EESC Workers' Group warns EU Inc risks regulatory arbitrage and worker protection erosion

. - title: "EESC Workers' Group warns EU Inc risks regulatory arbitrage and worker protection erosion" description: "European Economic and Social Committee's Workers' Group raises concerns about potential regulatory shopping and weakened labor protections under EU Inc proposal." . -

The EESC Workers' Group has issued stark warnings that the EU Inc proposal could enable regulatory arbitrage and erode worker protections, raising fundamental questions about whether the 28th regime will undermine Europe's social market foundations. According to the group, the proposal could enable regulatory arbitrage, letterbox companies and the erosion of workers' rights, while sidelining the EU's social market foundations and weakening checks and balances.

The concerns emerged during an April 2026 conference examining the 28th regime proposal, where Workers' Group representatives expressed alarm over multiple structural deficiencies in the Commission's March 2026 proposal for EU Inc (COM(2026) 321).

EESC Workers' Group raises alarm on EU Inc

The EESC Workers' Group expressed concerns about the proposal's legal basis, limited scope, separation of registered and operational seats, and lack of minimum safeguards. These criticisms reflect deeper anxieties about whether the optional company form will function as intended to support startups or instead become a vehicle for circumventing stronger national labor protections.

Lucie Studničná, Workers' Group President, emphasized the need to preserve European social standards. The group stressed that completing the single market cannot mean lowering standards but must reinforce the rights and protections at the core of the European social market economy.

The timing of these warnings carries particular weight. The Commission is calling on the European Parliament and Council to reach an agreement on the EU Inc proposal by the end of 2026, placing intense pressure on the legislative process while fundamental concerns about worker protection remain unresolved.

Regulatory arbitrage concerns: race to the bottom?

The regulatory arbitrage risk stems from a critical design choice in the EU Inc proposal. Article 4 states that matters not covered by the Regulation or the articles of association shall be governed by national law, including provisions transposing Union law, which apply to relevant national legal forms in the Member State in which the EU Inc has its registered office.

This creates what critics describe as 27 different versions of EU Inc, each with different underlying regulatory substrates. The result is 27 different versions of the EU Inc, each with its own national legal substrate.

Labor unions have raised particularly sharp concerns. Oliver Roethig, Regional Secretary of UNI Europa representing 7 million service workers, warned that with companies allowed to cherry-pick countries with lower standards, the proposal risks undermining the European social model, industrial relations and quality jobs.

The regulatory arbitrage mechanism operates through three channels:

• Location shopping: Companies can register their EU Inc in jurisdictions with favorable labor and tax regimes while operating elsewhere

• Letterbox companies: The separation of registered and operational seats could enable letterbox companies

• Regulatory fragmentation: Different national gap-filling rules create opportunities to minimize regulatory burdens

| Regulatory Dimension | EU Inc Harmonization | National Law Application | Arbitrage Risk | |. . . . . . . . . . . . . |. . . . . . . . . . . . . |. . . . . . . . . . . . . . . |. . . . . . . . . -| | Corporate governance | Harmonized | Gap-filling via national law | Medium | | Employee participation | Not harmonized | National codetermination rules apply at registered office | High | | Labor law | Excluded | Explicitly excluded from harmonization (Recital 83) | Very High | | Tax law | Excluded | Explicitly excluded from harmonization (Recital 83) | Very High |

Worker protection erosion: specific risks identified

The Workers' Group has identified several specific mechanisms through which EU Inc could weaken labor protections.

Employment law fragmentation

The proposal expressly disclaims harmonization of employment law, with EU and member states' national employment law applying to the EU Inc as they apply to any other limited liability company in a member state. This means an EU Inc registered in one country can face fundamentally different employment conditions than one registered elsewhere.

An EU Inc registered in Paris will operate under fundamentally different employment and fiscal conditions than one registered in Tallinn. This creates powerful incentives to select jurisdictions based on the weakness of worker protections rather than genuine business considerations.

Codetermination and employee participation gaps

In those member states where employees' rights to participation in company boards (codetermination) exist, they also apply to any EU Inc company registered there. However, this creates obvious forum shopping opportunities. Companies wishing to avoid codetermination requirements simply register in jurisdictions without such requirements.

Employee participation follows the law of the registered office (Article 12). This design choice fundamentally undermines attempts to maintain high standards of worker voice across the EU, as companies can opt into regimes without participation requirements while operating in countries where such protections would normally apply.

Collective bargaining implications

The absence of harmonized labor law raises concerns about collective bargaining effectiveness. When companies can easily relocate their registered office to avoid collective bargaining obligations or dilute union influence through regulatory shopping, the fundamental balance between labor and capital shifts.

Trade union representatives have argued that stakeholders may expect push-back from labor and trade unions who fear worker rights may be impacted, with the European Trade Union Confederation arguing that employees' rights are insufficiently safeguarded and calling for the proposed regulation to be redrafted to align with the Commission's stated intention not to damage employment rights.

Impact on collective bargaining and employee participation

The structural deficiencies in EU Inc create multiple pressure points on collective bargaining and employee participation systems.

Weakening national systems

Countries with strong codetermination traditions, particularly Germany, Austria, and the Nordic countries, face the prospect of their own companies using EU Inc to circumvent participation requirements. This creates downward pressure on national systems as domestic companies argue for "competitive" deregulation to match what EU Inc allows.

Cross-border operations complications

For companies operating across multiple member states, the separation between registered office (determining labor law) and operational locations creates jurisdictional complexities. Workers in operational locations may find their collective bargaining rights determined by the law of a distant registered office rather than their place of work.

Information and consultation rights

The proposal risks undermining worker protection without delivering its intended benefits because information and consultation procedures, while partially harmonized at EU level through the European Works Council Directive, rely on national implementation that varies significantly by member state.

Long-term erosion dynamics

Even if initial adopters of EU Inc maintain current standards, the existence of an alternative regulatory path creates competitive pressure. Over time, companies may relocate to EU Inc structures to reduce labor costs, triggering a gradual erosion of worker protections as member states compete to attract registrations.

What this means for the EU Inc legislative process

The EESC Workers' Group warnings have significant implications for the legislative trajectory of EU Inc as it moves through the ordinary legislative procedure.

Parliamentary scrutiny intensifies

The European Parliament JURI Committee now holds the rapporteurship for EU Inc, and these labor concerns will feature prominently in parliamentary deliberations. Worker protection issues could become central battlegrounds during the amendment process.

Council negotiations complexity

The European Council in its March 2025 conclusions explicitly called on the Commission to propose an optional 28th company law regime that enables innovative companies to expand. However, member states with strong labor protections may seek substantial revisions to address regulatory arbitrage concerns.

The Council Working Party examination will need to reconcile competing demands: startup advocates seeking regulatory simplification versus labor representatives demanding robust safeguards.

Potential amendments and safeguards

Several protective mechanisms could address Workers' Group concerns:

1. Minimum labor standards floor: Harmonizing basic employment protections within the EU Inc regulation itself
2. Real seat doctrine: Requiring alignment between registered office and principal place of business
3. Mandatory codetermination triggers: Applying participation rights based on operational location or workforce size regardless of registered office
4. Anti-abuse provisions: Strengthening requirements to prevent letterbox arrangements

Timeline pressure and compromise risks

While the legislative process normally takes 12 to 18 months, there is strong political will to finalize and adopt the proposed Regulation by the end of 2026, as evidenced by the latest European Council Conclusions from March 19, 2026.

This compressed timeline creates risks that fundamental worker protection concerns could be inadequately addressed in the rush to deliver a political commitment. The Workers' Group warnings signal that labor representatives will resist any agreement that sacrifices social protections for speed.

Broader 28th regime implications

The worker protection debate extends beyond EU Inc corporate law to the broader 28th regime vision. The Commission's objective is to enable innovative companies to operate under a single, harmonized set of EU-wide rules, covering relevant aspects of corporate, insolvency, labour and tax law. Yet the current EU Inc proposal explicitly excludes labor and tax harmonization, creating a fundamental mismatch between ambition and delivery.

For founders and investors evaluating EU Inc's potential, these warnings matter practically. A company form that triggers sustained opposition from labor unions and creates reputational risks around worker protection may prove less attractive than proponents hope, particularly for companies seeking to build sustainable, long-term businesses in European markets.

The EESC Workers' Group concerns also connect to broader risks around national court interpretation and the fundamental question of whether EU Inc can deliver genuine harmonization or will instead fragment into 27 variants shaped by national gap-filling rules.

As the legislative process unfolds, the central question remains whether EU Inc will reinforce or undermine the European social market model. The Workers' Group has made clear that labor representatives view this not as a technical company law matter but as fundamental to preserving the social foundations of European integration.

For detailed analysis of the current legislative status, see our coverage of institutional stakeholder examination of EU Inc and the broader EU Inc regulatory framework.