Germany: EU Restructuring Directive Will Strengthen Workers' Rights

 

By Katja Giese © Kliemt.Arbeitsrecht July 19, 2019
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The planned European Union (EU) Restructuring Directive will enable companies that need to restructure to take measures at a very early stage in an impending crisis situation and avert possible insolvency. In Germany, concrete proposals for the implementation of the Restructuring Directive can be expected imminently. These proposals will also affect the rights of employees and their representatives and in some ways strengthen them.

The Restructuring Directive is likely to be approved in the coming weeks. This article examines its provisions relating to employee rights.

Employee Representation Rights

The Restructuring Directive stipulates that the measures, objectives and alternative modes of restructuring should be discussed "in a dialogue" with employees and their representatives. This refers in particular to the minimum requirements under EU law for consultation and information and national implementation. Participation rights are also strengthened in various parts of the directive.

The directive provides for the establishment of warning mechanisms to be triggered, for example, if a company no longer pays taxes or social security contributions. This information must be made available to employee representatives, who can apply for assistance to assess the economic situation.

Employee representatives should be informed regarding the decision to initiate preventive restructuring proceedings. The economic committee should be informed, and the works council may also be informed if the employer is already pursuing a concrete plan as to which objectives are to be achieved within the framework of preventive restructuring.

There may also be a right for employee representatives to initiate the preventive restructuring procedure, even against the will of the company.

Companies must inform employees and employee representatives about the restructuring plans so that they are in a position 'to examine the various scenarios in detail." This may result in more extensive consultation than is currently required for normal business changes. The legislative intention appears to be that information on group enforcement in social plans and the economic situation in the group (beyond the boundaries of the company concerned), for example, should also become relevant.

Employees' Rights

If employees' claims against the company are included in the restructuring plan, then employees, like all other affected creditors, must agree to the restructuring plan. Overall, the restructuring plan is deemed to have been approved if the majority of the creditors in each class approve the plan. In any event, if the restructuring plan results in the loss of more than 25 percent of jobs, the plan also must be reviewed and approved by a judicial or administrative authority.

Depending on how the plan is implemented in Germany, the authority must then check compliance with procedural regulations and the protection of creditors' interests.

Consequences for Companies

Due to the stricter requirements and strengthened rights for employee representatives in the proposed Restructuring Directive, it is to be expected that German courts will apply a strict standard when reviewing restructuring plans. In particular, they will examine whether the employee representatives have been sufficiently informed about the employer's current and future financing, possible safeguarding, and the economic scope of employer and shareholder actions.

If a company fails to comply with these consultation obligations, or fails to timely or sufficiently do so, the worst-case scenario is that the restructuring plan will be rejected by the affected employees or by a court. Companies are therefore well advised to recognize the scope of the information obligations at an early stage and to document the information carefully to prepare for possible judicial review.

Conclusion

The EU Restructuring Directive does not simply reference existing employee rights. On the contrary, it stresses that employee interests should be taken into account more comprehensively in pre-insolvency proceedings. Employee representatives are likely to be entitled to advise on any measures planned as part of the restructuring plan even at the 'pre-crisis' stage and the scope of their right to receive information may well be greater than it is today.

Katja Giese is an attorney with Kliemt.Arbeitsrecht in Munich. © 2019 Kliemt.Arbeitsrecht. All rights reserved. Reposted with permission of Lexology.

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