Participation in a company resulting from a cross-border transformation

Bill

On December 23, 2021, on the website of the Government Legislation Centre, a draft act was published on the participation of employees in a company created as a result of a cross-border transformation, merger or division of companies (hereinafter: the "Draft Act" or "Act"). The new regulations are intended to implement into the Polish legal system the provisions of the Directive of the European Parliament and of the Council (EU) of November 27, 2019/2121 amending Directive (EU) 2017/1132 with regard to cross-border conversions, mergers and divisions of companies. The draft Act expands the existing regulations related to employee participation in the field of transformations, mergers and divisions of capital companies.

The draft Act constitutes a new and comprehensive regulation and is to replace the Act of 25 April 2008 on the participation of employees in a company resulting from a cross-border merger of companies. As indicated in the justification, an amendment to the currently binding act would require a significant number of changes, which is not justified from the point of view of the legislation.

The act is to regulate in particular the forms of employee participation in a company resulting from a cross-border transformation, merger or division of companies, which include:

• the right to appoint or elect a certain number of members of the supervisory board or board of directors;
• the right to recommend members of the supervisory board or the board of directors;
• the right to object to the appointment of some or all members of the supervisory board or the board of directors.

The implementation of the employees' right to participate in a company resulting from a cross-border transformation, merger or division of companies may take place according to one of two models. In this regard, the legislator adopted legal solutions from the hitherto binding provisions of the Act of April 25, 2008.

In the first model, the form of employee participation is decided in negotiations with a special negotiating team, even before the company is established as a result of the above-mentioned cross-border transformations. The second model, on the other hand, is based on standard rules under which the implementation of employee rights takes place after the company is established as a result of a cross-border transformation, with the support of a representative team.

Special negotiating team

The special negotiating team represents all employees in the company being transformed, in the merging companies, in the company being divided, as well as in subsidiaries and establishments. The task of the special negotiating team is to conduct negotiations and conclude an agreement with the competent authorities of the company.

The special negotiating team shall be set up immediately after the competent authorities of the converted company, the merging companies or the company being divided disclose or make available a draft of the cross-border conversion, merger or division terms. The draft Act contains a detailed procedure for selecting members of the special negotiating body, specifying the moment of commencement of the procedure leading to the formation of the team, the allocation of places in proportion to the number of employees in a given Member State, and the rules for selecting team members by the workplace trade union organization or, if such organization does not operate at the employer's by all employees.

The mandate of a member of the special negotiating team shall expire in the event of termination of employment, resignation from office or a motion to revoke a mandate signed by at least 50% of employees of the companies and establishments as at the date of submission of the application. In the event that the mandate of a member of the special negotiating body expires, a reserve member shall be included in the special negotiating body.

The first meeting of the members of the special negotiating body should be scheduled within 14 days from the date of receipt of information on the appointment or selection of team members. The competent authorities of the converted company, the merging company or the company being divided will be required to provide the special negotiating body with information on the plans and course of the cross-border conversion, merger or division on an ongoing basis until the date of registration of the companies resulting from these transformations.

Following the example of the existing regulations, the legislator granted the team the right to use the assistance of appointed experts. Experts can participate in the negotiations as advisers to the team.

The negotiating team should emdeavour to reach an agreement with the competent authorities of the company. The draft Act limits the duration of the negotiations, stipulating in Art. 24 of the Act, that negotiations may last up to 180 days, unless the parties to the negotiations decide to extend them up to one year. The act imposes an obligation to conduct negotiations in good faith and in a manner aimed at concluding the agreement in question.

The draft Act generally specifies the content of the agreement, which should specify in particular:

• scope of its application;
• rules of participation taking into account the number of members on the supervisory board or the board of directors whose employees will have the right to elect, appoint or recommend, or the number of members whose appointment employees will have the right to object to; and
• effective date, its duration, cases in which the agreement may be renegotiated, and negotiation procedures. If the duration of the agreement is not specified, it is assumed that it was concluded for an indefinite period.

The agreement is concluded in writing or in electronic form, otherwise null and void. It is worth emphasizing that the negotiating team may deliberate with the use of electronic means of communication.

The costs related to the creation and operation of a special negotiating team shall be borne by the transformed company, the merging companies or the company being split on the terms specified in their agreement. The act also regulates the rules of incurring costs in the event that an agreement is not concluded.

Standard Rules for Participation

In the second possible model, the representative team plays an important role. It consists of the employees of the company resulting from the cross-border conversion, merger or division, and of subsidiaries or establishments appointed or selected from among the employees. The members of the representative team are selected according to the rules for selecting members of the special negotiating body, and their mandate also expires under the same rules.

The application of the standard rules of employee participation means that employees of a company resulting from a cross-border transformation, merger or division of companies and its subsidiaries and establishments are entitled to:

• appointment, election or recommendation of members of the supervisory board or the board of directors of the company resulting from the cross-border transformation, or
• oppose the appointment of some or all members of the supervisory board or board of directors of the company resulting from the cross-border transformation

- "in the number equal to the highest number of members of the supervisory board or board of directors of the transformed company, of all merging companies or of the company being divided, representing the employees, before the date of registration" (Art. 30 of the Draft).

The management body of the company resulting from the cross-border transformation, immediately after receiving information about the composition of the representative team, convenes the first organizational meeting of the members of the representative team. The representative team, similarly to the special negotiating team, may deliberate at meetings conducted with the use of electronic communication means.

The Draft Act stipulates that the standard rules of participation shall not be adopted if no forms of participation were used in the transformed company, in any of the merging companies or in the divided company (Art. 33 of the Draft). As you can read in the justification of the Act, "this is the only case in which the obligation to adopt even the basic standard rules of participation is excluded". Such regulation is a consequence of the fact that the transformation process may involve companies which do not use the model of involving employees in the management of the company.

Standard rules of employee participation, except for the situation described above, apply from the date of transformation, merger or division of companies (referred to respectively in Articles 552, 493 §2 and 530 of the Act of September 15, 2000 - Commercial Companies Code), in the following cases:

• the competent authority of the converted company, merging company or company being divided adopts a resolution to be directly subject to and comply with the standard rules of employee participation as of the date of registration of the company resulting from the cross-border transformation; or
• employees do not propose candidates for members of the special negotiating team, or propose candidates in a number smaller than the number of places available to the company in the special negotiating team; or
• the competent authority of the converted company, the merging company or the company being divided and the special negotiating body so decide; or
• the agreement will not be concluded within 180 days from the start of negotiations.

It is worth emphasizing that the purpose of regulating the standard rules of participation in the Act is to prevent a situation in which an agreement would not be concluded and employees could be deprived of the right to participate in a new company.

Members of the special negotiating team, representative team, experts are obliged not to disclose information constituting a business secret obtained in connection with the performed function. This obligation continues after the termination of these functions.

The draft Act in Art. 52 provides that employees who are employees' representatives are entitled to remuneration for the leave from work in connection with the performance of their functions.

Representation of employees on the supervisory board or the board of directors

The draft Act also regulates the situation of persons representing Polish employees in the supervisory board or the board of directors of the company established as a result of the cross-border transformation. These solutions are the same for the two above models.

Persons representing employees employed in the Republic of Poland in the supervisory board or the board of directors of the company created as a result of the cross-border transformation are elected by employees, in direct and secret elections, in accordance with the regulations adopted by a special negotiating team or representative team, respectively. The elections are held during work, within one or more working days with the right to remuneration (Article 44 (1) of the Draft Act).

The legislator adopted the principle that persons representing employees on the supervisory board or the board of directors of a company created as a result of a cross-border transformation, merger or division of companies have the same rights and obligations as other members of the supervisory board or the board of directors (Article 45 of the Draft Act ), including the right to vote on an equal footing with other members of this body.

Protection of employee representatives

Art. 51 of the Draft Act stipulates that "the employer may not terminate the employment relationship or change unilaterally the working conditions or remuneration to the detriment of an employee who is a member of a special negotiating team, representative team or employee representative in the supervisory board or the board of directors of the company resulting from the cross-border transformation, or merger or division of companies during the mandate without the consent of:

• a trade union organization representing an employee,
• district labour inspector competent for the seat of the employer, if the employee is not represented by the company trade union organization".

The above-mentioned bodies have 14 working days from the moment the employer submits a written notification of the planned activities to express their position. The ineffective expiry of this period will be tantamount with granting consent.

It is also worth emphasizing that pursuant to Art. 58 of the Draft, employee representatives appointed under the provisions of the repealed Act of 25 April 2008 on employee participation in a company resulting from a cross-border merger of companies, perform their duties until the end of the term of office and are subject to the above-mentioned protection.

Entry into force

The new provisions should be implemented into the Polish legal system no later than January 31, 2023.

Downloads

• PKF Alert - Participation in a company resulting from a cross-border transformation.pdf [PDF]