The European Union's ambitious plan to create a single digital company form, known as EU Inc., is facing a critical impasse. The core dispute: whose worker rights apply when a company incorporates in one member state but employs people in another? This question has split lawmakers for weeks and threatens to derail the entire initiative.
The Council of the EU adopted its negotiating position on 23 October. In the European Parliament, the Legal Affairs Committee has twice cancelled votes on EU Inc. this month because political groups could not reach agreement on employee participation. A new committee vote is scheduled for 5 November, with a plenary vote set for 12 November.
The European Trade Union Confederation (ETUC) argues that the European Commission's reassurance that employment law is "unaffected" only answers part of the problem. While individual employment rights are generally protected under EU conflict-of-law rules, the gap lies in collective rights tied to the company itself—especially board-level worker representation.
Collective rights at risk
Under the Commission's proposal, participation rights for an EU Inc. follow its registered office. Because the company can register in one country without locating its headquarters or workforce there, founders could effectively choose the participation regime when they incorporate. "We do see that risk," ETUC Deputy General Secretary Isabelle Schömann told Euronews, pointing to evidence from existing European companies. "We already have evidence that businesses are looking for a letterbox company."
Data from the European Trade Union Institute shows that 63% of existing European Companies (SEs) are empty "shelf" entities. This practice, known as letterboxing, allows companies to avoid stricter worker participation rules in countries like Germany or Sweden by registering in jurisdictions with lighter requirements.
What unions demand
ETUC wants the safeguards written into binding articles rather than recitals, which guide interpretation but are not enforceable. Its main demands include:
- A workplace rule: Collective and participation rights should apply where employees habitually work. "European legislation is not there to downgrade existing protection for workers," Schömann said.
- Non-regression: Where several national regimes apply, the highest level of participation should prevail.
- Workforce aggregation: Employees in branches, subsidiaries, and controlled group companies should count towards national co-determination thresholds, so companies cannot split their headcount to stay below them.
- An anti-circumvention clause: This would cover artificial structures, not just "wholly artificial" arrangements.
- Data and enforcement: Labour inspectors and unions would get access to workforce data. Workers and unions could sue in the country of work, and serious abuse could lead to loss of EU Inc. status.
The Council's mandate adds an optional safeguard for branches. Host countries with participation rules can opt in. A foreign company whose branch workforce passes their threshold must either create a local subsidiary or grant equivalent rights. Unions say this falls short because it is optional, covers branches rather than every group structure, and could keep workers away from the parent board.
Its anti-abuse provision, allowing national authorities to act against "wholly artificial" arrangements, is case-by-case and reactive. A firm with some genuine activity in its country of registration might escape it even if it chose that country partly to avoid co-determination.
Other concerns include the speed of the process. Schömann said "48 hours is too short to allow for the preventive checks that any business has to undertake," and warned that fast closures could leave workers unable to trace unpaid wages and social contributions. This echoes broader challenges in cross-border wage claims that EU-funded networks are trying to address.
Stock options: another flashpoint
Stock options are the other major sticking point. ETUC says they must not substitute for pay: "you can't pay your electricity bill with it," Schömann said. "If you want to retain talent, you have to pay those talents." Parliament's draft would make option plans voluntary and bar them from replacing wages or cutting social-security contributions.
Startup groups reject the idea that they want to weaken labour protection. Simon Schaefer, CEO of the startup network Factory, signed a 15 October letter warning EU leaders that negotiations were hollowing out the proposal. His priority is preserving free choice of administrative headquarters, which he sees as what makes EU Inc. a true alternative to Delaware.
On fraud, he was direct. "We agree with every try and effort to prevent fraud," he said. "We're in unison with the trade unions that we do not want to abuse workers' rights," he added. He argues that targeted rules, such as barring stock options from pushing pay below the minimum wage, are better than excluding entire industries. Schaefer said he is prepared to see the file delayed if it worsens. "For us, getting it right is almost more important right now than the actual speed," he said.
The dispute has already caused delays in Parliament, and the clock is ticking. With the European Parliament's mandate still unresolved, the file risks slipping into next year. The outcome will shape not only the EU Inc. proposal but also the broader debate on how Europe balances innovation with worker protections—a debate that resonates from Berlin's co-determination laws to the startup hubs of Lisbon and Tallinn.
