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6 February 2014
This year is likely to see the Government taking significant steps towards transforming the current system of collective labour law in the UK. The catalyst is the EU directive establishing a general framework for informing and consulting employees in the EU (Directive 2002/14/EC).
This measure - variously known as the 'Information and Consultation Directive' and the 'National Works Councils Directive' - was adopted last spring and must be incorporated into UK domestic legislation by 23 March 2005 for organisations with 150 or more employees. By March 2007 the law will be extended to employers with 100 or more employees, and to those with 50 or more employees a year later.
Essentially, the new directive will require employers to inform representatives of the workforce on an ongoing basis about matters such as the company's economic performance and strategic planning. In addition, there will be a duty to engage in meaningful consultation about proposed measures that could affect job security, work organisation or terms and conditions of employment.
The Department of Trade and Industry (DTI) cannot be accused of being slow off the mark. Having published an initial discussion document last July, 'High Performance Workplaces: the role of employee involvement in a modern economy', it is now busy developing concrete legislative proposals for implementing the directive. These are expected to be published for further consultation by late spring or summer this year.
The forthcoming reforms will in some ways simply continue a process of evolution that is already underway. Many multinational employers have already been required to establish European-level representative bodies as a result of the 1994 European Works Councils Directive, while UK employers have in recent years become increasingly accustomed to informing and consulting elected employee representatives before collective redundancies or Transfer of Undertakings (Protection of Employment) Regulations (Tupe) transfers. Many UK employers already find that having an established worker representative body is preferable to the inconvenience of having to arrange for the election of representatives on an ad hoc basis.
Notwithstanding this, there is little doubt that the directive will entail a sea change in the culture of UK industrial relations. Along with the Republic of Ireland, the UK is alone in the EU in having no national laws obliging employers to inform and consult employee representatives on a general basis.
We are, however, unlikely to end up with prescriptive legislation setting an overriding requirement on all employers above the 50-employee threshold to establish full-blown, Continental-style national works councils. In the negotiations leading to the adoption of the directive, the Government was concerned to avoid a rigid 'one size fits all' outcome, and the final text does indeed grant EU member states a significant degree of flexibility. The DTI's main aim now will be to exploit this leeway by allowing employers ample opportunity to enter into voluntary information and consultation arrangements tailored to suit their own organisations.
Three specific areas will be of crucial importance in terms of the practical impact of the new regime on employers in this country. One of these is the scope for protection of confidential information. The directive provides for information given in confidence by the employer to employee representatives to be kept from the workforce at large. This is consistent with the current UK Stock Exchange Listing Rules, which expressly allow price-sensitive information to be passed to employee representatives under an obligation of non-disclosure. But despite such safeguards, many employers will still be reluctant to disclose information they regard as sensitive to representatives; and even if they are prepared to do so, there may be questions as to how far representatives can properly represent the employees that elected them if a duty of secrecy prevents them from discussing issues fully and openly.
More broadly, the directive provides that information can be withheld if it would "seriously harm the functioning of the undertaking" or would be "prejudicial" to it. It remains to be seen how far this exception will extend.
A second contentious - not to mention politically sensitive - issue for the Government will be the position and status of recognised trade unions under the new information and consultation framework. Existing laws on consultation over collective redundancies and business transfers give preferred status to recognised unions. Only in their absence does an employer have to contemplate informing and consulting elected employee representatives. It is doubtful whether such a regime would meet the requirements of the Information and Consultation Directive. In a situation where the trade union is recognised, but a proportion of the workforce are not members, the union representatives will probably have to share power with other elected representatives. In the run-up to 2005, we are likely to see many unions pursuing voluntary agreements with employers in order to maximise their influence on works councils.
Finally, there is the key issue of what sanctions should be imposed for an employer's failure to comply with information and consultation obligations. For breaches of existing duties to inform and consult about collective redundancies or Tupe transfers, the most employers can be stung with is a "protective award" of up to three months pay for each affected worker. It seems unlikely that this would be sufficiently stringent to comply with the new directive, which states that sanctions must be "effective, proportionate and dissuasive".
A number of EU member states, including France, Germany, Italy and Spain, provide in different ways for employers' decisions to be rendered void in the event of a significant breach of consultation requirements. That sanction was originally proposed under the Information and Consultation Directive, but the text was watered down (predominantly as a result of pressure from the UK).
The most likely outcome is that the DTI will decide to legislate for levels of compensation that can realistically be said to have a deterrent effect. These could be fixed penalties or possibly awards based on a percentage of company turnover. It could be argued that a properly "dissuasive" sanction, but one that would be strongly opposed by most UK employers, would be to expose company directors and senior management to criminal liability for ignoring information and consultation obligations. That is the position under French law, for example, which provides for a fine of up to e3,750 per dismissed employee for a failure to inform or consult, and in a blatant case the head of the company is liable to a prison sentence of up to one year.
There is, however, limited mileage to be gained from looking at Continental legal systems for indicators as to the legal mechanisms for information and consultation that will eventually emerge in the UK. Experience of the 1975 Collective Redundancies Directive has shown that it has led to very limited harmonisation of national laws as between the various EU member states. Given the flexibility built into the Information and Consultation Directive, we are likely to see peculiarly British solutions to the problems of providing for more extensive employee involvement in corporate decision-making.
Michael Burd and James Davies are joint heads of employment at Lewis Silkin