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Transposition of the SE legislation in Finland (Report: June 2004)

In Finland the Government submitted its proposal to the parliament for an Act on Employees’ Involvement in European Companies on 4 June 2004 (Government proposal 107/2004). This proposal was prepared by a tripartite working group within the Finnish Ministry of Labour. Earlier this year a proposal was submitted for a number of changes in general company law (Government proposal 55/2004).

Implementation by Legislation

The point of departure for proposal 107/2004 is that a separate act on employees` involvement in European companies will be adopted in Finland. This is a detailed act with 40 sections implementing Directive 2001/86/EC. The government intends to have the legislation in place on 8 October 2004.

Legislative Background

The starting point for the implementation process was the current Finnish legislation on representation on company boards on the one hand and the legislation on information and consultation within companies (co-operation) on the other (725/1978).

Employee involvement in management is regulated by the Act on the Representation of Personnel in the Administration of Enterprises (Act 725/1990). The legislation came into effect on 1 January 1991 after negotiations between the social partners, who made their proposals to the government. The purpose of the law is to improve cooperation between employer and employees and to increase the influence of the latter. To this end, employees have the right to “participate in decision-making on important economic issues and working conditions in the company’s decision-making, executive, supervisory or consultative management bodies”. In Finland this act applies to companies with 150 employees or more.

Employee involvement in company decision-making can be established either voluntarily, by agreement, or, if agreement cannot be reached, according to the law. If employee involvement in company decision-making is to be established according to the law, employees’ representatives can be elected to the company’s management council, the board or the management group. They can also be elected to ”an analogous institution which covers all the company’s establishments”, according to section 5 of the Act.

If employee involvement in company decision-making cannot be established by agreement, representation shall include at least two employee groups which represent the majority of the workforce. Employee representatives shall be elected for at least one year and shall constitute up to a quarter – at least one member but no more than four – of the members of the relevant body, the rest of whom shall be appointed by the company.

Employees’ representatives have the same rights and obligations as the other members of the management body. However, they are not entitled to participate in the appointment, dismissal or establishment of the terms and conditions of directors of the undertaking. Employees’ representatives’ right to vote can also be limited by agreement.

According to the Act on Cooperation within Undertakings the employer shall, before taking a decision, consult with the employees affected and their representatives about the reasons for the decision, as well as its effects and possible alternatives. When the employer has fulfilled his obligation to consult he can proceed unilaterally.

The cooperation procedure forces the employer at least to listen to the opinion of employees before taking the final decision. The Act on Cooperation within Undertakings operates in such a way that it “breaks up” decision-making in accordance with certain time rules, stipulated in the Act, which determine the start and duration of the negotiation procedure. According to section 7a of the Act, the negotiation proposal must be submitted in writing at least three days before the negotiations begin. In case of measures that are likely to cause one or more employees to be transferred to part-time employment or to be given notice of dismissal or suspension, the period is five days.

The Finnish Proposal

Generally speaking, the Finnish proposal for an Act implementing Directive 2001/86/EC closely follows the text of the Directive. It does not present any particularly controversial proposals. For example, the Finnish government has not proposed any use of the so-called opt-out clause (Art. 7 III and consideration 9) in relation to merger situations. To some extent the proposal follows the example of the earlier Swedish proposal, although it naturally builds on the Finnish tradition of employee involvement.

The Special Negotiating Body

National rules shall dictate how the seats in the special negotiating body are to be distributed. The Finnish proposal stipulates that:

1) if the number of seats is the same as or below the number of participating Finnish companies the seats will be distributed in proportion to workforce size;

2) if the number of seats is above the number of participating companies, every participating company will get one seat, the remainder being distributed in proportion to workforce size.

Deviations from these rules are possible by agreement, but the employees must guarantee that all participating Finnish companies and personnel groups are represented as far as possible.

How members are to be appointed to the special negotiating body is likewise a national matter. The Finnish practice for resolving this kind of dispute – if no agreement can be reached – is that the labour protection representative representing the largest number of employees shall organise an election in which the whole workforce may participate. This procedure also forms part of the proposed Act.

Proposal on Employee Involvement

The legislative proposal stipulates the different areas in which the parties should reach agreement on the organisation of employee involvement in SEs. There are no restrictions on what the agreement can contain, but voting rules differ depending on the issues covered. Generally speaking, a draft agreement must be approved by an absolute majority of members of the special negotiating body, who must also represent an absolute majority of the workforce. A qualified – two-thirds – majority is needed to approve a draft agreement that involves a reduction in employee participation on company boards or equivalent bodies. The same applies to decisions to terminate employee involvement.

There is no obligation to reach agreement on every point enumerated in article 4.2 of the Directive. However, all issues must at least be discussed during the negotiations and this must be documented in the agreement. The parties can decide to leave particular issues unregulated, but if the negotiations result in the employees relinquishing effective involvement, the requirement of a majority in favour of such a decision must be observed.

The agreement should also regulate the circumstances under which it shall be renegotiated: for example, in the event of changed conditions within the SE, its subsidiaries or establishments. It should also include information on what is to apply in the event of renegotiation as a result of changed conditions or of expiry of the agreement period if a new agreement has not yet been concluded.

The costs of the special negotiating body – including set-up costs – and its experts shall be borne, within reason, by the participating companies.

What Happens If No Agreement Is Reached?

If the parties do not reach agreement the standard rules on information and consultation will apply on condition that the special negotiating body has not decided to relinquish employee involvement. To this end a number of conditions must be fulfilled depending on the way in which the SE was established. If different forms of participation exist in the various company bodies, the special negotiating body must decide on which form shall apply; otherwise, the participating companies can decide for themselves.

Impact of Changes in the SE and its Subsidiaries

The proposal contains a specific rule according to which the European Company must at least once a year modify the number and allocation of seats in the representative body – set up in accordance with the Act – insofar as the SE has undergone any changes.

Procedural Abuse

Section 36 of the proposed act deals with procedural abuse. The Finnish proposal covers the situation in which the structure of the SE changes substantially within one year of registration. Insofar as these changes would have given employees a higher level of participation rights if they had been in place at the time of SE registration, employee involvement must be renegotiated.
Renegotiations are not necessary if the SE can justify the changes, including why they could not be implemented before registration.

Sanctions

The Act contains two enforcement mechanisms: first, conditional fines can be imposed (section 38) if a participating company or the SE does not fulfil its obligations according to the law or an agreement; second, legal sanctions can apply in case of failure to comply with specific obligations in the Act.

Limitations

No rules have been proposed on the legal status of the special negotiating body or the representative body. The consequences and the legal nature of agreements which may be concluded by these bodies therefore remain at least to some extent unclear under Finnish law.

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