Bid to ease small-firm mergers could hit workers’ consultation

By Anna McLauchlin

Date: 03/03/05

Europe's small businesses should find it easier to merge across EU borders under a law that is up for debate by the European Parliament's Legal Affairs Committe on Monday (7 March).

Under draft amendments to the directive tabled by the rapporteur, German Christian Democrat Klaus-Heiner Lehne, businesses with 500 employees or fewer would only have to adhere to national laws on worker participation rights, which govern how much say workers have in company affairs - in the case of a merger.

That means that a Spanish company linking up with a company from Germany, where worker rights are strong, would only have to abide by German law if the seat of the merged company - with fewer than 501 employees - was in that country.

This is an important issue for small businesses because worker participation - particularly strong in Germany, the Netherlands and Denmark - is costly for company management and could be a disincentive for smaller businesses with no such rights to merge with those in countries that do.

Lehne said: "With regard to the internal market and to the Lisbon [Agenda] discussions about growth in the EU, a clear and unambiguous SME-clause is necessary." David Coleman, senior advisor in company affairs at UNICE, the association representing European employers, welcomed Lehne's plan.

"We appreciate the exclusion for SMEs," he said, noting that the exemption went wider than the EU SME definition, which is a company with fewer than 250 employees.

But he said he was still unhappy with the threshold for worker participation rights in the case of a merger and called for the exemption for SMEs to apply to all companies.

For merged entities above the 500 employee limit, the rule would be that if two merging firms were unable to agree on which country's rules to follow, the rules on the European Company (SE) - which came into force on 1 October last year - would come into play.

But policymakers are still divided on the threshold that should apply. Under the SE if employees with worker participation rights represent more than 25% of the total merged company, that company must uphold those rights, wherever the merged company's seat is based.

In November, governments reached a hard-won compromise that this threshold should be increased to the 33.3% of total employees.

Germany, supported by some allies, pushed hard for the threshold to remain at 25%, as that would make it more likely that worker participation rights would be exported to other countries when companies merge.

France and others were determined to raise the level to 50%, supported by businesses, which claimed allowing the minority to dictate the rules would stop companies from merging with those where there were strong worker participation rights.

Various MEPs have tabled amendments to the Parliament's draft, calling for both a 50% and a 25% threshold depending on their political and national ideals, but Lehne's office said that he did not want to reopen the discussion for fear of "jeopardising" the Council of Ministers' agreement.

Though businesses have lobbied hard for a 50% threshold, there is a risk that they could end up with an even less satisfactory result than the 33.3% compromise.

Whatever the outcome, the directive will enhance the single market by stripping out the legal barriers currently preventing cross border mergers between companies listed on the stock market. The committee vote on the directive is to take place on 31 March and a plenary vote is expected in May. Assuming talks on the worker participation threshold are not reopened, it is expected to be approved in a single reading and to be adopted by the Council in June.

The European Parliament's Legal Affairs Committee is to discuss a legislative proposal for cross-border mergers of businesses with 500 employees or fewer. Under draft amendments to the Directive tabled by the rapporteur, German Christian Democrat Klaus-Heiner Lehne, businesses with 500 employees or fewer will only have to adhere to national laws on worker participation rights, which govern how much say workers have in company affairs - in the case of a merger.