Employee Ownership Blog

Pro-Employee Ownership Legislation Passes the First Hurdle in the European Parliament

Thanks to Kosta Juri, director of operations at the Institute for Economic Democracy (IED), and Rachel Bachmann, head of strategic initiatives at IED, for helping draft this post.

Last week, the European Parliament (EP) plenary adopted (by 492 votes in favor, 144 against, and 28 abstentions) a resolution with recommendations to the European Commission to propose a harmonizing directive aimed at creating an EU-wide unified legal framework (the “28th Regime,” referring to an additional legal framework alongside those of the current 27 member states) for innovative companies.

This initiative includes a new corporate form, the Societas Europaea Unificata (S.EU) (Unified European Company). Its primary objective is to remove obstacles to cross-border business activity; create an environment in which European small and medium-sized enterprises, start-ups, and scale-ups can thrive; and establish the preconditions for enhanced European competitiveness.

In recognition of the key role that alternative forms of ownership play in fostering resilience, competitiveness, and long-term success, the resolution also calls for facilitating “steward ownership” and employee ownership, specifically through employee stock options and what the resolution refers to as employee stock ownership plans (ESOPs). The term ESOP, however, does not mean what it means in the US. Instead, it is a generic description of an employee ownership plan.

The European Parliament’s recommendations are not legally binding and do not specify how such support, such as tax incentives, should be implemented in practice. It also remains unclear to what extent the ESOP model promoted in the context of the 28th Regime is intended to resemble the US ESOP or other existing models for establishing broad-based employee ownership. What is clear, however, is that the adopted resolution sets out a number of criteria that employee ownership plans should meet:

  • Employee financial participation plans must under no circumstances replace or diminish normal basic remuneration or any other form of contribution, such as social security contributions, and must remain complementary to all social and contractual rights.
  • Transparency and democratic governance must be key principles in the design and implementation of these plans.
  • Participation must be nondiscriminatory, exclusive to employees, and open to all employees.
  • Participation must be voluntary for employees, and setting up a plan must be optional for S.EUs.
  • Plans must have safeguards to protect employees against unreasonable financial risks.

It is now up to the European Commission to address the practicalities and decide how and to what extent these employee ownership plans should be regulated at the European Union (EU) level, or whether they should be regulated at all. Possible approaches range from targeted, “lean” interventions aimed at removing existing legal barriers to the creation of a more elaborate EU-wide ESOP status applicable to companies meeting minimum standards.

“As part of the debate on the 28th Regime, we are pushing for provisions that would make it easier to establish broad-based employee ownership across the EU and, ideally, set out minimum standards for obtaining a special ‘employee-owned’ status” says Kosta Juri, director of operations at the Institute for Economic Democracy (IED) and a member of a special working group of legal and policy experts advocating for responsible ownership models in Europe.

“There are understandable concerns that a common corporate framework could lead to social and tax dumping, undermining hard-fought labor protections and other national-level regulations,” he adds. “But this moment also offers an opportunity to move beyond deregulation and advance a positive form of EU-level standardization. By introducing a unified framework for employee ownership, the EU can enable broad-based, democratic ownership and help keep businesses rooted in their communities. The experiences of the UK and the US show that ESOPs are a proven solution for business succession. With Europe facing a silver tsunami of retiring business owners, the need for such tools has never been greater.”

“This is a win for inclusive employee ownership models across Europe,” adds Rachel Bachmann, the head of strategic initiatives at the IED and also a member of the working group on ownership models mentioned above. “While it is still early in the process and the proposed legislation does not introduce fiscal incentives (which remain within the purview of national tax authorities), the creation of a new company form with employee ownership as a built-in option will significantly increase awareness and uptake across the EU. It may also inspire more member states to follow Slovenia’s and Denmark’s lead in adopting pro-employee ownership legislation.”

The next step is for the European Commission to draft a harmonizing directive, which must then be approved by both the European Parliament and the EU Council, potentially following several rounds of negotiation. Once adopted, it will be published and transposed into national law within a set timeframe. If all goes well, the new legislation could take effect in 2027.