consultation) in other policy domains.

At the same time, works councils were given incentives to help them cooperate with management to reach mutually beneficial solutions to disagreements. For example, larger works councils formed economic committees that received regular briefings and data from management concerning the company's sales, investment plans, marketing, and other strategic concerns. The councils were required to keep this information confidential, but they used it to help inform their positions on corporate policies. Theoretically, if the data showed that the company risked losing money, the council members would be more sympathetic to management's reforms or other changes. In this role, works councils have sometimes been seen as a moderating influence on labor unions.

EUROPEAN COUNCILS.

While most of that system still remains intact in Germany, the modern resurgence of works councils elsewhere in Europe began in the 1970s under the auspices of the European Community (EC), forerunner to the European Union. An early proposal for a worker consultation system in large companies was circulated starting in the mid1970s, but the idea was quite unpopular and the measure was rejected by the EC member governments. In the mid-1980s a new thrust for worker representation came about as EC was beginning assert its influence more strongly on social affairs in member states. The EC began to facilitate dialogs between labor and corporate partisans, even funding these initiatives. Ultimately, the effort succeeded in the wake of the Maastricht Treaty of 1993, which created the European Union and thereby enhanced the powers of the European Commission, the EC agency that had been pressing for works councils.

In 1994 the commission's proposal was adopted by the Council of the European Union as the Directive on European Works Councils (EWCs). Applying to multinational firms with at least 1,000 employees in EU countries generally and having at least 150 employees in two EU countries, the rules for EWCs were much looser than those in the German system. Altogether, this requirement affected some 15 million workers at about 1,500 companies, including a number of U.S. firms with large European operations.

The directive called for these transnational firms to create EWCs or "a procedure for informing and consulting employees" that would transcend national boundaries. The latter alternative left open the possibility for a collaborative body that didn't fit the conventional mold of a works council. As in the German model, management was responsible for funding an EWC or similar body, and both sides were bound to hold sensitive information that arose during the process in confidence. The exact rules governing each company's works council were to be negotiated by the management and a special workers' negotiating committee. As a result, the directive did not ascribe any particular rights or functions to the works councils beyond information and consultation. Rollout of the EWC rule was gradual, with the first deadline in 1996 and full implementation not required across the board until 1999.

EVALUATING WORKS COUNCILS

Supporters of works councils commonly cite a number of benefits they bring. Among these are:

• better flow of information between management and labor
• more say for workers in corporate decisions
• decreased labor-management conflict
• potentially higher productivity and profitability when labor's interests are aligned with management's

Scholarly research provides some support for the claim that works councils improve labor-management relations, at least as measured by how each side perceives the other. For example, a few attitudinal studies, particularly of managers, found that European managers were much more receptive to works councils in the 1990s than they were in the 1970s, and executives were more likely to see them as positive influences.

However, the claim that works councils confer economic advantages to companies is not well supported by academic research. Indeed, a number of researchers during the early to mid-1990s found, if anything, the opposite. By measures such as total factor productivity and profitability, several studies have suggested that works councils have at best no significant effect on corporate economic performance. Moreover, a couple studies indicated that works councils might even have negative implications for corporate profitability.

Data and research on works councils were still fairly limited as of the late 1990s, though, especially concerning EWCs since they're so new. In 1999 the European Commission, as provided under the directive, began conducting a comprehensive assessment of the EWC rule and its effects thus far. Depending on the outcome of that assessment, the commission was considering proposing modifications to the rule. Separately, the commission was already circulating a proposal that would create a more uniform framework—in other words, tighter restrictions—for how EWCs would operate in different companies and countries.

While Europe has continued to experiment with works councils, the United States largely has watched from the sidelines. Most notably, the Commission on the Future of Worker-Management Relations (better known as the Dunlop Commission) released in the mid1990s a report that was generally favorable toward works councils as a means to improve worker participation. However, the commission, apparently divided over the issue, did not come out strongly in favor of works councils and the issue remains controversial on both pragmatic grounds—some critics maintain they're ineffective—and ideological grounds.