Information and consultation at work: listed companies and consultation

Section 5 of the Personnel Today Management Resources one stop guide on information and consultation at work. Other sections.

The rules on information and consultation are the same whether the company is listed on the London Stock Exchange or not. However, listed companies are subject to separate obligations, known as the Listing Rules. In particular, there is a requirement to notify the Stock Exchange without delay of major new developments that could affect the share price. Large scale redundancies, mergers and acquisitions would undoubtedly trigger the Listing Rule obligations.

Is it legitimate for an employer to delay the start of consultation with employee representatives until after an announcement has been made to the Stock Exchange? The issue often arises in practice where an employer decides to sell all or part of a business, triggering both requirements to consult under TUPE and a requirement to inform the Stock Exchange once a deal has been agreed.

It is not necessary to notify the Stock Exchange during the planning or negotiation stage, provided that the information is kept confidential. The information may be given in confidence to employee representatives or trade unions provided they are made aware that they must not deal in the company's shares before the relevant information is made available to the public. If the employer believes that a breach of confidence has occurred or is likely to occur and knowledge of the information is likely to lead a substantial movement in the share price, then the Stock Exchange must be notified immediately.

The Listing Rules do not place any obligation on the employee representatives and trade unions to keep the information confidential, rather it prohibits them from dealing in the company's shares before the information has been made public.

The issue of confidentiality is a difficult one, as many companies fear that employee representatives or trade unions will not be able to keep the information confidential. If it leaks out before the announcement is made to the Stock Exchange, there is the risk that the information will be incorrect or the message released with an inappropriate 'spin'. It may even scupper the transaction.

At one time, it was thought that the special circumstances defence would apply in this situation, discharging the employer from the obligation to consult. The Listing Rules do not preclude confidential consultation so the defence is unlikely to apply where employee representatives have already been elected.

Even where confidential consultation is impossible because employee representatives need to be elected for the first time and the election process needs to be explained to the workforce, the courts have made it clear that the circumstances where the defence will apply are extremely limited and it is unlikely that an employer would be able to use the defence to excuse a failure to consult before a Stock Exchange announcement.

In relation to business transfer, one way of avoiding the issue is to have a gap between signing the business sale agreement and actually completing that sale. The deal is announced to the Stock Exchange on signing and then consultation takes place with employee representatives in between signing and completion.

WORKING EXAMPLES

SCENARIO 3

Top Nosh plc operates a chain of upmarket restaurants. Top Nosh's business has been hit hard by the economic downturn and, while some of its restaurants remain profitable, Top Nosh will need to take drastic action to enable the business to survive.

Top Nosh's preferred option is to sell all or part of its business but it has become apparent that purchasers are unlikely to be attracted to buying all of its restaurants. Indeed, some interested parties have indicated that they will require Top Nosh to carry out redundancies as a condition of any sale proceeding. Top Nosh has been in discussion with a number of potential purchasers but has given exclusivity to Cheap Eats Limited, which is interested in buying all of Top Nosh's restaurants, but only if Top Nosh makes 300 of its 600 employees redundant before the sale has been completed. Top Nosh wants to complete a deal with Cheap Eats within the next month.

Key issues

Consultation obligations

If Top Nosh is successful in concluding an agreement with Cheap Eats, there will be obligations to inform and consult in relation to the redundancies that Cheap Eats wants Top Nosh to carry out before the sale and in relation to the business sale itself.

Top Nosh and Cheap Eats will, therefore, have to observe their respective obligations under both the collective redundancy consultation requirements in TULRA and the requirement to inform and consult prior to a business transfer under TUPE.

There is an important difference between the information and consultation obligations in relation to collective redundancies and TUPE. While the requirements in relation to collective redundancies require consultation with employee representatives in all cases, the provisions of TUPE only require an employer to consult with employee representatives if 'measures' are being proposed in relation to the employees affected by the business transfer (see Section 3 ). If no measures are being proposed in relation to the employees affected by the transfer, then the employer's only obligation is to give employee representatives certain information concerning the transfer but no consultation with the representative need take place.

It is assumed for the purposes of this scenario that there will be measures that will affect employees and that, therefore, there is an obligation to consult and inform under TUPE.

Timing of consultation

Although Top Nosh has entered into exclusive negotiations with Cheap Eats, no agreement has been concluded. However, given the number of redundancies that Cheap Eats wants Top Nosh to carry out, the minimum consultation period in relation to those redundancies will be 90 days.

There is no minimum consultation period in relation to the TUPE transfer. Indeed, it may be premature to enter into any discussions with employee representatives concerning the transfer at this stage as no agreement has yet been concluded.

However, given the impact that Cheap Eats' acquisition will have on employees, it would make sense for Top Nosh to begin consulting with employee representatives at the earliest possible opportunity.

Although many details are yet to be agreed, Top Nosh could sit down with employee representatives and outline the tough choices that currently face the business. This would not necessarily start the clock ticking in relation to either redundancies or TUPE consultation but would, hopefully, lay the ground for a much smoother consultation process.

Given that Cheap Eats wants to conclude the deal within the next month, it will be impossible for Top Nosh to discharge its obligations to inform and consult with employee representatives in relation to the redundancies before they will take effect.

Accordingly, if it agrees to carry out these redundancies, it will almost certainly be in breach of its obligations to inform and consult. Top Nosh should, therefore, seek to negotiate with Cheap Eats in relation to who effects the redundancies.

As the redundancy situation flows from Cheap Eats' decision, it would make more sense for Cheap Eats to implement redundancies following its purchase. However, Top Nosh may not have a strong bargaining position and may be forced to accept Cheap Eats' requirement to carry out redundancies before the sale goes ahead.

Liability for failure to inform and consult

If Top Nosh agrees to carry out redundancies before the sale is effective, where will liability for failing to inform and consult fall?

Until relatively recently, it was thought that liability for failing to inform and consult in connection with collective redundancies would remain with Top Nosh. However, case law has indicated that, in circumstances where the redundancies are associated with a TUPE transfer, liability for failing to inform and consult in relation to collective redundancies will transfer to Cheap Eats. Accordingly, Cheap Eats would be advised to seek an indemnity from Top Nosh to cover it against such a claim. Whether or not Cheap Eats would succeed in this request will depend upon the bargaining strength of the parties.

Who should consult in relation to redundancies?

The primary obligation will fall upon Top Nosh if it agrees to Cheap Eats' request to effect redundancies before the sale proceeds. If Top Nosh consulted for the full 90-day period, there is no reason why such consultation could not discharge the obligation to inform and consult. It will not matter that it is Cheap Eats' decision that actually results in the redundancies as long as there is a genuine redundancy situation in relation to the employees affected.

There may, of course, be issues concerning selection for redundancy and/or the overall fairness of the process but this will not, necessarily, affect whether or not Top Nosh has discharged the obligation to inform and consult with employee representatives in relation to the dismissals.

If Cheap Eats agrees to any proposal that Top Nosh might make to delay implementing redundancies until Cheap Eats has acquired the business, could the redundancy consultation be commenced by Top Nosh but completed by Cheap Eats once the business transfer had been completed? There is no reason why this would not be compliant with the legislation but it would be important for Top Nosh and Cheap Eats to work closely together in relation to the exercise. Indeed, it might even make sense for Cheap Eats to lead the process as it is its decision that is resulting in redundancies occurring.

SCENARIO 4

Bob's Bikes plc is a large manufacturer of bicycles and related accessories. The company has recently floated on the London Stock Exchange. While Bob's core business of bicycle manufacture is successful, share-holders have been putting pressure on the company to sell its loss-making accessories manufacturing business.

The company has been negotiating with an interested purchaser and is close to agreeing a deal. The sale would involve the TUPE transfer of all employees associated with the accessories manufacturing business to the purchaser.

The purchaser is keen for Bob's to begin consulting with employee representatives in relation to the TUPE transfer as soon as possible. However, Bob's has resisted the purchaser's request in this respect as it does not wish to begin discussions with employee representatives until a firm deal has been concluded and the sale has been announced to the Stock Exchange.

Key issues

Who is obliged to inform and consult?

The primary obligation to inform and consult will fall upon Bob's as the seller. As noted in scenario 3, consultation will only be required if 'measures' are proposed that will affect employees. If no measures are proposed, the only obligation will be to inform. However, the purchaser is obliged to provide Bob's with such information as will enable Bob's to carry out its obligations.

It would be sensible for Bob's to write formally to the purchaser seeking any relevant information concerning its plans. If the purchaser fails to provide this information, Bob's will be able to transfer any liability that arises from a claim of failure to inform and consult to the purchaser.

If the transfer will impact on employees of the purchaser (for example, because their working arrangements will be altered to accommodate the business being purchased), then there will also be an obligation on the purchaser to inform and consult with representatives of its employees who will be affected by the transfer.

When should consultation begin?

There is no timetable for consultation set out under TUPE. The basic rule is that consultation in relation to any measure proposed by the purchaser must take place long enough before the transfer to allow meaningful consultation with employee representatives to take place.

Consultation must be undertaken with a view to seeking agreement. The length of any consultation period will be dictated by the extent of the measures proposed by the purchaser and the likely impact this will have on those transferring. It is, therefore, difficult to set out any hard and fast rules about the period that should be allowed for consultation. Where only very minor measures are being proposed, it may be that the process could be completed over a two-week period. However, where more significant changes are proposed, it would be prudent to allow a minimum of four weeks for completion of the process.

Delaying consultation until signature of the agreement

What impact will there be if consultation is delayed until signing of the agreement? The answer to this question will depend on how the deal is structured and on the type of measures being proposed.

If the deal is structured so that the business transfer occurs immediately the agreement is signed, then delaying informing and consulting with employees until signature will result in a breach of the requirement to inform and consult.

However, if the parties allow a sufficient gap between the signing of the agreement and the business transfer becoming effective, there is no reason why the information and consultation process should not take place between signing and completion. The comments made above in relation to the length of the consultation process should be borne in mind.

Responsibility for failing to inform and consult

If the purchaser agrees with Bob's proposal to dispense with informing and consulting, it is possible that any liability for such failure will still fall on the purchaser, despite the fact that it was Bob's decision not to inform and consult that resulted in the consultation obligations being breached. This is because recent case law had decided that a liability for failing to inform and consult in relation to a TUPE transfer may pass to a purchaser along with all other rights and obligations under the employment contract. Accordingly, the purchaser should seek an indemnity from Bob's covering the risk of any such claim being made.