"European Company" law comes into force

Legislation covering "European Companies", which will require certain firms to have employee representation on their boards, came into effect last month.

Eight of the 25 member states, including the UK, had introduced the necessary legislation by the due date of 8 October but others are expected to follow shortly.

The legislation states that where a company operating in several European Union states wants to switch to being registered as a "European Company", rather than say a British or French company, it must begin negotiations on employee representation at board level.

If these negotiations fail or if the company does not want to negotiate, fall-back arrangements apply. These guarantee that, subject to a number of limits, the most favourable board-level representation that applied under national legislation will apply in the new European Company.

The first company to make use of the legislation is the Austrian company Strabag, which employs 31,500 people and is the third largest construction company in Europe. The company says its aim is to save costs and to make it easier to expand in the new EU member states.

However, the unions in Germany and Austria are concerned that Strabag has switched to being a European Company without negotiations with the workforce. The issue has now been taken to court.