Companies in the UK are already subject to a statutory obligation to consult on specific issues through the European Works Council Directive, the Transfer of Undertakings Directive, and collective redundancies and health and safety legislation. From 6 April 2005, new legislation relating to employee representation and rights comes into force in UK law. The Information and Consultation Regulations, made under, and based on, the National Information and Consultation Directive, are being heralded by the TUC as potentially 'the most significant piece of employment legislation ever to be introduced in the UK.'
The regulations will affect employers of 150 staff or more. There are phased-in requirements for employers with smaller workforces. The guiding principle behind them is to create a working environment in which employees are consulted on a timely basis about issues that affect them. The regulations will give employees the right to be informed about the business's economic situation, informed and consulted about employment prospects, and informed and consulted about decisions likely to lead to substantial changes in work organisation or contractual relations.
The regulations are likely to lead to a more in-depth engagement between employers and employees. Many employers may find this process culturally difficult, so it is paramount that they give considerable thought as to how they are going to respond to the legislation if they are to avoid possible employee relations issues.
As the regulations do not come into force until April 2005, employers do not have to act immediately. On the other hand, there are things that they can do now to enable them to get the best out of the new regime.
Importantly, the regulations allow for employers to create voluntary agreements for information and consultation. In fact, many employers already have existing arrangements. It is those without such voluntary agreements who may be forced into having a statutory procedure invoked.
From April 2005, employees will have the right to make a request to their employer to initiate a process of information and consultation. Employees may do this if they feel there is no existing process for information and consultation, or if they think the existing procedures are unsatisfactory.
Such a request must be made in writing by at least 10% of the employees in the undertaking (subject to a minimum of 15 and a maximum of 2,500).
Where an employee request is made, but there is already a voluntary pre-existing arrangement (PEA) for information and consultation, which covers all employees, employers can organise a ballot of the workforce so that all employees have the opportunity to approve or reject the initial 10% request. If 40% or more of employees in the undertaking endorse the 10% request, then the employer must go down the route of a statutory procedure for a negotiated agreement, and the employer's PEA is overridden. However, if fewer than 40% of employees endorse the 10% request, and the employer has a PEA that provides for a sufficient level of information and consultation for all employees, then that PEA is allowed to continue.
A PEA has to be in writing, cover the whole workforce and be approved by employees or employee representatives. There is no requirement for employee representatives to be elected by the workforce, which means they can be appointed by the employer. In a nutshell this means employers could eliminate the need to negotiate with employee representatives at each stage of creation of a PEA, thus saving a huge amount of time. More than one PEA can be created to cover different areas of the workforce - what is important is that the whole workforce is covered. The regulations also specify that an existing agreement for collective bargaining or trade union recognition can be a PEA for the purposes of the regulations. Any employer who has such agreements in place should examine how these could work for information and consultation on wider issues, while remembering that all the workforce must be covered by an agreement.
Wait and see - or act now?
A PEA allows employers the maximum freedom to create a forum which reflects their company's structure and values before the possibility of a valid employee request arises and triggers the statutory negotiation process.
Being able to tailor a consultative body to suit the company culture and determine exactly what areas employees will be informed and consulted about is a far more attractive proposition than any imposed framework.
A PEA also provides a barrier against having to enter automatic negotiation after a 10% request is made, (provided it survives the subsequent ballot).
As to how a PEA is 'approved' by employees (and is therefore valid), the draft regulations say this could be by means of a simple majority in a ballot, a majority of the workforce expressing support through signatures, or through the agreement of employee representatives representing the majority.
By taking action before April 2005, companies have time to undertake an industrial relations audit, which can be used to benchmark their position in this area. Employers can also use the time to educate management and their workforce, so that they have a thorough understanding of the forum that has been adopted for information and consultation. This in turn will enable them to embrace any cultural change. Achieving this may require substantial training and input from senior management.
If employers adopt a 'wait and see' attitude, they run the risk of receiving a valid request from employees at a time when employee dissatisfaction may be at a high level, over some grievance. This could make the timing of a 10% request inconvenient and influence those employee representatives who are elected, ultimately affecting the culture and atmosphere in which any information and consultation process operates.
Another advantage of PEAs is that they give greater freedom in departing from an enforced statutory model and allow the employer to choose who can stand for employee representative positions (subject to discrimination considerations). For example, the employer could prevent those who have current disciplinary warnings from standing, or specify certain criteria for elections.
Should a request be made by employees, and over 40% of the workforce support that request so that a PEA is rendered invalid, employers then have six months to negotiate an agreement on a voluntary basis with employee representatives who can either be appointed or elected for the negotiation process. If, after six months, no agreement is reached with the existing employee representatives, employers must hold a statutory ballot to elect new employee representatives. They then have a further six months to seek to reach a negotiated agreement.
Following receipt of an employee request, employers must seek to reach an agreement over arrangements for information and consultation. Negotiated agreements must be in writing, be signed by employers, cover all the employees in the undertaking and be signed off by a majority of the employees' representatives.
The agreement must either be approved by all the employee representatives signing it or by a majority of the employee representatives signing it with either 50% of the employees approving the agreement in writing or 50% of employees approving it in a ballot.
If after the further six months, no negotiated agreement is reached, the statutory provisions will apply. Under these, an information and consultation committee must be established, representing all the employees in the undertaking by election of representatives through a ballot. The number of representatives must be proportionate to the number of employees. The rules are much stricter for this default process and prescribe a much more rigid procedure than for any PEA.
Threat or opportunity?
Responses to the DTI consultation on the draft regulations from both employers and employees show that they envisage benefits from the introduction of information and consultation with staff. Employees believe it will give them a greater say in their workplace, which will in turn create a better and safer environment. Morale would be higher, as employees would feel more valued and better prepared, and therefore be more responsive to change. The business would also benefit through improved staff retention and decreased absenteeism.
For employers the regulations promise to improve communication and give management access to a wider pool of knowledge, expertise and ideas from their workforce. Businesses have indicated that they feel that problems would be resolved earlier and more effectively and having a happier workforce would less likely lead to any process of statutory trade union recognition.
In light of the advantages of a PEA covering the entire workforce, employers need to examine their business to establish what they could be doing to obtain the most advantage from the new legislation. They should look at:
- business plans, HR strategies, policies and procedures and take action where needed
- their communications culture and the level of consultation they operate with at present
- their workforce, to assess and anticipate employees' desire for change.
and assess the impact of the new proposals on what employees will expect to be informed and consulted about.
A PEA ought to be specific, set out in writing and be robust enough to ensure it is valid. It should cover, among other things, the remit, appointment and dismissal of employee representatives, the term of their service, their statutory qualifications and experience, and any provisions of confidentiality.
It also needs to cover what employers and employees will consult over, the information that will be provided and the limits to this information.
All employees, from senior management down, need to be prepared for the changes. In turn, employers should examine the wider issues, such as the impact of the regulations on the decision-making of the company as a whole.
Sue Fanning is employment partner at DLA LLP, Tel: 08700 111 111
The National Information and Consultation Directive will be implemented in the UK in March 2005. Few people have commented on this new legislation from Europe, but it may change the nature of employee relations in the UK forever. The legislation basically requires all businesses with 150 employees or more to set up works councils to cover the whole business and consult with these work councils on matters that have previously been dealt with at an executive level. Those businesses with 100-150 employees will have to comply by 2007; those with 50-99 employees by 2008.
In the 2004 budget, Chancellor Gordon Brown announced that 40,000 civil servant jobs were to be cut. This is just the type of decision that will be covered by the NICD, when similar decisions will have to be discussed in advance.
Research conducted by DLA LLP earlier this year showed that there is a very low level of awareness of this legislation or its impact.