These are currently still in first draft, to be reviewed by the Government in light of the responses on the consultation exercise. The consultation period ended on 7 November 2003. It is anticipated that the final version of the Regulation will be published not later than 6 months before the implementation date to facilitate the conclusion of voluntary arrangements.

The Regulations will give effect to the Information and Consultation Directive - Directive 2002/24/EC.

We still only have a first draft of the Regulations. Key provisions could change. Any draft Agreement for an Information and Consultation Forum will need to be reviewed when the final version of the Regulations is published.

Implementation

The Directive/Regulations will come into effect for employers with 150 or more employees on 23 March 2005.

For those with 100 or more employees, the effective date is 23 March 2007; a year later for those with 50 or more employees.

Impact

The Directive will ultimately affect approximately 38,000 employing entities in the UK. This is just 3% of the UK employing entities.

'High performance workplaces'

Underlying the introduction of the Directive is the belief that organisations with an effective information and consultation regime are more productive. This was very much the tone of the initial UK Government publication "High Performance Workplaces: The Role of Employee Involvement in a Modern Economy" published in July 2002.

On 30 August 2003, the TUC published a paper also entitled High Performance Workplaces drawing together research establishing this link (copy available on the TUC website www.tuc.org.uk).

The standard provisions are the default information and consultation provisions which will apply if the employer does not establish an Information and Consultation Forum through agreement.

Fundamentally what they provide for is:

These information and consultation requirements are a straight lift from the Directive.

There is some ambiguity inherent within them:

It is questionable how far the Government is able to go in solving these potential ambiguities, because any attempt on its part to add interpretation to the wording of the Directive could precipitate an application to the European Court of Justice alleging defective implementation.

Options for the employer

An employer will be able to comply with the legislation in one of three ways:

The focus of this paper is on the first two of these options.

All employers with 50 employees or more, and particularly those with 150 or more should decide:

As to the last of these options, the lead time between the demand for a negotiated agreement being made and negotiations commencing is only one month. This provides relatively little time for management to make all the necessary arrangements to get the process under way. At the very least they should be ready with a draft agreement which can be tabled as the starting point for the negotiations. The ultimate outcome of negotiations may be heavily influenced by making the right choice of starting point for them.

How are negotiations triggered?

The demand has to come from a minimum of 10% of the workforce subject to these qualifications:

The employer has the option to initiate negotiations itself, but is under no obligation to do so.

There are a lot of technicalities around the fringes of the process. In appropriate circumstances an employer may want to challenge the demand. The process is refereed by the Central Arbitration Committee.

The option for the employer who does not see a strategic value in an Information and Consultation Forum is to wait and see whether a formal demand is made.

Timetable for a negotiated agreement and the standard provisions

Once a qualifying demand is made, the employer is obliged to organise the election of the negotiating representatives and start negotiations "as soon as practicable" and in any event within one month.

There is then a six month period of negotiations. This can be extended by agreement.

If a negotiated agreement is not achieved within that six month period (or any agreed extension) then the standard provisions will come into effect either six months after that or when information and consultation representatives are elected under them, if earlier.

In broad terms the process from demand to the standard provisions coming into effect is up to one year or so.

The Government's explanation for a delay of up to six months after the failure of negotiations before the standard provisions come into effect is that this will provide a further opportunity for a negotiated agreement. The Regulations as presently framed do not contemplate or support that process.

Pre-existing agreements

Unlike legislation for European Works Councils, there is no set cut-off date by which pre-existing agreements must be in force.

They must be in force before the formal demand is made for a negotiated agreement.

Regulation 8 of the draft Regulations deals with pre-existing agreements and requires that they be:

The consultation requirement under pre-existing agreements falls well short of the consultation requirement for a negotiated agreement, which is that there should be "exchange of views and establishment of dialogue between the information and consultation representatives and the employer" and of the standard provisions which impose a similar requirement, but that in addition there should in some circumstances to the consultation "with a view to reaching agreement" (see above).

How do pre-existing agreements operate to block a request for a negotiated agreement?

If the request for a negotiated agreement is made by 10% of the workforce but less than 40% then the employer has an option of balloting the workforce to see whether they are content to operate under the pre-existing agreements.

The option is only available if the pre-existing agreements meet all the criteria in Regulation 8 (see above).

The pre-existing agreements will continue to apply unless, in the ballot, at least 40% of the employees in the undertaking endorse the request for a negotiated agreement.

Potential benefits of pre-existing agreements and/or a negotiated agreement

As against the standard provisions the following benefits can be secured:

Pre-existing agreements and negotiated agreement

Pre-existing agreements only

As the Regulations are presently framed an employer who is working under pre-existing agreements avoids a raft of statutory duties and liabilities:

Because there is this gap in protection for employee representatives, there must be a possibility that the Government will provide for these protections, obligations etc. to apply for pre-existing agreements too in the final version of the Regulations.

The draft Regulations pose a number of problems, which it is hoped/anticipated the Government may go some way to resolving in the second version of the Regulations and/or through Guidance.

In some respects the Government's ability to do so may be constrained:

Some issues are these:

Ambiguities on the information and consultation obligations

See above

The definition of "undertaking"

The Regulations are applicable to "a public or private undertaking carrying out an economic activity whether or not operating for gain".

Under the Directive the Government had an option either of implementing the Directive with the focus on undertakings (with a threshold of 50 employees or more) or on the basis of "establishments" (with a threshold of 20 employees or more) - see Article 3 (1) of the Directive.

The inference is that from the perspective of the Directive an "undertaking" connotes something more extensive than an "establishment".

However in the commentary which accompanies the draft Regulations the Government tends to draw on TUPE/Acquired Rights Directive thinking in discussing what constitutes an "undertaking". It is clear from decided case law that for TUPE purposes an "undertaking" can be part (possibly quite a small one) of a business or establishment. This has been established through a number of cases focussing on the contracting-out of non-core activities, the most graphic being the Schmidt case which involved a bank branch's single lady cleaner.

The European Works Councils Directive addressed this issue by making it applicable either to "undertakings or groups of undertakings" (Council Directive 94/45/EC).

Under the Regulations as currently framed, there is an issue as to how they would apply, for example, to an organisation that comprises a number of associated companies. It is possible to model an organisation that comprises a number of employing companies, each performing a discrete role within the organisation, but none employing more than 50 individuals. Would the Regulations apply at all?

Application

The Regulations are drafted to apply to "undertakings - whose registered office, head office or principal place of business is situated in Great Britain".

Arguably they would not apply to an organisation headquartered abroad, including even an organisation headquartered elsewhere in the EC.

Breadth of consultation

On one construction, under the standard provisions, there must be consultation with a view to reaching agreement before management take their decision. This is to be contrasted with the consultation obligations under TUPE, where consultation is required on the "people consequences" of the management decision, not the decision giving rise to the transfer.

Can individual issues - e.g. the dismissal of one or more employees for reasons which (to adopt the wording in section 195 TULR(C)A92) are "related to the individual concerned" trigger a consultation obligation? "Reasons - related to the individual concerned" can embrace conduct dismissals and dismissals on health or capability grounds, as opposed to dismissals for redundancy or to effect a change in contract terms.

Interrelationship with Trade Union and Labour Relations (Consolidation) Act 1992 and TUPE consultation

There are issues both as to scope (see above) and overlap.

The Government specifically asked for views on this issue in the consultation round.

Interrelationship with collective bargaining

Under the standard provisions the obligation to "consult with a view to reaching agreement" is tantamount to negotiation.

On issues for which a union is recognised collective bargaining with the union would take place alongside consultation with the elected representatives, but with the employer under a statutory obligation to seek to reach agreement with the elected representatives.

Disclosure of information and confidentiality

Whatever strategy is adopted by an employer it will be a requirement that employees or their representatives are provided with information which in many instances will be confidential to a greater or lesser degree. Those employers who are not used to collective bargaining will no doubt be somewhat reluctant to make such disclosures. For this reason Part VII of the draft Regulations set out circumstances in which an employer may impose a duty of confidentiality on employee representatives in the context of either a negotiated agreement or the standard provisions. However, 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 employee representatives but also to any "experts" (typically full-time union officials) or professional advisors.

Critically employers are not obliged to disclose confidential information where such disclosure would seriously harm the functioning of, or be prejudicial to, the undertaking. Unions, in particular, have expressed concern at the apparently broad nature of this exemption. In practice, however, its application may be limited.

By way of 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 such disclosure may be made in confidence to representatives of the company's employees or trade unions acting on their behalf. This position is, in turn, consistent with the obligations of secrecy under the City Code on Takeovers and Mergers, and is further borne out by the guidance issued on this subject last year by the DTI.

Enforcement and sanctions

Specific enforcement measures are set out in the draft Regulations in relation to negotiated agreements and those falling within the standard provisions. Where a claim is made that the terms of the agreement have not been complied with the Central Arbitration Committee may make a declaration and require compliance on the part of the defaulting party.

Where the employer is at fault, employees or their representatives may apply to the Employment Appeal Tribunal for a penalty notice (time limit 3 months). The EAT, will have the power to award a financial penalty against the employer up to a maximum of £75,000.

Although at first sight this appears to be a substantial deterrent to defaulting employers, it must be contrasted with the equivalent enforcement provisions applying in countries such as France and Germany. In these countries the financial penalties are potentially much higher and certain decisions may even be declared void if taken in breach of the appropriate consultation procedure.

Where a pre-existing agreement is concerned, the "sanction" for failure by the employer to act in compliance is the likelihood that employees or their representatives will seek to have the voluntary arrangements replaced under the Regulations.

There are many reasons why employers in the UK may wish to pre-empt the Regulations by putting in place voluntary arrangements which precede any request made by employees for a negotiated agreement or the application of the standard provisions. Not least, voluntary arrangements hold out greater scope for flexibility in adapting the information and consultation procedure to the undertaking concerned. Further, the implementation of a voluntary arrangement avoids many of the complications involved with the application of the Regulations both in terms of ambiguity on their legal interpretation and issues of enforcement.

Ultimately, however, the drive for putting in place an information and consultation process will depend on what attitude senior management take to the prospect of dealing with their employees on a collective basis, and the cultural shift that this will inevitably require.