Works councils: Serious business

Q What are works councils and how do they apply to me?

A The term “works council” applies to any body that represents the interests of employees, which an employer must inform and consult with on issues affecting their organisation.

Employees like to know what their employers are getting up to and from 6 April 2008, all UK employers with 50 or more staff could be obliged to keep employees regularly informed. Under the new regulations, companies will be required to establish formal works councils on demand.

Before 6 April, the obligation only applies to organisations with 100 or more employees. But this has now been extended, and a significant number of UK employers will have to get acquainted with their new legal obligations. The EU takes works councils seriously: non-compliant employers may face fines of up to £75,000 and be lumbered with a works council imposed on them that is ill-suited to their business.

Q How is the procedure for establishing a works council triggered?

A The procedure for establishing a works council does not begin automatically. Instead it may be kick-started by either an employer or a “valid” contingent of employees. At least 15 employees, forming at least 10% of the workforce, must request a works council for their bid to be valid. Employees can submit a formal request for details of the workforce so they can calculate if there are 50 employees for the purposes of the regulations.

Q How is the works council established?

A Once a request is made, employer and employees have six months to come up with a formal agreement on how the works council is going to run and what its remit will be. Provided the agreement deals with a prescribed range of points, the parties are free to negotiate whatever terms they can. Employees are likely to want to be far more widely informed and consulted than employers will feel comfortable with. If the parties do not agree, then a template set of rules, better suited to the German shop-floor assemblies on which it is modelled than a typical business in the UK, will automatically apply. Neither protracted negotiations nor the pro-employee template agreement are likely to accord with the need of employers to make swift commercial decisions.

Q I already inform and consult my employees: should I do anything else?

A Some employers already have formal arrangements under which they inform and consult their employees. If employers are content with their existing arrangements, they should check whether these constitute a works council for the purposes of the regulations. If employees make a request an employer will still have to get the existing arrangement formally ratified.

Q I don’t have any formal arrangement in place: what approach should I take? Is there anything I should do now?

A There is clearly an important tactical decision for employers to make. Some may adopt a wait-and-see approach, and hope that employees do not request a works council with the attendant negotiations and impairment of their decision-making. These employers may be comfortable with the template agreement and can therefore wait for a request to appear on their desks. This is unlikely to be the case for small to medium enterprises (SMEs) that need to make decisions quickly to remain competitive.

Alternately, employers may wish to take the initiative and instigate the inception of a works council, on terms as favourable to them as the regulations will allow. As with any negotiation, it is best to set out a “dream” position and be prepared to compromise on less important points to obtain something workable. There is also a chance that employees will accept an employer’s proposed agreement without amendment.

Essentially, it’s a judgment call for employers based on their knowledge of their workforce, though the wait-and-see approach involves risks that many employers may wish to avoid.

Q How can I manage the risk?

A Employers may be best advised to take matters into their own hands. There is clearly an opportunity for some good internal PR for employers who sell their implementation of a works council to their employees as means for them to get involved in the business. Depending on how the issue is handled, employers may either strain relations with employees or improve them.

With reference to the template agreement as a worst-case scenario, employers should also consider their “must have” terms in any formal agreement. In the event that they have to negotiate, employers will know what aspects of their decision-making they cannot compromise and what they can afford to give away.

Final thoughts

The regulations put pressure on many more businesses to formally inform and consult employees before taking important decisions, which is an unappealing prospect for directors of small or medium-sized enterprises. For all but a very few employers, it is better to meet their obligations head-on and establish an arrangement they can live with, rather than rely on a template agreement that does not take into account the needs of their business.

Simon Fenton, partner, Thomas Eggar

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