Knowing it all

A new EU directive is set to force UK businesses to be more transparent about their finances and to consult their employees on future strategy. Elizabeth Slattery reports on the changes

After years of opposition from employers' organisations both in the UK and at European level, the right of employees to receive information on the performance and development of their employer and to be consulted about a wide range of issues that might affect them will finally become a reality for many by March 2005. The UK Government must implement the EC Directive on Information and Consultation by this date, although there are some transitional provisions that mean smaller businesses will not be affected until March 2008.

The introduction of these new rights is likely to have a dramatic effect on employee relations in both unionised and non-unionised workforces throughout the UK and will require a huge shift in the attitude of many employers, who will have to consult employees as part of their decision-making process. By contrast, because of the systems for informing and consulting employees that already exist in most other member states (with the exception of Ireland) the impact will barely register elsewhere in the European Community.

So what are these rights? The directive establishes a framework of the minimum requirements for informing and consulting employees in 'undertakings' or 'establishments' employing 50 or 20 employees respectively. The directive leaves much of the detail to member states, although employee representatives (ERs) will be entitled to: information on the recent and probable development of the undertaking's or establishment's activities and economic situation; information and consultation on the situation, structure and probable development of employment within the undertaking or establishment and on any anticipatory measures envisaged, in particular, where there is a threat to employment; and information and consultation on decisions likely to lead to substantial changes in work organisation or in contractual relations, including those covered by the Acquired Rights Directive and Directive on Collective Redundancies. In addition, ERs will be entitled to be consulted “with a view to reaching agreement” on decisions under the third of these categories.

At first blush, many employers may think this is no more than they do now, either through formal collective bargaining processes with recognised unions, consultations under existing legislation, or through direct communication with their employees. However, it is clear that the intention of the directive is to provide more ongoing, effective and timely rights. For instance, how many employers regularly provide ERs with information on financial performance and development of the business?

The obligation to provide information and to consult on 'anticipatory measures', such as retraining and redeployment, where there is a threat to employment suggests a dialogue taking place in the planning stages of, for instance, a restructuring programme, rather than at the stage of implementing a redundancy programme. Similarly, the obligation to provide information and undertake consultation on decisions relating to changing work relations will not only bring into scope acquisitions comprising share purchases, but will also obligate the employer to “consult with a view to reaching agreement” before the decision to proceed has been taken. This will certainly have implications for any transaction timetable, requiring the input of ERs at a much earlier stage than might currently take place.

So is it just a question of timing? It is clear that the right to information and consultation will have an impact on timing. This is particularly so as the directive also provides that information must be given early enough and with enough detail to enable the ERs to conduct an “adequate study”. Thereafter, the consultation process must enable the ERs to meet the employer and to be given reasoned responses to any opinion put forward by the ERs. This certainly sounds like rather more than a 'we hear what you say, but we are doing it anyway' response.

Although the directive's objective is to strengthen dialogue between employers and employees, the rights under the directive are very much directed to achieving this through ERs. ERs are to be identified by national laws and/or practices and consequently this is one of the issues that the member states will have to address. Under existing legislation in the UK, ERs are officials of a union, where a union is recognised, and elected or appointed employees in non-unionised businesses. If this is to be followed, and no doubt trade unions will lobby hard for this, the rights of trade unions will be considerably enhanced under the new laws.

The alternative of some form of election to identify ERs is not without its difficulties. The scope and complexity of the issues on which ERs would be entitled to be consulted is potentially huge and would put significant demands on ERs who might have neither the training nor the skills to undertake these responsibilities properly. The Government's discussion paper seeking views on the implementation of the directive is noticeably quiet on the topic of ERs, but this is sure to be a contentious issue.

Many employers do already have effective methods through which they involve employees and seek their views. They will welcome one of the fairly late revisions to the draft directive that gives wide scope for negotiated agreements between management and labour. The attraction of these agreements is: they can be established at any time, even after the directive has been implemented; they can deviate from the rights prescribed by the directive, in particular in relation to the topics and process for informing and consulting; and they in effect give management and labour a free hand in agreeing practical arrangements that suit the organisation structure and culture.

It is likely that many employers that have existing consultation mechanisms will be able to convert these into a negotiated agreement. For employers who do not yet have any arrangements, they should start thinking about these soon. Although the implementation date is not until 2005, there is another incentive for acting soon. The Government has made it clear that it wants to see employers and employees agree procedures that best suit their organisations. However, it also makes clear that where agreement is not reached, there will be a statutory minimum requirement for formal information and consultation procedures. These “fallback arrangements” are likely to significantly influence those involved in the negotiation of an agreed procedure in setting the 'bottom line'.

Another area left to member states is to determine appropriate measures for non-compliance and sanctions for infringements that are “effective, proportionate and dissuasive”. It is clear that the directive is intended to have more teeth than the European Works Council (EWC) Directive. If the penalties for infringement are to be “effective, proportionate and dissuasive”, this will almost certainly mean financial penalties. Employers will be comforted by an amendment to the original draft text. This contained a specific sanction where, if decisions were taken in serious breach of the obligation to inform and consult, they would have no legal effect on contractual relations until the situation had been rectified or adequate redress provided. This provision was dropped from the final text so employers should feel reasonably safe that a decision taken without adequate prior provision of information or consultation of employees cannot be overturned. The likelihood is that the Government will introduce sanctions which combine the EWC approach of a fine, up to £75,000, and the concept of a “protective award”, which currently underpins the consultation obligations on collective redundancies and business transfers.

Only time will tell if the directive provides the predicted revolution in employment relations, but it certainly seems to offer the scope.

Elizabeth Slattery is a partner in Lovells'' employment and labour groupProcess for informing and consulting: •Information to be given in sufficient detail and time to enable employee representatives (ERs) to undertake a study and prepare for consultation •Consultation to be with appropriate level of management and representation relative to the subject matter •ERs to be able to meet with management and receive a reasoned response to ER's opinion.