The European Works Council and the coverage of expert costs

Abstract

In a recent case of the Austrian Supreme Court (OGH 29.8.2023, 8 ObA 28/23k), a European Works Council sought legal advice and wanted the costs to be covered by the central management of a group of undertakings. This request was denied on the ground that the European Works Council could also have obtained the same advice free of charge from a representative body. The Supreme Court ruled that the central management must also bear the expert costs in these cases and thus clarified that the European Works Council is not obliged to choose services that are free of charge.

Case: Austrian Supreme Court (Oberster Gerichtshof – OGH) of 29.8.2023, 8 ObA 28/23k, ECLI:AT:OGH0002:2023:008OBA00028.23 K.0829.000.

1. Introduction

Decisions on the rights and obligation of the European Works Council (EWC) are rare – and not only in Austria. In this specific case, the Austrian Supreme Court (Oberster Gerichtshof – OGH) was asked to clarify the conditions and extent to which the central management of an undertaking/group of undertakings must cover the costs of an expert engaged by the EWC.

The EWC ¹ had requested that the central management indemnify it against claims for fees for legal advice from a consultancy firm that operates throughout Europe and specialises in training and advising EWCs. The ruling of the Austrian Supreme Court ² provided several crucial clarifications, particularly regarding whether the EWC is obligated to prioritise free consultancy services from representative bodies. ³

2. Legal context in Austria

Art. 7 of Directive 2009/38/EC ⁴ provides that, particularly in the event of failure to reach an agreement on the establishment of a European Works Council, subsidiary provisions of the Member States shall apply, which must fulfil the provisions contained in Annex I of the Directive. Pursuant to Annex I para. 5, the European Works Council and the select committee may be assisted by experts of their choice if this is necessary for the fulfilment of their tasks.

In order to implement these provisions, the Austrian Labour Constitution Act (Arbeitsverfassungsgesetz) stipulates that administrative expenses necessary for the proper performance of the tasks of the European Council are to be borne by the central management of an undertaking. ⁵ This covers, in particular, the costs incurred for the organisation of the meetings and the respective preparatory and follow-up meetings, including interpreting costs and the costs for at least one expert as well as accommodation and travel expenses. ⁶ In the Austrian literature, this is interpreted in conformity with the Directive as meaning that the costs for one expert per required speciality are to be borne in any case. ⁷ The wording ‘at least one expert’ is interpreted to mean that the costs for several experts - insofar as their expertise is required - are also covered. ⁸

3. The Supreme Court's decision

In its ruling, the Supreme Court confirmed the decision of the previous instances, which had upheld the action of the European Works Council regarding a large part of the claims brought. The main subject of the proceedings before the Supreme Court was the question raised by the defendant as to whether the European Works Council should have given priority to free consulting services from interest groups.

The Supreme Court stated that neither the principles of proper management nor the observance of the respective rights and mutual obligations established in the Directive allow it to be inferred that the European Works Council, when consulting an expert, may only make use of the free information provided by representative bodies of a particular Member State - which was also partially rejected in this case. ⁹ According to the Supreme Court, this would interfere with the principle of the free choice of the expert. ¹⁰ The task of an expert is to compensate for the European Works Council's potential lack of expertise, as the issues often relate to several national legal systems and certain consulting services may be necessary to enable the EWC to conduct negotiations with the employer in an informed manner. ¹¹ The ‘selection of the expert must therefore be based on the content and importance of the issues to be dealt with’ ¹² .

In doing so, the Supreme Court referred to an earlier judgement ¹³ on employee bodies under the Austrian Postal Works Constitution Act (Post-Betriebsverfassungsgesetz). ¹⁴ In this case, the involvement of a lawyer by the employee body, in proceedings in which representation was not mandatory or qualified representation by functionaries and employees of an interest representation organisation was permitted, was considered to serve the purpose of appropriate legal prosecution, which is why the establishment owner had to bear these costs. ¹⁵

The ruling also stated that the restriction to the ‘necessary administrative expenses’ (Section 186 Labour Constitution Act) implies that compensation is not due for costs higher than those reasonable for the expert services provided. ¹⁶ Claims for compensation are therefore not only ruled out in the case of deliberately abusive utilisation of services. ¹⁷

The Supreme Court held, further, that the number of experts called in is not decisive, as long as no additional costs are incurred, even if the expert uses sub-experts to provide their services. ¹⁸ However, in certain cases, it may be deemed necessary to incur costs for coordinating multiple experts with different areas of expertise to address specific interdisciplinary issues. ¹⁹ Therefore, there were no concerns regarding the necessity and appropriateness of the expert costs in question, which also covered the hourly rate of EUR 300 net charged by the service provider.

4. Effects of the OGH decision

Probably the most important clarification of this decision is that the European Works Council is not generally obliged to primarily utilise free consultancy services from interest representatives; it can also commission services that are subject to a fee (for example from a lawyer or – as in this case – from a consultancy firm). This has long been recognised in the case law of the German Bundesarbeitsgericht on the comparable cost-bearing rule for ‘local’ ²⁰ works councils of Section 40 Works Constitution Act (Betriebsverfassungsgesetz). ²¹

Regarding the amount of the fees, the Supreme Court stated that only necessary and appropriate expert costs may be demanded, ²² which seems self-evident, but which in practice can cause considerable problems in drawing the line.

Regarding the necessity of expert costs, the transferable case law of the German Bundesarbeitsgericht on Section 40 Works Constitution Act is also worth mentioning. According to the German jurisprudence, litigation initiated by the Works Council must not be obviously futile or wilful from the outset. ²³ This is not the case, for example, if previously unresolved legal issues need to be clarified and the Works Council's legal opinion is justifiable. ²⁴ This is supported by the German literature, which states that the costs of a legal dispute are to be borne by the establishment owner if it is necessary to conduct the legal dispute or if the Works Council could consider it necessary. ²⁵ The Works Council must examine the necessity of instructing a lawyer from the perspective of a reasonable third party. It has a margin of discretion when making its decision. When weighing up the necessity, the timing of the decision that triggered the costs must be taken into account. ²⁶ It must therefore be determined whether expert costs can be considered ‘necessary’ ex ante from the perspective of a bona fide European Works Council.

As far as the appropriateness of the fee is concerned, the amount must be in line with market and local practice; furthermore, it must be in reasonable proportion to the importance of the matter and the economic performance of the respective undertaking/group of undertakings. ²⁷ Under these conditions, the central management must, in our opinion, also bear the cost of the fee charged according to agreed hourly rates for lawyers ²⁸ appointed by the European Works Council. As we see it, this is necessary for reasons of ‘equality of arms’, because in legally complex disputes, the European Works Council is usually confronted with an economically powerful central management, whose legal representatives charge their fees on reasonable hourly rates.