The role of the works council in the event of a forced sale - Ernst & Young - NW

The role of the works council in the event of a forced sale

As a result of the economic crisis, the number of mergers and acquisitions has decreased considerably in the past year. However, companies in trouble are, to a certain extent, frequently forced to sell off parts of the company. In such cases, the usual rules with regard to labour law and right of participation apply and must be observed. If the entrepreneur wishes to sell part of his company to a third party, he must ask the works council for advice.

Pursuant to the Works Councils Act (Wet op de Ondernemingsraden), the entrepreneur must offer the works council the opportunity to issue an advice on any intended resolution to transfer control over the company or part of the company. The entrepreneur must make the request for advice at such a time that the advice of the works council can be of reasonable influence to the final decision of the entrepreneur. This means that as soon as the intentions of the buyer and seller have been recorded, the works council should be requested to issue their advice.

Requirements for the request for advice 
The request for advice must comply with a number of requirements: the request must be made in writing and the reasons, the consequences for the personnel and the actions pertaining to those consequences must be explained in the request. Should the works council be of the opinion that it cannot issue an advice on the intended sale without the desired information, it may decide to refrain from issuing an advice or to issue a negative advice. The works council may also decide to start interim injunction proceedings against the entrepreneur.

Negative advice 
If the works council issues a negative advice, the entrepreneur must wait one month before implementing his decision. This term will take effect as from the day on which the entrepreneur announces his final decision in writing to the works council. In this month, the works council can lodge an appeal against the decision of the entrepreneur at the Enterprise Division of the Amsterdam Court of Appeal.

Review by the Court of Appeal 
The Court of Appeal will assess whether the decision of the entrepreneur can be regarded as unreasonable. Two kinds of review will take place: a formal review and a review as regards the contents. The formal review pertains to the correct compliance of the procedural requirements. As regards the contents of the decision, the Enterprise Division assesses only the reasonableness, as the Court should not step into the entrepreneur’s shoes. Consequently, in practice the formal review rather than the review of the contents will more often lead to allowing the appeal.
Interim injunction proceedings at the Sub District Court
If the works council suspects that the decision of the entrepreneur might lead to irreversible situations, it may ask the Sub District Court to provide a judgment in interim injunction proceedings. Formally, the works council must first request the so-called company committees as instituted by the Dutch Social and Economic Council (SER) to provide mediation and advice. However, in urgent cases this intermediary step may be left out.

Options for the entrepreneur
An entrepreneur who is confronted with the above-mentioned deadlock, may make his decision with observance of the waiting period of one month in the event that the works council has refrained from issuing an advice or has issued a negative advice. An entrepreneur is not able to influence the advice of the works council, however, it is possible to invoke the difficult situation of the company and the possible consequences of legal proceedings whereby the sale is prohibited or is reversed. For in that case, the risk exists that bankruptcy must be filed for after all. Works councils and the Court are certainly open to this kind of argument.