Share and share alike?

The Government has made it clear that it is no longer acceptable for employees to hear they are going to lose their jobs via the media. It strongly supports the principle of employers informing and consulting their staff on an ongoing basis about matters that may affect them.

The legal obligations contained in the regulations, currently in draft form, apply to larger firms and to any company with more than 50 staff. But the Government would encourage all employers, irrespective of their size and the nature of their activity, to inform and consult their staff in a way that is suited to their particular circumstances.

Does information have to be given to employees in all circumstances?

The Government’s consultation paper, published on 7 July 2004, covers in some depth the issue of listed companies being prevented from sharing price-sensitive information with employees or their representatives by the UK Listing Rules. In conjunction with the UK Listing Authority, the Government has concluded that these concerns should not prevent the effective exchange of information and consultation under any new system.

The Listing Rules will allow such information to be given in confidence to “representatives of employees or trade unions acting on their behalf”. The key distinction is that while designated employee representatives can receive such price-sensitive information, the workforce as a whole cannot.

However, employers are not obliged to disclose confidential information to staff 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 Department of Trade and Industry in July 2004. An example of where the exemption would apply is in the case of price-sensitive information where there was a negotiated agreement for direct information and consultation with employees, rather than through representatives.

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 staff representatives, but also to any ‘experts’ involved, such as full-time union officials or professional advisers.

What happens if an employee breaches confidentiality?

If confidential information is given to staff representatives and is subsequently disclosed, the defaulter – the person who disclosed the confidential information – 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 which 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 with confidence that it will not be disclosed.

Of course, it remains to be seen whether UK companies will be comfortable with this approach, or whether in practice they 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 Central Arbitration Committee.

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