Open to discussion

Large UK businesses have three years before the EC’s directive on employee consultation is made law. Makbool Javaid reports

The Information and Consultation Directive (2002/14/EC) came into force on 23 March 2002. Its objective is to create a framework that will set out the minimum requirements for employees’ right to information and consultation.

The UK must transpose the directive into national legislation by 23 March 2005. Initially, it will apply to all firms with 150 or more employees, but by 2008 it will include those with 50 or more. The directive has caused controversy and the UK Government took the unusual step last month of producing a discussion paper seeking the views of all key stakeholders in the economy on its implementation, prior to making specific proposals.

Employers are already obliged to consult on redundancies, proposed business transfers and health and safety issues. Article 4 of the directive will require employers to enter into consultation with employees about: the development of the business and its economic and financial situation; the situation, structure and development of employment within the business, including any threat to job security; and any decision likely to lead to substantial changes in work organisation or contractual relations. The directive stems from a view, long-held by the European Commission (EC), that employee involvement is an absolute necessity when strategic and economic issues are being discussed, and further consultation on how to address the social consequences arising from these issues should be mandatory.

When introducing the directive, the EC stated that the right of employees to prior information and consultation on managerial decisions that affect them should be regarded as a fundamental social right. It also argued that employee involvement is essential for the acceptance and success of restructuring and management changes in a fast-changing competitive commercial environment.

The EC’s view is reinforced in the consultation document, with the Government citing research by the Engineering Employers Federation and the Chartered Institute of Personnel and Development, which demonstrated that by giving employees a ‘voice’ – maintaining a dialogue with the workforce – there was greater employee commitment, which in turn generated improved business performance.

The implications for the UK are significant and will have a major impact on employment relations. The main concern among employers and employer organisations is the possibility of a European model of employee relations being imposed with the introduction of works councils. However, the directive only requires information and consultation to take place when the matters specified in Article 4 arise and leaves the practical arrangements to be defined by member states.

The consultation document emphasised the flexible nature of existing proposals to implement the directive. Further, it is implied that the proposals would build on the UK’s tradition and experience. The desirable result is to encourage businesses and employees to agree voluntary arrangements, tailored to their specific environment.
However, if no such agreements are forthcoming, the Government will impose a statutory minimum information and consultation framework.

The fact that the trigger point as to when consultation rights arise is left open to interpretation is of key practical importance. For example, at what point will consultation be required when an organisation is contemplating a development that will impact on the company’s economic situation? The directive requires that the timing is appropriate and that employees’ representatives meet with the employer to put forward their views and obtain a considered response. Employees’ representatives may press for a low threshold to ensure a timely and transparent process when ideas are at an initial stage, whereas employers may wish to only consult once firm proposals have been formulated.

Article 5 of the directive provides for the recognition of existing voluntary agreements or renewed agreements negotiated after the directive is implemented to contain provisions that are different from those contained in Article 4; for example, the subjects upon which consultation is mandatory and the method of consultation.
This voluntary agreement exemption may prove an incentive to employers to conclude voluntary deals before the implementation date, and therefore, not be constrained by any statutorily imposed conditions.

The discussion document considers the issue of the problems caused to companies listed on the London Stock Exchange by the requirement that all market participants must have simultaneous access to accurate price-sensitive information. Listed companies planning a major transaction with potential large-scale redundancies have pointed out that the ability to inform employees or their representatives of proposed redundancies before making a public announcement is constrained by Stock Exchange Listing Rules. As the Government does not want employers to hide behind a smokescreen of these rules as an excuse for not consulting, they have agreed with the UK Listing Authority to include provisions allowing price-sensitive information to be shared with employee representatives on condition that confidentiality is maintained, as required by Article 6.

The sting in the tail for employers is that sanctions for non-compliance have to be effective, dissuasive and proportionate. The original proposal was that in cases of serious breach of the consultation requirements, any business decisions taken, or dismissals made, would have no legal effect until the employer has fulfilled its consultation obligations (or, if no longer possible, made adequate redress). Whether the Government chooses to go down this road remains to be seen.

The directive suffered an inauspicious start. It was stubbornly blocked by the Government and, when it was finally agreed, it was greeted by alarmist media attention, despite the potential for introducing a new era in employee-employer relations. But the consultation document clearly establishes that the Government is supportive of the need to promote dialogue in the workplace, already evidenced by the facility to conclude workforce agreements to modify provisions of the working time rules, parental leave schemes and, from 1 October 2002, the renewal of fixed-term contracts.

There is no doubt that the Continental approach – involving employees in decisions that affect their working lives – will have an increasing influence in the UK.

Makbool Javaid is an employment partner at DLA