René Repasi (S&D, German) is the author of the European Parliament’s own-initiative report on the 28th regime (see EUROPE 13772/16), a new optional company law scheme that the Commission is due to present on 18 March to enable companies to be set up entirely digitally within 48 hours and to opt for a law that allows them to operate anywhere in the EU. Speaking to Agence Europe, the MEP reiterates what constitute red lines for him, such as respect for the issue of employee participation and the rules on co-determination. (Interview by Solenn Paulic)
Agence Europe - The Commission insists that this new regime will be primarily a tool for innovative companies, particularly start-ups and scale-ups. What is an innovative company? Should the field be limited to this qualification?
René Repasi - Well, frankly, I don’t think anyone knows. It’s easy to talk about innovative companies, but defining one is complex, too complex in my opinion. This is why, in the European Parliament’s report, we did not limit the scope of the 28th regime to innovative companies. We had this mechanism in mind for start-ups, scale-ups and innovative companies. But legally, it is open to all. It is therefore aimed at newly founded companies, but also at existing companies wishing to convert to this legal form.
The only restriction, from the European Parliament’s point of view, is that it must not be a listed company. A listed company is subject to very different rules. This is why we have limited the scope of application to limited liability companies.
I doubt that anyone will ever be able to define an innovative company correctly, so it’s best to avoid this debate, otherwise we’ll have a very long and complex architectural rule requiring numerous reports. So let’s not take that any further. Nor do I think that the Commission will opt for this solution.
European workers’ unions fear that this will give companies a free ride and have a negative impact on labour law. Can you reassure them?
“The devil is in the detail. In practice, the question of the employer’s status does arise. For example, if a company like that is established in Estonia and employs staff working in the Netherlands, where should the Dutch labour inspectorate check whether employee protection standards are being met: in Estonia or in the Netherlands?
If the Dutch labour inspectorate does not have access to any documents because the company is considered to be an Estonian employer, it will be difficult for the national labour authorities to enforce workers’ rights and prevent social dumping.
This is a very real issue, which affects the application of labour law and which we are already seeing today, with companies incorporated under foreign law whose employees work in an EU Member State other than the one in which they are incorporated.
This is a point that we will ask to be assessed in detail when the text is published. I trust Commissioner McGrath: he wants to avoid dealing with individual labour law issues. This is also what the European Parliament asked for.
But there are other areas where a company law proposal cannot remain indifferent to employee protection, such as board-level employee representation, or what, in Germany, corresponds to co-determination (‘Mitbestimmung’).
Employee participation on supervisory boards is a matter of company law and must therefore be taken into account by all legal forms of company.
However, there is a significant difference between German law and that of other neighbouring countries, notably France, when it comes to employee participation rights at board level. So we need to find a rule that allows us not to compromise the standards of employee participation in force in Germany, without imposing them on France. This is the most complex element.
And that was also the most difficult part of my own report. It took months of negotiations to reach a compromise accepted by all, including the unions. This is why I strongly recommend that the European Commission take Parliament’s proposal very seriously.
In its conclusions of 20 March, the European Council could ask the co-legislators to reach agreement on this 28th regime by the end of 2026...
Well, if this issue of employee participation is not properly addressed, I don’t see how Germany could vote for it, or the Social Democrats in the European Parliament for that matter. And since my report received a large majority, without the extreme right or left, it is clear that this 28th regime will not go forward, and certainly not before the end of 2026, if the Social Democrats do not vote for it!
This issue of social and labour law is crucial. This will be the main issue for the Social Democrats, but I expect that the Commission’s proposal will ultimately be fairly close to Parliament’s position. We will also see whether the Commission has the creativity to follow up the most innovative elements of the European Parliament’s report, such as optional steward-ownership. or the introduction of an alternative dispute resolution mechanism for business-to-business disputes under the 28th regime.
When you talk to investors, the main reason they don’t want to invest in Europe is this: “If I invest in Italy and things go wrong, it will take me nine years to get a final ruling”. So why go there? Whereas in Delaware, in the United States, which is the opposite example, where many American companies are incorporated, this is done much more quickly and only takes a few months. The courts there are highly specialised in company law and have a sufficient number of judges to hand down judgments quickly.
This is not the case in Europe, nor will it be with the 28th regime, at least for the time being. But if we have an alternative mechanism for resolving inter-company disputes, where experts rule on disputes between companies, in principle we might be able to reproduce this effect.
Ursula von der Leyen raised the possibility of launching enhanced cooperation for the 28th regime. Is this a good initiative?
I don’t think that’s a good idea. Enhanced cooperation is only necessary if the majority conditions stipulated by a legal basis are not met. If it is a proposal, as requested by Parliament under Articles 114 and 15 of the Treaty on European Union, then it is a qualified majority.
So, if enhanced cooperation proves necessary due to the lack of a qualified majority, many States would choose not to participate. The situation would be different if the Commission opted for a legal basis requiring unanimity. In this case, it seems highly likely to me that the large Member States will withdraw from this enhanced cooperation, because they regularly consider certain aspects of their company law to be so important that they deem them non-negotiable; the German law on co-determination is a good example of this.
Now imagine closer cooperation with, say, 25 members, but without the participation of the two largest economies in the internal market, Germany and France. A 28th regime without these two economies simply makes no sense.
It is an instrument of the internal market presented by Enrico Letta to counter its fragmentation. It would be absurd to create an instrument that is supposed to solve this problem on the basis of enhanced cooperation alone.