Select Committee on European Scrutiny Nineteenth Report




Draft Council Directive supplementing the Statute for a European Co-operative Society with regard to the involvement of employees.

Legal base:Article 308 EC; consultation; unanimity
Document originated:6 November 2001
Department:Trade and Industry
Basis of consideration:Minister's letter and EM of 4 February 2002
Previous Committee Report:None
To be discussed in Council:7 March 2002
Committee's assessment:Politically important
Committee's decision:Not cleared; further information requested


  11.1  The Commission's original proposal for a European Co-operative Statute (considered by a previous Committee in 1992[45]) was modelled on the proposed European Company Statute (ECS). No progress was made on the proposal, however, during the years in which the ECS was stalled in Council. With the adoption of that measure last year,[46] work has now resumed on the European Co-operative Statute.

  11.2  The Statute consists of a Regulation, which sets out the framework for a European Co-operative Society (SCE), a new type of pan-European legal body, and a Directive, requiring a particular level of employee involvement in the SCE. The Statute would apply only to bodies that chose to form a SCE in order to operate in two or more Member States. In his letter of 4 February, the Minister for Employment Relations and the Regions (Mr Alan Johnson) tells us that the Regulation and Directive are on slightly different timetables and are being discussed in different Councils of Ministers. He explains that he has submitted an Explanatory Memorandum to the Committee now, even though no depositable text has appeared, as he may be asked to agree the Directive in March. The working document is a re-draft of the proposal from the early 1990s.

  11.3  A background note on Co-operatives and the European Statute for a European Co-operative Society, provided by the Treasury, is annexed to this paragraph.

The document

  11.4  The draft Directive sets out the arrangements for the involvement of employees in an SCE. For an SCE to be registered, it will need to have in place a system of employee involvement which is in accordance with the provisions of the draft Directive. The proposal covers information, consultation and, where appropriate, participation (that is, employee representation on the management or supervisory body).

  11.5  For most SCEs, the arrangements are identical to those agreed for the European Company Statute. In the first instance, the arrangements are to be freely negotiated between the employees and the management. If a negotiated agreement has not been reached within deadlines set in the Directive, the standard rules set out in its Annex are to apply, if the management decides that it wants to continue with the registration of the SCE.

  11.6  On information and consultation, the standard rules provide that a representative body of employees shall have the right to meet management once a year. At the meeting, the representatives must be informed and consulted on matters concerning the SCE itself and any of its subsidiaries or establishments in another Member State or which exceed the powers of the decision-making organs in a single Member State. In the words of Part 2 of the standard rules:

"The meeting shall relate in particular to the structure, economic and financial situation, the probable development of the business and of production and sales, the situation and probable trend of employment, investments, and substantial changes concerning organisation, introduction of new working methods or production processes, transfers of production, mergers, cut-backs or closures of undertakings, establishments or important parts thereof, and collective redundancies."

  11.7  Provision is also made for extraordinary meetings where exceptional circumstances (such as relocations, transfers, the closure of undertakings or undertakings or collective redundancies) significantly affect employees.

  11.8  On worker participation, the standard rules set out the basic principle that, if there is no negotiated agreement and management wishes to proceed, participation in the SCE should be set at the highest level at which it existed in any of the participating legal entities before registration as an SCE. There would be no entitlement to participation if none had existed previously.

  11.9  The main difference from the employee involvement model agreed for the European Company Statute relates to those SCEs which do not have any employees when they are first established. These are defined in the document as SCEs established exclusively by natural persons (that is, by individuals) or by a single legal entity and natural persons, and are described as "ex novo" SCEs. The proposal with regard to such SCEs is that the standard rules for information and consultation shall apply from the date of registration.

The Government's view

  11.10  The Minister tells us:

"The Government supports the principle of employee involvement in the European Co-operative, provided the arrangements can be made in a flexible manner. The proposal allows for flexibility, in that it gives priority to freely negotiated arrangements for most SCEs while the fallback model for participation incorporates the principle of acquired rights, rather than a right per se to participation. The Government believes that the proposal should follow the employee involvement arrangement established for the European Company Statute. The proposal under discussion does this. The working group is continuing to assess whether different rules should apply to SCEs with less than 50 employees (for example, national rules would apply) and how to treat 'ex novo' SCEs (those formed by parties with no existing employees). The Department favours flexible provisions reflecting the fact that SCEs will often be smaller than European Companies. The Government notes that the European Co-operative Society will be a voluntary arrangement to be entered into by those seeing advantage in it."

  11.11  The Minister informs us that the Department of Trade and Industry and the Treasury launched a joint consultation exercise on the European Co-operative Statute last summer. Only 5 responses were received, two of which commented substantively on the draft Directive. Both supported the model of employee involvement set out in the proposal.

  11.12  As the Statute would be an entirely optional arrangement, a Regulatory Impact Assessment has not been produced.

  11.13  The Minister also tells us that although the Directive would need to be transposed into UK legislation, it would affect only those organisations and/or individuals who chose to register as an SCE, and would not have a direct impact on existing UK law as it applies to UK co-operatives.

  11.14  The Spanish President hopes that provisional agreement will be reached on the Directive in March, and political agreement reached on both the Regulation and the Directive in June.


  11.15  We thank the Minister for his Explanatory Memorandum and helpful background note.

  11.16  As they stand, the provisions for "ex novo" European Co-operative Societies (SCEs) seem odd and unsatisfactory. The requirement that the standard rules for information and consultation are to apply to them from the date of registration would appear to pre-empt free negotiation between management and employees, once the latter are in place, and hence to rule out the possibility of worker participation. We assume, from the Minister's comments, that the UK is negotiating for changes to this part of the text. Nevertheless, we are not prepared to accept the document as it stands.

  11.17  We ask the Minister to inform us of the progress of negotiations on "ex novo" SCEs and on SCEs with fewer than 50 employees. We also ask that he deposit an official text as soon as one becomes available.

  11.18  Meanwhile, we shall keep the document under scrutiny.



What is a Co-operative?

1.  There is no definition of a co-operative in UK legislation, however, there are accepted international co-operative principles set out by the International Co-operative Alliance (ICA). The ICA defines a co-operative as "an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise".

2.  In the UK most co-operatives operate under the Industrial & Provident Societies Acts of 1965-1978. These are a consolidation of legislation dating from the mid-19th Century. Examples of co-operatives in the UK range from the Co-operative Group (CWS) Limited, (the UK's largest co-operative which undertakes a range of activities including wholesale, retail, funeral directorship, and also owns the Co-operative Bank — a company) to many and varied small societies such as allotment societies. Co-operatives in the UK are precluded from offering banking services as the I & P Act specifically excludes this and it is for this reason the Co-operative Bank takes a corporate form.

3.  Co-operatives in other Member States do not necessarily look the same as UK co-operatives. For example the Spanish co-operative 'Mondragon', has the structure of a large conglomerate operating in a number of sectors ranging from financial services to construction, and co-operative banks are found in several member states.

What is an SCE?

4.  The objective of the Statute for a European Cooperative Society (SCE) is to provide co-operatives with a legal framework that will enable them to operate across borders on equal terms of competition with companies. The recently agreed Statute for a European Company (SE), puts in place a similar framework for companies but is not suited to the specific features of co-operatives, the SE being a capital based undertaking.

5.  An SCE would instead have as its principal object the satisfaction of its members' needs and/or the development of their economic and social activities, and not the remuneration of a capital investment. Membership of an SCE accords to the principles of voluntary and open membership and primacy of the individual.

6.  The SCE aims to set out a body of harmonised EU rules for certain key aspects of cooperative societies' statutes e.g. formation, capital requirements, rules of incorporation, membership, mergers etc. Other rules would be left to the existing law of the SCE's home member state. Conversion to an SCE would be entirely voluntary and the SCE Statute would be in addition to and not in replacement of member states existing cooperative laws.

7.  SCEs would, however, be able to operate freely across EU borders and to draw their members from more than one EU member state. An SCE's home state under the statute would be the member state where the SCE has its registered head office.

45  (13584) 5086/92; see HC 79-i (1992-93), paragraph 24 (17 June 1992). Back

46  OJ No. L 294, 10.11.01, p.1-21 and p.22-32. Back

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