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Will Works Councils Work Here?

After Volkswagen employees rejected United Auto Workers' efforts to unionize at a plant in Tennessee, whispers about works councils persist. With success achieved overseas, could these bodies impact employee representation in the United States?

Thursday, March 27, 2014
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Last month, employees of the Volkswagen plant in Chattanooga, Tenn., voted 712 to 626 against joining the United Automobile Workers. Despite rejection of the industry-wide union, some employees are expressing interest in an alternative form of in-house representation via works councils, which are organizations implemented by Volkswagen employees in the majority of its plants outside the United States.

European-style works councils function primarily on a local level, enabling employee-elected members to have input about on-site issues such as workplace rules, hours and schedules. Management and workers may exchange workplace information and consult on company-specific implementations of industry-wide agreements, typically not engaging in negotiation about wages and benefits. German law mandates works councils as a means of promoting employee co-determination of the business, and it also mandates representation of works-council members on corporate boards.

U.S. labor laws, however, restrict negotiation between management and employees outside unions. The presence of a works council established in the United States -- in the absence of a recognized industry labor union -- would be viewed as a "company union," which is prohibited by the National Labor Relations Act, says Steve Bernstein, a Tampa, Fla.-based attorney and partner at Fisher & Phillips.

"Participants cannot exchange proposals and engage in give and take negotiations. If it looks like a union and acts like a union, it is a union," says Bernstein. "If [Volkswagen] is going to import these councils in the U.S., they will have to adapt them to conform to U.S. requirements."

Throughout an intense and politically charged lead-up to the UAW vote, Volkswagen remained officially neutral in its stance. Chattanooga is the only Volkswagen factory worldwide, however, to have no formal mechanism for representing workers’ interests, according to the Financial Times. After the February vote, company works council officials in Germany expressed interest in traveling to the United States to discuss conforming to requirements with domestic labor law experts.

Frank Fischer, chief executive of Volkswagen Chattanooga and manager of the plant, said in a statement that, while the workers voted against the UAW, they did not vote down the idea of a works council. "Throughout this process, we found great enthusiasm for the idea of an American-style works council both inside and outside our plant. Our goal continues to be to determine the best method for establishing a works council in accordance with the requirements of U.S. labor law."

Works councils and worker co-determination have been mainly positive for Volkswagen in Germany, according to Christian Pfeifer, a professor at Leuphana University Lueneburg's Institute of Economics, who lives less than five miles away from the Volkswagen plant in Hannover.

"Even though the management in some firms try not to be confronted with works councils and some workers do not see their benefits . . . most managers and workers -- especially in large firms with internal labor markets and in the manufacturing sector -- are, at least to some degree, in favor of works councils," says Pfeifer.

"Works councils can increase trust toward and communication with the management, which can lead to better work attachment, innovative capacity and willingness to accept hardships to deal with a crisis. Better general working conditions and the ability to express dissatisfaction with specific working conditions also positively affect workers’ motivation and curb workers’ tendencies to voluntary quit their job, which in turn increases job tenure and investments in workers’ human capital that increases their productivity," he says about councils’ impact abroad.

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Stateside, however, union membership has declined from 1.5 million in 1979 to less than 400,000 today. In the private sector, less than 7 percent of employees are unionized. "There’s clearly a void. It’s possible that other companies and industries will follow suit with works councils if Volkswagen has success both legally and practically," says Bernstein.

The councils could have a positive impact on both workers and human resource professionals, according to Bernstein, who notes that HR executives are always searching for participatory mechanisms and initiatives for the purposes of improving workplace morale and efficiency. He warns, however, that the models must be very carefully structured in accordance with U.S. labor laws, and HR professionals must responsibly manage worker expectations so as not to lead to disappointment, backlash or backward steps.

"Any HR practitioner viewing this from a distance will want to balance legal risk and expectation concerns versus the potential benefits of having direct worker input in company decisions, which can improve morale and productivity," he says.

Pfeifer recently published research on works councils and the management of human resources in the journal Economic and Industrial Democracy, which found that firms with a works council are more likely to have problems associated with overstaffing, high labor costs, high work absence and an aging workforce.

On the other hand, his research finds, firms with a works council are less likely to have problems with understaffing, skilled workers leaving voluntarily and low work motivation. "It depends on the structure and the situation of a firm, if human resource management can benefit from the existence of a works council," he wrote.

It often takes an overseas company to test the bounds of our laws from time to time, notes Bernstein. So all eyes will be on Volkswagen and how its leadership and workers respond to the UAW vote and potentially explore other options for legal employee representation.

As it stands, U.S. law only allows existence of a works council in a company that is represented by a trade union. If the Chattanooga site manages to implement a works council model, it would be the first factory in the country to do so.

Copyright 2014© LRP Publications