Information and consultation at work: future consultation obligations
Section 9 of the Personnel Today Management Resources one stop guide on information and consultation at work. Other sections.
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Gain a clear understanding of the timetable for the introduction of national works councils Understand the general obligations that will be imposed on employers to inform and consult with employees Get practical advice
on how to prepare for the introduction of National Works Councils |
Why do we need National Works Councils?
Under an EU Directive passed in 2002, the Government is required to implement legislation to establish national works councils in the UK. From April 2005, regulations passed under the directive will give UK employees a new right to minimum standards of information and consultation in the workplace. Officially known as Directive 2002/14/EC, it is more commonly known as the Information and Consultation Directive.
The Government had strongly opposed the directive since it was first proposed in 1998, as it went beyond what was the accepted norm in UK business. The Government did not want to add another layer of red tape or to restrict the way businesses operated.
It was initially arguing for significant derogations from the directive for the UK (being the only EU country apart from Ireland that did not already have legal requirements to have works councils or similar employee consultative bodies). However, eventually it agreed a compromise version without significant alteration other than the prospect of a delayed, phased implementation of the directive to allow UK businesses time to adapt to the new obligations.
An updated version of the draft Information and Consultation Regulations (the Regulations) was published on 7 July 2004, and they are due to come into force on 6 April 2005.
The regulations are complex and concentrate on procedural matters rather than on the content of information and consultation process. They are currently still in draft form and will be reviewed by the Government following responses to the current consultation period, which ends on 22 October 2004. Therefore, it is possible that some of the provisions of the regulations could be amended before they are implemented.
The main provisions of the regulations are summarised below.
Is a National Works Council the same as an EWC?
No. The new requirement to have an employee consultative body at national level should not be confused with the existing requirement to have a EWC. The Government has already implemented the legislation putting these Europe-wide obligations in place. The tests applied to determine if a EWC is required are different from those proposed for a national works council and look at the business at a European, not a national level (see Section 6 ). If the EWC of an organisation is based in the UK, it may be able to function as the national works council as well, but this is still unclear. There may also be practical difficulties relating to confidentiality if dealing with UK-specific matters.
Will the regulations apply to my company, and when?
Whether the regulations will apply to you will depend on the number of employees in your company or business. The regulations state that only companies or businesses with more than 50 employees will be affected. The Government estimates that the directive will only apply to 3 per cent of the companies in the UK, although this will cover a large percentage of employees. The time from which the regulations will apply depends on the number of employees within the organisation (see chart below).
Are covered employers under an obligation to set up a works council immediately?
Employers will not be under a duty under the regulations to establish a national works council until the requisite percentage of the workforce demand that they are implemented.
A valid demand has to come from a minimum of 10 per cent of the workforce and be made by a minimum of 15 employees and up to a maximum of 2,500 employees. Therefore, one option for an employer is to wait and see whether a formal demand is made. For example, a company may decide that there is unlikely to be much demand for a works council on the part of the employees and that they are unlikely to receive a request from 10 per cent of the workforce. Accordingly, the employer may not wish to set up a body unless and until a request is received.
On the other hand, other employers may wish to take the initiative in starting to create an information and consultation forum. This could be because it sees employee relations and/or strategic benefits in having such a forum. Alternatively, it may simply be because it strongly suspects it will receive a request from employees and wants therefore to take a larger role in determining the shape the body takes.
It should be noted that the lead time between the demand for a negotiated agreement being made and negotiations commencing is only one month. This provides relatively little time for management to make all the necessary arrangements to get the process underway. At the least, therefore, employers should have cast their minds to some of the contents of any agreement, so that these can be tabled as the starting point for the negotiations.
What are the information and consultation obligations?
The emphasis of the legislation is on reaching voluntary agreements between employers and employees' representatives, although it provides a statutory fall-back position. The standard provisions contained in the regulations cover:
The regulations are mainly concerned with procedural matters rather than on the content of the information and consultation process. However, some examples of areas that might be considered are TUPE transfers, redundancies, changes to working conditions, restructuring, financial accounts, health and safety, business plans, environmental issues, training and employee development.
How does this interrelate with current UK information and consultation obligations?
At present, there is no general framework requiring employers to set up standing arrangements for informing and consulting with employee representatives on general business issues that may have an impact on employees. There are only specific requirements obliging employers to inform and consult in relation to business transfers, collective redundancies and certain other issues (see sections 2 and 3).
Recent case law has clarified that it is only at a fairly late stage in the decision-making process on redundancies that private sector employers are obliged to commence consultation. Employers are under a duty to commence the consultation process when they are proposing to make collective redundancies.
'Proposing' relates to a state of mind that is relatively certain, after the business decision has been taken, which has redundancies as its consequence, but before any final decisions have been made on how to select employees for redundancy and who to select.
Under the new regulations, employers are under a duty to consult on probable developments within the undertaking - which is to say at an earlier stage in the consultation process than is currently required. This will be one of the aspects of the regulations that will cause employers most concern, especially where the consultation involves price-sensitive information. This issue will be dealt with in more detail later in the chapter.
Under the regulations, employee representatives will have the right to be informed and consulted on a very wide range of matters, potentially spanning all areas of business activity, on a continuous basis, not just on the occurrence of single trigger events, as is usually the case at present.
Obligations under the regulations will be separate from obligations to inform and consult a EWC and to inform and consult in relation to a TUPE transfer or collective redundancies. In certain situations (for example, where redundancies occur in connection with a business transfer), you may therefore need to take account of all three separate legislative requirements concerning information and consultation. See the third part of the Belt & Braces scenario (below) for an example of this situation.
This means that an employer could be faced with a situation in which it has to consult two different bodies of employee representatives about the same issue.
To avoid this, the regulations relieve employers of the obligation to inform and consult under the standard provisions as soon as their obligations to consult arises under the TUPE or collective redundancies legislation.
In these instances, employers must notify the employee representatives in writing that they will be consulting under TUPE/the collective redundancies legislation, and that this will therefore constitute compliance with their duty under the regulations. Employers may wish to include a similar provision in negotiated agreements or pre-existing agreements so as to avoid being subject to different legal requirements to consult about the same decision.
In addition, or alternatively, employers who are intending to set up pre-existing agreements should try to ensure that a member, or members, of the consultation body is also the appropriate representative for TUPE and redundancy consultation.
How can an employer comply with the regulations?
An employer will be able to comply with the regulations in one of three ways:
When does the information have to be given and consultation have to occur?
The regulations state that information should be given to employee representatives "at such time, in such fashion and with such content" as are appropriate to enable them to conduct an adequate study and, where necessary, prepare for consultation. The timing, method and content of consultation should be 'appropriate' and it should be conducted with the relevant level of management (depending on the subject under discussion) and on the basis of information supplied by the employer and a written statement of opinion formulated by the employee representatives and submitted to the management representatives.
The first step is therefore to provide the relevant information. Once the employee representatives have had an opportunity to consider the information, consultation must occur. Employee representatives must be able to meet with the employer and obtain a response from the employer, and the reasons for that response, to any request for information and/or their written statement of opinion.
Consultation must be "with a view to reaching an agreement". In other words, the employer must undertake the consultation with an open mind and in good faith at a time before any definitive or irrevocable decision has been taken on the issues under consultation. However, the penalty for breach under the regulations is currently solely financial and no greater than a fine of £75,000. It is unlikely that the regulations will be amended to give employees the power to make decisions or to override an employer's decision. Therefore, the National Works Council will not have any formal right to negotiate or bargain with the employer. Practically however, for the sake of good employee relations and if the consultation process is not to be a sham, its comments should, in appropriate circumstances, be accepted.
What are the sanctions for non-compliance?
Enforcement measures are set out in the regulations in relation to negotiated arrangements and those falling within the standard provisions. The enforcement measures do not apply to pre-existing agreements. Any dispute about the operation of a pre-existing agreement will only be resolved in the way provided for in that agreement.
Where an employer fails to comply with a negotiated agreement or the standard procedures, the representatives or (where no representatives have been chosen) individual employees can complain to the Central Arbitration Committee (CAC) about the failure. In turn, the CAC may make a declaration or order requiring compliance on the part of the defaulting employer.
A CAC decision can be appealed to the EAT provided that the appeal is brought within 42 days of the date on which written notification of the decision was sent to the appellant.
Where the CAC upholds a complaint, the person who brought it may then apply to the Employment Appeal Tribunal (EAT) for a 'penalty notice' to be issued. The EAT must issue a penalty notice unless it is satisfied that the failure was for a reason beyond the employer's control or that there was a reasonable excuse for the failure. The penalty is always financial and the EAT will have the power to award a financial penalty against the employer up to a maximum of £75,000.
When setting the amount of the penalty, the EAT shall take into account:
In comparison to the equivalent enforcement provisions in other continental jurisdictions, such as France and Germany, a maximum financial penalty of £75,000 is small. In addition, in these countries certain decisions may even be declared void if taken in breach of the appropriate consultation procedure. Under the regulations, regardless of the breach committed by the employer, the decision for which consultation was required will still stand.
However, there is a legal avenue that bold employee representatives might try to pursue in order to prevent action being taken before consultation has taken place. The regulations also provide that any order of the CAC can be treated as an order of the High Court. This implies that where the CAC has made an order that the employer should carry out consultation, a failure to comply with that order will amount to contempt of court. Imprisonment or an unlimited fine would be possible sanctions. If a complaint is made to the CAC before an employer has taken a particular step and the CAC upholds that complaint, it is possible that the employer could be acting in contempt of court if it nonetheless sought to take the step before the relevant procedures had been followed. It is not clear whether this was the Government's intention, but it may be the result.
Is there an advantage to be gained by setting up a pre-existing agreement before the regulations come into force?
Yes, there may be for some companies. Other companies will take the view that they prefer to wait and see whether there is any demand from the workforce asking for such a body. In many companies, it will only be if a dramatic change were to be made to the employees' terms and conditions, such as abandoning a final salary pension scheme, that there would be enough popular support for the introduction of a national works council. Among the advantages of setting up a pre-existing agreement are that:
Ultimately, however, the decision about whether to put in place a pre-existing agreement will depend on what attitude senior management take to the prospect of dealing with their employees on a collective basis, and the cultural shift that this will inevitably require. Unlike the legislation for EWCs, pre-existing agreements do not need to be in force before the regulations take effect (in April 2005). They must be in force before the formal demand is made for a negotiated agreement.
Does information have to be given in all circumstances?
One significant aspect of the regulations is the extent to which employers will be obliged to give employee representatives confidential information. However, critically, employers are not obliged to disclose confidential information to employee representatives where such disclosure would seriously harm the functioning of the undertaking, or be prejudicial to it.
Unions have expressed concern at the apparently broad nature of this exemption. In practice, however, its application may be limited. For example, the most common objection to disclosure of information to employee representatives is that the information relates to a listed company and is price sensitive.
However, in the case of the London Stock Exchange, the Listing Rules do not prevent such disclosure. They provide that disclosure may be made to employee representatives in confidence. This position is consistent with the obligations of secrecy under the City Code on Takeovers and Mergers, and is further borne out by the guidance issued about the regulations by the DTI in July 2004. An example of where the exemption would apply is in the case of price-sensitive information where there is a negotiated agreement that provides only for direct information and consultation with employees rather than through representatives. This state of affairs may be one reason why companies may be inclined to opt for a pre-existing agreement.
So can confidentiality be protected?
The regulations state that where it is in the legitimate interests of the undertaking for the information to remain confidential, an employer may impose a duty of confidentiality on employee representatives in the context of either a negotiated agreement or the standard provisions. For the duty to apply, the employer must make it clear that the information is confidential in nature. In these circumstances, the duty of confidentiality will extend not only to the employee representatives but also to any 'experts' involved, such as full-time union officials or professional advisers.
If confidential information is given to employee representatives and is subsequently disclosed, the defaulter can be subject to disciplinary action (if they are an employee) or an action for damages in the civil courts.
Employers may still feel that this remedy is inadequate as it simply gives them the right to sue the defaulter and recover damages for any loss suffered - it cannot rewrite history and prevent the disclosure of the price-sensitive information.
One model that may give companies sufficient comfort is for companies to spend time building up a close relationship with the employee representatives so that confidential information can be given to them with confidence that it will not be disclosed.
It remains to be seen whether UK companies will be comfortable with this approach or whether in practice some companies disclose price-sensitive information to the works council only at the same time as announcing it to the Stock Exchange and just take the risk of a claim to the CAC.
If an employer has many sites spread across the UK, does each have to have a National Works Council?
The regulations allow the creation of negotiated agreements to cover employees in more than one undertaking, negotiated agreements that provide for different arrangements in different parts of an undertaking (such as individual establishments, divisions, business units or sections of the workforce), and a combination of these. In contrast, the standard provisions apply at the undertaking level. This means that consultation must take place with the representatives elected from the undertaking and cannot cover more than one undertaking. There is no provision for different arrangements in different parts of the undertaking. The DTI advises that an undertaking means a separately incorporated legal entity as distinct from an organisational entity such an establishment, division or business unit of a company.
For many groups that have widely divergent cultures in different business units, this will be a powerful incentive to set up a negotiated or pre-existing agreement within certain business units.
How do you form a works council?
The regulations allow employers and employees to decide on their own arrangements. Only if this cannot be done will a prescribed statutory model be imposed. This would follow the existing arrangements in place in relation to EWCs.
Acas has provided helpful information on setting up a works council (for details, see 'What do I need to do next?', below).
Acas recommends agreeing a constitution for the works council with employee representatives from the outset, to avoid subsequent problems and misunderstandings. This would cover its terms of reference, composition (number and type of members), election procedure, nominated officials such as chairman or secretary, and arrangements for holding and conducting meetings and reporting arrangements.
Acas advises that as a general rule, the size of the committee should be kept as small as possible, consistent with ensuring that all significant employee groups are represented. Employee representatives should be elected, although management representatives are usually nominated.
Meetings should be held on a regular basis. Acas suggests once a month but some companies will regard this as too frequent. The DTI guidance on the regulations published in July 2004 suggests that at least one meeting per year would be a minimum requirement. Ad hoc meetings may be necessary if the need arises. Agendas should be sent out well in advance to ensure employee representatives can consult with their constituents prior to the meeting (where information is not confidential). Having a chairman and secretary will enable the meetings and administration of the works council to run smoothly.
Employers will need to consider what facilities the works council will require in order to operate. Employees must be provided with adequate paid time away from normal duties in order to properly carry out their roles as employee representatives.
Methods of reporting back to employees quickly and accurately also need to be considered.
The Government view in a nutshell
The Government has made it clear that some previous practices cannot be allowed to continue. It states that it is simply not acceptable for employees to hear via the media for the first time that they are going to lose their jobs. It strongly supports the principle of employers informing and consulting their staff on an on-going basis about matters that may affect them.
The legal obligations contained in the regulations apply to larger firms but the Government would encourage all employers, irrespective of their size and the nature of their activity, to inform and consult their employees in a way suited to their particular circumstances.
Consider how to sell the concept to the business. Remember that HR may be the only people in the business with a real understanding of the issues
EUROPEAN COMPANY
After more than 30 years of debate, the European Council has finally adopted a regulation establishing a 'European Company' in October 2001. The regulation, which will apply without the need for implementing legislation from 8 October 2004, will give companies the option of forming a new type of company incorporated at European level (also known as a Societas Europeae or SE). This can operate on a Europe-wide basis with one set of rules and a unified management and reporting system (rather than being subject to different national laws).
The council also adopted an accompanying directive on the involvement of employees in the SE. Similar to the approach taken by the EWCs directive, it provides for negotiations between management and employee representatives in the SE on the employee involvement arrangements to apply, with a set of back-up statutory standard rules where no agreement is reached. Employee involvement means any mechanism including information, consultation and participation, through which employee representatives may exercise an influence on decisions to be taken in the SE.
