Employment Alert No. 69 - Information and Consultation

July 17, 2003

Background

In mainland Europe works councils have long been established as the primary interface between an employer and its employees. In the UK they play no part. At best, some larger employers have staff committees whom they consult, on a voluntary basis, about various matters affecting the business - often "big picture" issues. Some of these bodies are also used for the collective consultation in the event of collective redundancies and TUPE transfers.

The Government has now published its consultative document (including draft Regulations) to implement the EU Information and Consultation Directive. These Regulations will come into force on a sliding scale depending on the number of employees within the undertaking:

Main provisions of the Regulations

Once the Regulations become operative in respect of a particular employer, there is no immediate obligation to set up an information and consultation body (e.g. works council). Instead, the employer is at risk of receiving a petition from its employees to establish one. The Government has set a low trigger level: a petition by 10% of the workforce of 25 in the undertaking, except that where there are over 2,500 employees, the petition need only have 250 signatures. Employers with less than 15 employees will not be covered.

Once the petition is received, employers have to facilitate the election of employee representatives and to negotiate a works council agreement with them. Both the election and the negotiation must be finished within six months, although there is opportunity for both parties to agree an extension. Where no agreement is reached within six months, then the "default model" works council will be automatically applicable. But there is a further six months transition period to set up the infrastructure for the "default model".

Where an employer already has a works council or an employee consultative body which meets certain minimum conditions, there is the opportunity to stop the process. Provided a petition is not supported by 40%+ or more of the workforce, the employer can hold a ballot of all the workforce to see whether they support the negotiation of a statutory works council. If less than 40% supports it in a vote, then there can be no further petition served on the employer for three years. If the vote is 40%+ positive, then the employer must move to have employee representatives elected with whom to negotiate a works council agreement.

The Regulations set out detailed rules on the election process. All employees have the right to vote and trade unions do not have any special rights.

The "Default Model"

Where the employer either refuses to negotiate a works council agreement or fails to do so within the prescribed six-month period, then the default provisions of the Regulations apply. This provides for information and consultation in three areas:

The Regulations require that the information given to the works council must be given in sufficient detail and in sufficient time to enable there to be a meaningful dialogue. The employee representatives should be allowed time to consider the information and prepare their own counter proposals. The process for consultation varies depending on the issue. For the first two of the above categories, consultation is defined as "an exchange of views or establishment of a dialogue" - i.e. not negotiation or collective bargaining.

Significantly, as regards substantial changes in work organisation or contractual relations, the definition of consultation is "consultation with a view to reaching agreement". In practice, this is pretty close to negotiation. Although employers will not be required actually to reach agreement or to make concessions on those matters which they are cannot feasibly do so, they will be expected to show an attempt to reach agreement. The scope of consultation in this category is very wide. "Contractual relations" clearly cover terms and conditions of employment and dismissals. "Work organisation" covers how work is organised, by how many people, when it is done, where it is done, etc.

The "default model" also contains rules on confidentiality. Works council members will have a duty of confidentiality and, if broken, employers can enforce confidentiality through normal civil remedies. However, employees can challenge the confidential status of particular information by making an application to the Central Arbitration Committee (CAC). In certain limited situations, employers can refuse to give relevant information to the works council. This will only apply where, judged objectively, a disclosure of such information could seriously prejudice or harm the undertaking.

Enforcement

Enforcement of both a voluntary I&C agreement and the "default model" is through the CAC and EAT. The CAC, in the first instance, makes an order requiring compliance. The order will specify the steps which the employer needs to take, the date of the failure and the period during which the order must be complied with. At the same time, the works council or other applicant may ask the EAT to issue a penalty notice requiring the employer to pay a fine. The maximum fine is £75,000.

Impact on Employers

March 2005 is not far away. Employers with 150+ employees in the undertaking will need to consider how they are going to deal with these new Regulations. The 10% threshold figure is relatively low and many employers, who do not already deal with their employees on any collective basis, will be at risk under these Regulations. There are many companies (including many HR professionals) who have not operated in a unionised or collective environment. For these companies, and particularly their senior and line management, the Regulations are going to herald a "brave new world". They will impact on the management decision-making process both in terms of process and timing.

Many companies will initially be hostile to this concept - particularly under the "default model". For example, under the third category three of consultation, the actual wording of the Regulations is: "A decision likely to lead to substantial changes in work organisation or contractual relations". This means that the obligation to consult with a view to reaching agreement is triggered, not when the actual decisions to make a change in contractual relations/work organisation are made, but when the strategic decisions are made within the business which are likely to lead to it. This could mean investment or operational decisions which could have that "knock-on" effect.

Employers have to educate their management teams, both at senior and line/operational level, and also manage employee expectations on how these new rules will operate in the work place. For some employers, this will be a significant challenge.

Next steps for employers

Employers have three choices in respect of these new Regulations:

Since the timeframe under the Regulations for reacting and reaching agreement on a voluntary I&C agreement is only six months, in effect, there are only two choices. Doing nothing is not really an effective option. Employers should:

Depending on an employer's HR strategy in relation to information and consultation, the preparatory steps will stop at different stages on the above action list. The first four action points are the minimum that employers should do.

Some employers may see a "proactive dividend" by introducing an I&C/works council agreement with their workforce well ahead of March 2005. If an employer was going to do this, it will need about 9-12 months in order to "iron out the wrinkles" and have a consultative body operating effectively and be seen to be adding value to the workforce. If this is achieved, the employer is more likely to be able to resist a petition by 10% of the workforce because the vast majority of the workforce will still be happy with the existing structure.

However, the existence of an I&C/works council body is something of a "double-edged sword". Firstly, it may provide a platform for trade unions (who do not have sufficient influence within the organisation to launch a statutory union recognition claim) to extend their influence within the business and launch a recruitment campaign. In other types of businesses, the existence of a works council might be used as an effective counter to a union which has limited representation - because a company-wide consultative body would dilute the union influence. There is no right or wrong answer for every case because it depends on the company's HR strategy and nature of its operations. However, one thing is certain: employers cannot, sensibly, wait until 2005 before making a decision of what to do. If they do so, they will be on the "back foot" once a 10% petition has been issued.

Contact(s)

• Katie L. Clark
• David Dalgarno
• Alison Wetherfield

Practice Areas & Industries:

• Employment - London
• Labor & Employment
• London

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