Comparative study questionnaire on the industrial relations

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      Comparative study questionnaire on the
   industrial relations consequences of mergers
                and takeovers in Italy
This study presents some important aspects of the role of industrial relations and
collective bargaining in mergers and takeovers in Italy. As the importance and diffusion
of these transactions are increasing, the issue of workers' and trade union involvement
is gaining relevance both in bargaining practice and in trade union strategies.

Introduction
Under the heading of "mergers and acquisition" it is possible to group different transformations
that have very distinct implications for industrial relations. First, we have company or group
reorganisation processes (including mergers and break-ups) that entails a change in the legal
entities which act as employers of the company or group employees. This area is covered by
the European Directives 77/187/EEC and 98/50/EC, as well as by the Italian transposition
legislation (law 428 of 1990). These legislative provisions, together with the sectoral
agreements and the existing company or group-level industrial relations, assure the presence
of an information/consultation procedure. Second, there is the transfer of an undertaking or
business or part of it (like in the case of outsourcing). Such situations as well are covered by
the abovementioned regulation, which demands some degree of union involvement and
grants the protection of workers' rights. Finally, we can consider takeover operations that imply
the transfer of control (or significant) stakes in companies, be they traded on the stock
exchange or not. In this case there is no need for information or consultation on the transfer
per se (in case of "hostile" public offers there might not even be anything to inform about
before the official announcement is actually issued). Of course, there may be information and
negotiations after the transfer, if the new owners intend to reorganise the company, for
instance (as happened for Telecom Italia). Similar to the latter is the case of alliances between
different companies which include a mutual transfer of shares (a case in point is the alliance
Fiat-GM). While information may be disclosed at a certain stage of the negotiation between
the firms, proper consultation and bargaining with trade unions will be carried out only when
and if the deal has some effects on the legal configuration or on the organisation of the
companies involved.

In general we can say that mergers and acquisitions are increasing worlwide, according to the
latest issue of the periodical survey carried out by KPMG Corporate Finance (which do not
include intra-group operations, http://www.kpmg.com/). In Italy, KPMG Corporate Finance data
for the first six months of 2000 show an increase of 20% in the number of transactions
amounting to at least ITL 2 billion compared with the same period last year. Interestingly,
cross-border operations implemented by Italian firms are up by more than 50%, while deals by
foreign companies are diminishing slightly (-13%). The sectors involved are mainly
telecommunications, banking and metalworking, while transactions which target internet,
publishing and media companies are increasing.

                    Table 1. Number of mergers and acquisitions. Italy
Origin-target      1st sem. 2000              1st sem. 1999          1st sem. 1998       1st sem.
                                                                                           1997

                Number         change*       Number      change*    Number change*       Number

Italy-Italy        226         20.2%          188         -19.0%     232      40.6%        165

Italy-World        112         53.4%           73         87.2%       39      21.9%        32

World-Italy         61         -12.8%          70         -6.7%       75     -21.1%        95

Total              399         20.5%          331         -4.3%      346      18.5%        292

* Compared with the same period of previous year.

Source: elaboration on data KPMG Corporate Finance

Table 2. Mergers and acquisitions in Italy. Sector break-down (1999-2000, 1st semester)


Target sector                  2000                 Target sector           1999

                    Number        % on total                        Number    % on total

Telecom/                 53             13      Metalworking           49          15
information/
electronics

Banking                  46             12      Banking                45          14

Metalworking             42             11      Telecom/               36          11
                                                information/
                                                electronics

Internet                 41             10      Financial              20            9

Publishing/              25              6      Textiles               18            5
media

Total*                   207            52      Total*                168          51

* Considering the first five sectors.

Source: KPMG Corporate Finance

1. The right to be informed and consulted
Please provide information on the legislation (and collective agreements) governing
employees’ rights in the case of mergers and takeovers. The following questions should be
answered:
1) In the case of a merger or takeover, in whatever form, are employers obliged to inform
   workforce representatives?
2) Who must provide this information (eg, in the event of takeovers, the management of the
   company)?
3) To whom must this information be provided: elected representative bodies (workplace
   council, works council, group-level works council, etc), or trade union delegates?
According to law no. 428 of 29 December 1990 (which transposed the European
Directive77/187/EEC), in case of transfer of a business which employs more than 15 workers,
the management of both companies involved (the one that is being taken over and one taking
over) must inform the plant-level union representative bodies of the relevant production units,
as well as the sectoral unions. The information must be provided in writing and at least 25
days before the implementation of the takeover. If no plant-level union representative bodies
are present, the management must inform the sectoral unions affiliated to the most
representative confederations at national level (usually Cgil, Cisl and Uil). In particular, the
management should provide details on:
a) the reasons for the planned transfer;
b) its juridical, economical and social consequences on the employees;
c) the intended measures, if any, which will affect employees.

The law refers to the transfer of a "firm", that is a unit which constitutes an "organised
economic activity", usually including some sort of equipment (even if it is controversial whether
the concept of "firm" in the commercial law may be extended as such to labour law - see
below section 5). In this sense, the rule may be applied to all situations where a firm or a part
of a firm (that could be viable as an independent economic activity) is transferred from an
employer to another, be it for reason of merger or acquisition (or of a break-up). The
legislation is therefore relevant in cases of outsourcing too, and this was an important area of
application in recent year, namely in the car industry.

When a take-over or a merger result in the unification under the same employer of employees
with different collective regulation (eg because of the pre-existing company-level agreements
or owning to the former application of distinct sectoral agreements), a "harmonisation"
collective agreement may be reached. However, no such need exists and there are various
examples (for instance in the banking sector) where differences are kept (often in the areas of
supplementary pensions and economic conditions). A "harmonisation" agreement is usually
needed when a break-up (which is formally a take-over by a new entity) entails, for instance, a
change of relevant sectoral collective agreement.
As for the provisions included in collective agreements, sectoral agreements usually include
the right to information on strategic decisions in annual meetings. Besides, in specific cases
some more detailed procedures may be provided for: in the metalworking industry, when
outsourcing involves a plant with more than 350 employees and has important consequences
on employment or working conditions, the management has to activate an information
procedure before the implementation phase. Negotiations are possible, consequently, on the
effects of the company decisions.
The banking sectoral agreement of June 1999 specifically grants information, consultation and
negotiation rights at group-level in case of important reorganisation or restructuring processes,
including mergers. If these processes involve more than one subsidiary company of the same
group, then information, consultation and negotiations will take place only at group-level and
will involve, together with a special delegation of company union representatives, the national
secretaries of the union signatories to the sectoral agreement. Negotiations may not cover
wage and should take into account working conditions, employment levels and training and re-
qualification. The consultation and bargaining round should last no longer than 40 days,
unless the parties agree to go on with negotiations. Then, a follow-up meeting should verify
the implementation of the agreement, including the steps taken at company-level and the
implementation details introduced in the individual industrial plans. In the banking sectoral
agreement, the parties also introduced a specific commitment to define an information and
consultation procedure on business transfers that takes into account the rules introduced by
law 428 of 1990 (see above).
In the insurance industry wide agreement, a specific article (article 14) provides for an
information/consultation procedure in case of relevant company restructuring, also due to
technological innovations, mergers, combinations and break-ups, which may entail impacts on
employment and working conditions or lead to territorial mobility. Both information and
consultation (to be activated upon union request) must take place before the implementation
phase. The consultation procedure should aim at reaching an agreement and it should last no
longer than 30 days. During this period, a special clause forbids unilateral actions and conflict.
1) Are employers obliged to consult workforce representatives, or even begin negotiations, on
   the consequences of mergers and takeovers for their workforce?

Either the plant-level union structures or the sectoral unions may demand, in writing and within
seven days from receipt of the information on the firm transfer, to start a joint consultation.
Both seller and buyer must conform to this request and begin such consultation procedure
within seven days. In any case, the consultation round is to be regarded as concluded after
ten days, even if no agreement could be reached. If the companies' management do not
respect the obligation to joint consultation, they incur in "ANTI-UNION BEHAVIOUR" in breach of
article 28 of the W ORKERS' STATUTE.
This information and consultation procedure is meant to cover the transfer itself (that is the
terms with reference to the identification of the employees and to the economic and regulatory
aspects). In case of specific consequences of the takeover, like a restructuring process,
information, consultation and negotiation will take place according to the rules on company
reorganisations.

2) Do workforce representatives have the right to obtain expert assistance during the
   information and consultation procedure?
No such right is expressly provided for by legislation.

3) Are there obligations relating to the form of, and the timetable for, the
   information/consultation process?
Yes (see above for details).

4) Do workforce representatives have the right to challenge planned mergers and takeovers
   or subsequent redundancies and have them postponed?

Unions can act again the companies involved in case of no abidance of the mandatory
consultation procedure on grounds of breach of article 28 of the Workers' Statute (anti-union
behaviour). They can also (as the workers can) ask for full application of the law, if they
consider that the equivalence between the economic and regulatory conditions was not
guaranteed. In this case, the companies may be forced by the court to align the post-transfer
conditions to those existing before it.
In theory, the operation may be unlawful as such only if it is possible to prove that it was
intended merely to circumvent regulation on employment reduction and to close down or
down-size an economic activity. Of course, it is very difficult to demonstrate such intent. In
case it were possible, the consequence would be the definition of an appropriate economic
compensations for the workers. Besides, workers may challenge individually their transfer to
the new employer in case of partial sale, if they believe the sale does not involve an
autonomous "part of a business". In fact, the latter is the condition under which the transfer of
the employment contracts is to be considered automatic and does not need the employees'
explicit consent. In such circumstances they may ask to remain employed by the seller.

5) In the case of a takeover, does the purchasing company have to comply with the terms of
   the existing contractual agreements in the company being bought out?

Yes. This particular clause is valid for any firm transfer, irrespective of size. In fact, article
2112 of the Civil Code (which was amended in 1990 in order to transpose European
Directives) states that:
a) "in case of firm transfer, the employment relationship continues with the buyer and the
    workers maintains all rights"; and
b) "the buyer must apply all economic and regulatory conditions guaranteed by collective
    agreements, including company-level ones, in force at the date of transfer and until their
    expiration, unless they are replaced by other collective agreements which refers to the
    taking over company".
These provisions were introduced in order to protect the workers rights in case of change of
employer and especially to preserve employment levels by making clear that the transfer of a
firm does not by itself justify dismissals. At the same time, they safeguard the integrity of the
business, granting that experienced employees will continue to work for the new employer.

(Of course, in the case of a mere transfer of ownership, as the formal employer does not
change, the new management has to conform with the terms of existing contractual
agreements, even if it is free to undertake new bargaining strategies and options which may
challenge existing collective regulation).

2. The role of public authorities (governments and regulators)
1) Can public authorities legally challenge company mergers and takeovers (as an anti-
     competitive practice, abuse of dominant position, creation of a de facto monopoly, etc.)? If
     this has already happened, please provide the most recent rulings in this field.
Yes. The Guarantee authority for competition and the market (Autorità garante della
concorrenza e del mercato), in accordance with law 287 of 1990, may challenge company
mergers and takeovers in case of concentration processes that hamper free competition. It
can also intervene against individual companies for abuse of dominant position and against
firms or trusts and alliances for anti-competitive practices.
The latest intervention on a takeover was made on 27 July 2000, when the Guarantee
authority for competition authorised the acquisition of Seat Pagine Gialle by Telecom Italia,
under the mandatory condition to implement specific actions in order to avoid the potential
anti-competition effects of the takeover. With reference to the banking sector, the authority
issued opinions on different transactions to the Bank of Italy, as the latter acts as the
regulatory agency in this sector. In some cases, like in the acquisition of Banca Commerciale
Italiana by Banca Intesa, the sale or the closure of some retail-banking outlets in particular
areas where requested for eliminating the potential negative effects of a local dominant
position (decision taken at the end of 1999).
2) Are employers obliged to inform public authorities of the reasons leading them to make
     collective redundancies? Do public authorities have the power to reject collective
     redundancies? In what circumstances?
In case of company reorganisation and restructuring processes the firm may ask the
intervention of the WAGES GUARANTEE FUND (a sort of income support, see IT9802319F) and, if
it regards it as necessary, start a procedure for collective redundancies. In this case,
according to law 223 of 1991, it has to inform the unions in writing, stating the reasons that are
leading to the redundancies, why it was not possible to avoid, at least partly, such
redundancies by means of different organisational arrangements, the number of workers and
the job positions involved, the timing of the reduction and the measures, if any, planned to
face the social consequences of the redundancy program. Copy of this communication must
be sent to the relevant province LABOUR OFFICE (which is part of the Ministry of Labour). Public
authorities widely use their mediation and "moral suasion" capacity in order to facilitate an
agreement between the parties, but they cannot simply reject collective redundancies in case
of company crisis and restructuring.
3) Do public authorities plan to amend current standards relating to mergers and takeovers
     and their consequences for industrial relations? If so, what are these plans?
There are no formal proposals on this matter.

3. Employment and collective bargaining
1) Please cite cases where large numbers of redundancies have been announced after
   mergers and takeovers.
Here it is important to distinguish between the different kinds of mergers and takeovers which
were identified in the introduction paragraph. In fact, if we consider mergers and acquisitions
realised for redefining intra-group structures or in the framework of company alliances and,
generally speaking, outsourcing processes, there were no instances of large collective layoffs.
Quite interestingly, the most relevant examples of collective redundancies that took place in
the banking sector in recent years involved companies (like BNL and Banca di Roma) which
were not touched by the wave of mergers and takeovers which have radically transformed the
sector. Similarly, the outsourcing transactions in the metalworking sector, and notably at Fiat,
did not have significant impacts on employment and were managed through extensive
bargaining (occasionally characterised by conflict) which safeguarded collective regulations,
including the application of the sectoral and company-level agreements. Also the Fiat-GM
alliance did not have any impact on employment levels, so far, and the Fiat company
management has confirmed that there are no expected redundancies.
It is important to point out that these are all situations in which the involvement of trade unions
is supported by the existing sectoral and company-level industrial relations (intra-group
reorganisation and company alliances), supplemented by law 428 in case of total or partial
transfer of a businesses (as in outsourcing). At the same time, especially in the case of
alliances and of the redefinition of the intra-group structure, a future impact on employment
cannot be completely ruled out. After a first phase of "legal" and "formal" restructuring a phase
of "industrial" and "organisational" restructuring may come. For example, this is already being
discussed in the case of the Intesa Group, one of the major banking groups in Italy, which was
progressively created in recent years by way of mergers and acquisitions. The latest company
reorganisation plan envisages some 5,400 redundancies (to be added to a reduction of 2,500
workers through transfers of single retail-banking outlets) out of a total of about 70,000
people. Talks are under way with the unions in order to find "non-traumatic" solutions which
may be supported by the special sectoral fund for managing restructuring.
Two examples of this kind of agreements can be found in Fiat, in connection with the alliance
with GM, and in the insurance company Generali, after the takeover of INA, another insurance
company. At the beginning of July, two agreements were singed at Fiat for transferring some
activities (engine manufacturing and purchasing services) to two companies which are
involved in the group formal and organisational restructuring connected with the Fiat-GM deal.
The agreements covered some 8,400 workers and confirmed the continuity of employment
contracts with the new employer, according to article 2112 of the Civil Code, as well as the
application of the metalworking sectoral agreement and the invariance of all economic and
regulatory conditions compared with those existing at Fiat.
After the acquisition of INA by Generali (February 2000), there have been a long consultation
procedure between the two companies and the respective trade union representatives on the
implementation of a reorganisation plan, in accordance with the sectoral agreement provisions
(see above point 1.3). Initially, the company strategic plans envisaged an employment
reduction of 1,400 units. The unions rejected this position and demanded to start a
consultation round at national level with the holding company Generali. The consultation was
eventually started and led to an agreement at the beginning of July 2000. Straight
redundancies were abandoned and replaced by economic incentives for voluntary
resignations. Also the impact of territorial mobility and intra-group transfers was reduced with
comparison with the initial company plans. Finally, the new subsidiaries established in the
framework of the reorganisation process will apply the insurance sectoral agreement (with the
exception of the subsidiary in charge of saving management which will apply the banking
sectoral agreement).
The picture is different if we consider the consequences of the acquisitions that take place
essentially on the financial markets and result in a transfer of ownership or if we analyse the
local effects of foreign mergers and takeovers, which are part of the global strategies of
transnational firms. An example of the first situation is Telecom Italia after the "hostile"
takeover by Olivetti/Tecnost, which was successfully carried out in June 1999 through a public
offer. The second is well illustrated by the closure of the Goodyear LATINA plant.
After the acquisition, the new Telecom Italia management defined a strategic plan which
envisaged the sale of some activities and a substantial reduction in employment levels by
some 13,500 people (out of about 75,000). The final agreement was reached on 28 March
2000, after seven month of difficult negotiations and 20 hours of strike. The deal provided for
the reduction of straight employment reduction to 5,300, which will be implemented through a
"soft" transition to retirement (as provided for law 223 of 1991). For the other workers, the
agreement envisages either redeployment within the group (1,900), or a redefinition of working
hours (600), or re-qualification with a view to outplacement (2,200), as well as incentives for
voluntary resignation. Thanks to the government mediation total redundancies have been
reduced to 13,000. Then, the agreement includes the company's commitment to ITL 30,000
billion investments in three years as well as to 6,200 new hirings, of which 2,000 will be made
in the South of Italy.
In the dispute over the closure of the Goodyear Latina plant, an agreement was reached in
April 2000, after a harsh confrontation. The agreement, which has been signed with the
intervention of the Ministry of Labour and the regional government, has provided for a re-
industrialisation plan for the site, outplacement for redundant workers, as well as economic
incentives and income support measures, partly financed directly by Goodyear (IT0005153N).
2) Are there examples of negotiations which have resulted in an improvement of the
    conditions of the employees concerned be redundancies after mergers and takeovers (eg
    avoiding "straight" redundancies, reducing the number of jobs lost, providing for
    redeployment or extra compensation for redundant workers etc.)?
Yes, for instance Telecom Italia and the Goodyear Latina Plant (see above).
3) Are there cases in your country where workforce representatives have mobilised the
    employees concerned against the planned merger or takeover? What form did this take
    (demonstrations, strikes, etc)?
Yes, for instance Telecom Italia and the Goodyear Latina Plant (see above).
4) Are there cases where appeals have been made to public opinion (locally, nationally, on a
    European level)? What form did this take (demonstrations, sympathy strikes, etc)?
5) Are there cases where appeals have been made to public authorities (government, elected
    representatives)? What were the results?
The mediation of public authorities is usual in case of relevant reductions in employment
levels. This generally leads to collective agreements (see above for Telecom Italia and the
Goodyear Latina plant).

4. Cross-border mergers and the role of European Works Councils
1) Have there been recent major cases of cross-border mergers and takeovers involving
   companies in your country? What were the particular issues involved?
2) Have there been examples of cross-border trade union organisation on the issue of these
   mergers and takeovers?
A major example is the alliance Fiat-GM (even if it is, strictly speaking, neither a merger, nor a
takeover; however, it can lead to various transactions of this kind, like those which led to the
agreements mentioned above - see section 3.1). There were joint meetings and contacts
between the EWCs of the two groups, organised by the European Metalworkers' Federation.
The EWCs agreed a common strategy in order to cooperate and avoid employment reduction,
the worsening of working conditions, and at the same time safeguard the existing collective
agreements.
3) What role, if any, did the European Works Council(s) play in these mergers and
   takeovers?
None. They were only informed after the alliance had been announced.
4) Is there any available evidence on what happens to European Works Councils after
   mergers and takeovers (are they themselves merged or taken over?).
Nothing, for the time being (also because it is neither a merger, nor an acquisition).

5. Public and academic debates
1) What are the main findings of any academic work has been done in your country on the
   issue of mergers and takeovers and their consequences for industrial relations?
2) Has there been public debate on this issue? What proposals have been put forward?
Among labour law scholars there is an open debate which refers to partial business transfer
and focuses on the practical application of the law 428 of 1998, since there have been
contradictory rulings by courts, owning to different interpretations of the concept of "part of a
business". This is an important point because, as mentioned above, if a transaction does not
involve a proper and potentially autonomous "part of a business" (ie that could be viable as an
independent firm), the worker's consent is needed for the transfer of the employment
contracts (and, therefore, he or she can decide to remain with the former employer). This
debate is particularly relevant in case of outsourcing processes. It also relates to the European
Directives 77/187/EEC and 98/50/EC and to the rulings of the European Court of Justice, as
the European-level definition of transfer of an "economic entity" is usually regarded as broader
than that of "firm" within Italian legislation.
6. Viewpoints of the social partners
1) What are the employers' and unions' assessments of your country's current legislation on
   mergers and takeovers?
2) How do they perceive European regulations?
3) Have they made proposals in regard of current and existing rules on:
   a) company mergers and takeovers?
   b) collective redundancies?
   c) the rights of European Works Councils?

Generally speaking, trade unions demand a wider involvement in such kinds of transactions.
They lament essentially that their role is limited to negotiating the consequences of decisions
they often "read on the newspaper". For instance, this is the typical situation when relevant
international alliances are concluded or financial operations are implemented, while a higher
degree of information and consultation may take place in case of intra-group reorganisations
or transfer of parts of a company. Trade unions would like, at least, to be involved in
consultations on company strategies and have some part in choices that may have
considerable impact on employment and working conditions. Since many of these
transactions require strict confidentiality (also because of implications for financial markets),
specific information and consultation may take place in particular joint committees covered by
secrecy clauses. Part of the unions, particularly Cisl, believes that a substantial move towards
a broader involvement in company decision may come from the implementation of forms of
economic democracy, like employee shareholding.

An example of an actual request for higher involvement can be found in the recent platform of
demands presented by trade unions for the company agreement renewal at Fiat
(IT0007157N). The platform includes a request to introduce mandatory prior consultation on
all the company's strategic decisions with organisational implications. The unions ask that the
"observatory on company strategy", created by the 1996 agreement, be entitled to express a
compulsory and preventive opinion, if not a binding one, in cases of relevant changes in the
company's strategies and organisation, including company alliances, transfers and
acquisitions.

7. Viewpoints of the national centres
Please give your opinion of the consequences of company mergers and takeovers for the
workforce and their impact on industrial relations. Do you think current measures (whether
legislative or collectively agreed) are effective? What are their limits?

Mergers and takeovers are apparently an increasingly important part of the economic
environment that unions have to face. At the moment, both collective agreements and
legislation provide different instruments which enable the unions to manage essentially the
consequences of these transactions. In some cases, the involvement of unions is significant
and there seem to be an actual commitment to find bargained solutions. However, this is
largely left to the specific bargaining power that the parties may exert in each situation, and,
even more importantly, to the company collective bargaining tradition and the "climate" of
industrial relations.

The point is that it is difficult to strike a balance between the autonomy of the firm in defining
its own strategies and the demands put forward by unions and employees to participate in
decisions which may be crucial for the workforce. The solution proposed by Cisl is to turn
stakeholders (workers) into shareholders. It is an interesting proposal, but it has to face many
difficulties and probably it might be hardly generalised in Italy (IT0007270F).

The present situation is often considered unsatisfactory by trade unions; however, it is
probably true that a clear obligation to consult and bargain over the effects of mergers and
acquisitions may support higher degrees of union involvement (as happened in some of the
examples illustrated above). In general, the strengthening of bargaining rights on the
reorganisations that may follow mergers and acquisitions could increase the interest of
companies in workers' and union early involvement in such decisions. Then, a more
participatory system may be beneficial for both firms (easier and more effective
reorganisations) and unions (participation in decisions and limitation of negative impacts),
while at the same time maintaining a basic distinction of roles (Roberto Pedersini, Fondazione
Regionale Pietro Seveso).