Before making major changes to pension schemes, be aware they are likely to
be subject to consultation under both existing and new laws, says Stephen
A new regime for consulting workers in the UK is just around the corner.
Most businesses, whether they recognise trade unions or not, will have some
difficult adjustments to make. Complications are bound to arise from the
combination of the legal regime regulating union recognition and the new laws
that have to be made to implement the European Directive on Information and
The Employment Relations Act 1999, which came into effect in June 2000, put
a statutory procedure in place. It enables an independent trade union to
require employers to recognise it as a bargaining agent for a specific group,
provided membership has reached specified levels. When statutory recognition is
granted, the employer must negotiate with the trade union in respect of pay,
hours and holidays.
The legal framework is complex, but recognition of trade unions is
increasing and working in surprising ways. One example is that as a matter of
general law, particularly in European context, pensions are regarded as a
category of deferred pay.
Pay means pensions
Any doubts about the attitude that would be taken by the Central Arbitration
Committee, which deals with disputed recognition cases, to the full meaning of
pay, were resolved by one division of the CAC in the case of Unifi v Union Bank
of Nigeria plc. Decided on 7 June 2001, this case concerned the issue of
whether an employer was obliged to negotiate on a pension scheme (in this case
a group personal pension scheme).
In its decision, the CAC reviewed the legal authorities, Hansard, and the
dictionary definitions of the meaning of pay. It concluded that employer
pension contributions (in a defined contribution scheme) and the benefits
payable (in a defined benefit scheme) are now seen as an integral and important
part of a worker’s pay and in this case, the employer was obliged to negotiate
with Unifi on levels and amounts of employers’ pension contributions.
It seems clear that if such matters are the legitimate subject of compulsory
consultation, so would any major change in the nature of the scheme. Given the
number of businesses considering making changes to their pension arrangements,
this is a development of great significance.
Perhaps the most important commercial considerations created by trade union
recognition are the time involved in the consultation process and the way
disputes are resolved. Recognition agreements frequently specify a structured
method of dealing with disputed issues, requiring a number of separate
meetings. For many unions, Unifi included, the standard form recognition
agreements provide for irreconcilable differences to be resolved by a binding
form of arbitration conducted by Acas.
But in future the question of whether a particular business has a recognised
trade union is likely to become less important, because it will be replaced by
a general requirement to inform and consult employees. The UK legislation
implementing the new EC Framework Directive will need to be in force by March
The directive will apply to companies with at least 50 employees in any one
member state or at least 20 in any one establishment, depending which of these
rules is adopted by individual member states. All such businesses will have a
duty to inform and consult over a wide range of matters. In particular, there
will need to be information and consultation on the "situation, structure
and probable development of employment within the undertaking or
establishmentÉ" and on "decisions likely to lead to substantial
changes in work organisation or in contractual relationsÉ".
It remains to be established precisely what matters will be covered by the
duties in UK law, but it clearly will cover a very wide range of business
decisions that previously would not have come within the ambit of ‘pay, hours
and holidays’. It may well prove easier in the future to draw up a list of
matters on which you do not need to consult, rather than the opposite.
Spirit of co-operation
One of the most difficult provisions to understand is that when defining or
implementing practical arrangements for information and consultation, both
sides are required to work in a ‘spirit of co-operation’ with due regard for
each other’s reciprocal rights and obligations. If you find this provision
obscure, you are not alone. Perhaps some assistance in interpretation may come
from an analogy with provisions in German law, which prohibit any strikes
taking place when consultation is in progress. What is certain is that any
evidence emerging after the event (or from a leak of an e-mail or memo) that
the intention of management was to listen politely and then ignore any
representations, could prove very expensive.
Similar discipline will be required from employees’ representatives who will
not be allowed to reveal any confidential information given in the course of
the information and consultation procedures if it is expressly provided in
confidence, and if this confidence is in the legitimate interest of the
business. This obligation will extend beyond representatives’ periods of
office. It will create some difficulties with newly appointed representatives
unused to responsibilities they may feel put them in conflict with those who
voted for them. This all points to a need for training.
Who is excused?
If an employer considers that passing on information or taking part in
consultations would ‘seriously harm’ the operation of the business, that will
excuse the company from the consultation process. It is likely, however, that
this exception will be narrowly interpreted by Courts and would only rarely
apply to the introduction of a pension scheme, or changes in pension
However, one can predict considerable potential for disagreement about the
scope of this provision and drafting the regulations will not be easy. As the
issues that give rise to such disputes will, by definition, be of the highest
commercial importance to the business, concerned HR directors and employment
lawyers may find they are meeting the top brass more frequently. Also look out
for an increase in the number of HR directors on the boards of their companies.
It is to be up to each member state to introduce sanctions for failing to
comply with the consultation and information requirements. Such sanctions will
have to be ‘effective, proportionate and dissuasive’.
No remedy is specified for individual workers, but employee representatives
will be protected against victimisation for carrying out their duties.
How will unions figure?
The most difficult decision for many businesses, and indeed the Government,
is whether to use trade unions for the purpose of consultation or to create
entirely new structures of elected representatives. The directive is opaque
about its requirements.
Some of the disadvantages of using recognition agreements with unions have
been outlined above. One can imagine the impatience of a finance director who
is told that ‘a failure to agree’ has been recorded about a cherished plan to
expand the business and the next union meeting cannot be fixed for three weeks.
Some businesses will have existing structures they do not want to upset, but
may be faced with sections of the workforce who would rather elect one of their
own number than be represented by a committee including trade union officials.
Other employers may want to exploit the new rules to undermine the authority of
their recognised union or to head off an application for recognition.
Differences between trade unions and works councils in other jurisdictions
in Europe are not uncommon. Then again, in some workplaces, recognition of the
union will be partial and will not cover the whole workforce.
There are many political issues here and the Government will expose a number
of them in its consultation paper which is in the course of preparation. Expect
it to be followed by a prolonged round of bargaining between the Government,
the CBI, the TUC and many other interested parties. Watch this space and lobby
when you can. There is a lot more to come and the outcome will be important for
Stephen Levinson is head of employment law at Klegal.