Prepare to walk the talk

Recently agreed Euro-legislation on "domestic works councils" may
hold little mystery for our mainland neighbours – but it will change UK
management practice immeasurably. Stefan Martin and Franklin Gaffney examine
the proposals

The proposed EU directive on informing and consulting employees will have a
deep impact on the culture of UK business, changing once and for all the way
management teams communicate with their employees. Few of them are likely to be
comfortable with the increasing level of employee involvement in the operation
of their businesses but, as we move closer to Europe, it is an issue they will
be forced to come to terms with.

The establishment of "domestic works councils" has generated much
press coverage. Although the UK already has legislation in place governing
employee consultation, principally in relation to business transfers and
collective redundancies, the new directive will significantly extend employers’
obligations in this area. But the circumstances in which consultation will be
required are narrowly drawn; the intention behind the directive is not to
replace or consolidate any of the existing obligations on information and
consultation, but to extend their operation to areas of economic and strategic
development that may affect the business.

The directive will, for the first time, require UK employers to put in place
arrangements to establish a permanent employee representative body. Existing UK
legislation does not require employers to establish standing bodies and so
while many employers do have some form of employee consultative arrangements,
the requirement to establish a permanent system of representation will be
regarded by some employers as the imposition of yet another additional and
unnecessary cost. Indeed, the UK government originally opposed the measures
contained in the draft directive for this reason. It argued it had no permanent
system of employee information and consultation and its imposition would impose
additional costs on UK employers.

It is not yet clear what effect the provisions of the new directive will
have on trades union activity. Some commentators have predicted they will offer
trades unions a further opportunity to extend their influence in the workplace.
Others have suggested that imposing requirements on employers to establish
standing bodies for employee representation will actually weaken the influence
of unions.

Implementation of the directive

Final adoption of the directive is expected towards the end of this year or
early 2002. Implementation will be in three phases and it will not be fully in
place until 2008 at the earliest. This staged implementation is intended to
minimise any disruptive effects the directive may have on small and medium sized

Stage one of the implementation will only apply to companies employing at
least 150 employees or, if the Government chooses, to establishments where at
least 100 employees work. Two years later, the directive’s provisions will be
extended to cover companies employing at least 100 employees or establishments
employing at least 50 employees. Finally, after a further two years, its
provisions will apply to companies employing at least 50 employees or to
establishments where 20 or more employees work. The directive is unlikely to
take effect until the latter half of 2004 at the earliest; it is therefore
unlikely to apply to many employers for some time.

Meaning of employee representative

The directive will require employers to arrange the establishment of a
standing body of employee representatives. The draft states that employee
representatives means "the permanent, stable and independent employees’
representatives provided for by national law and practice". Unlike the
definition of "employee representative" under the Transfer of
Undertakings (Protection of Employment) Regulations 1981 – Tupe – and the
collective redundancy provisions, this definition of employee representative
includes requirements of permanence, stability and independence.

This means that employees’ representatives will not be appointed just on an
"ad hoc" basis for specific purposes, such as redundancy
consultations and business transfers, but on a permanent footing, and that they
will enjoy their position without interference from their employer. To this
end, employee representatives will enjoy protection and guarantees, such as
protection against unfair dismissal and training to enable them to perform the
duties that have been assigned to them.

In what circumstances will obligation to inform and consult apply?

It is important to note that the directive does not impose a general
obligation on employers to inform and consult with the standing body of
employee representatives on any issue that may affect employees. Employers will
only be required to inform and consult with employee representatives in the
limited circumstances set out in the directive. The right to information and
consultation will cover:

– The recent and probable development of a business’s or establishment’s
activities and economic situation

– The situation, structure and probable development of employment within a
business and on any anticipatory measures envisaged, in particular where there
is a threat to employment and

– Decisions likely to lead to substantial changes in work organisation or
contractual relations.

The practical arrangements for information and consultation are to be
defined and implemented in accordance with the law and practice of member
states, with the opportunity for management and workers to reach agreement on

The proposals stipulate that information should be given to the employees’
representative at such time, in such manner and with such content, as to enable
them to analyse it and prepare an appropriate response. The representatives
will be entitled to request assistance to analyse the information from experts
specified by them.

Employers will be entitled to withhold information where disclosure would
seriously harm or be prejudicial to their business. Alternatively, employers
may require that employee representatives keep information confidential.

Once information has been provided, management and employee representatives
must enter into "good faith" consultations. Consultations will
require dialogue and an exchange of views with "a view to reaching an
agreement." However, the right to information and consultation will not
extend to the right to veto management decisions.

The directive offers no definition of "good faith". However, the
concept has seen much litigation in other jurisdictions, including Australia
and New Zealand, where it is assumed to require constructive dialogue and
possibly, on a wide reading, concessions on the part of both parties.

Penalties for non-compliance with the directive are to be set by individual
countries, but must be "effective, proportionate and dissuasive" to
current sanctions.

Clearly there is much in these proposals which is alien to the UK way of
conducting business. The directive’s staged implementation is designed to ease
the transition, providing sufficient time for employers to adjust to the new
working environment. However, even though the directive will not come into
force for some time, a wise employer would do well to consider now ways they
can involve employees more generally in decisions that affect them. n

Partner Stefan Martin and associate Franklin Gaffney are members of
international law firm Allen & Overy’s Workplace Representation and
Consultation Group

How it works in France and Germany

The proposals contained in the draft
directive are unlikely to have a significant impact in many other European
countries because the type of domestic works councils they provide for have
been in place there for many years. It is also second nature for many European
employers to inform and consult with employee representatives on a range of
issues, not merely those covered by the new directive. Accordingly, the
existing practice in both France and Germany extends way beyond what will be
required by the new law.

In both France and Germany, history and the cultural context
play an important role in information and consultation provisions.  

In France, works councils apply in firms with over 50 employees
and act as a means of disseminating business information to employees. The
works council is consulted on matters such as redundancies and training, but
the focus is, to a large extent, on the administration of social
activities.  Since the 1980s, trade
union involvement in works councils has diminished and been replaced by greater
employee involvement.

Employees elect members to work councils although trade
unionists are given preference of nomination. This is a means of avoiding
potential competition between the works council and trade unions. French surveys
have shown that work councils dominated by trade unionists tend to be more
independent than non-unionised work councils and more proactive when seeking
information and consulting with management.

In Germany, works councils have become identified as important
mechanisms for co-determination in the workplace. The works councils are used
as part of the mediation process between industry level wage bargaining
consultative rights that are enjoyed by employees at the enterprise level. In
Germany, works councils are mandatory in firms with at least five employees,
but only where employees request their establishment.

Currently, two-thirds of German workers are represented by a
domestic works council.

While the councils have no bargaining power over core issues
such as wages, they have extensive rights of consultation over matters deemed
to involve a "communality of interest", such as workplace training.
They also have legal powers to veto corporate decisions on important matters
such as restructuring.

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