Is it time to start talking? February 2008
The Information and Consultation of Employees Regulations 2004 provide a formal framework for consultation between employers and workers' representatives. Many large employers will be familiar with them as they came into force in April 2005 for employers with at least 150 employees and in April 2007 for those with 100 or more. However, smaller employers will soon have to get to grips with the regulations as from 6 April 2008 they will apply to employers with 50 or more employees. In this month's Working Times we take a detailed look at the regulations.
When do the regulations apply?
The regulations apply to an "undertaking" which carries out an "economic activity", regardless of whether it is for profit, and has its registered office or principal place of business in Great Britain. Guidance from the former DTI (now DBERR) interprets "undertaking" as a separately incorporated legal entity, such as a company or partnership. This means therefore that a separate entity in the organisation, for example, a division of the business, is not an undertaking.
The European Court of Justice (ECJ) has given a fairly wide interpretation to the term "economic activity". For example, it has held that it covers the provision of healthcare services and assistance to drug addicts. However, the ECJ has also held that organisations whose principal role is to carry out purely administrative functions or to exercise public authority are not carrying out an economic activity where it is merely ancillary to the main purpose of the organisation.
How is the requirement to inform and consult triggered?
The requirement to inform and consult does not operate automatically. It is triggered in the following ways:
• If there is no existing mechanism for information and consultation and 10% of employees put in a request for a procedure to be adopted, the employer must start negotiations with employee representatives
• If there is a valid pre-existing agreement in place (see below - what is a valid pre-existing agreement?) and:
• Less than 40% of employees make the request, the employer has to choose either to initiate negotiations, or arrange a ballot of the workforce as to whether they endorse the employee request. The employee request is endorsed (and the employer must therefore start negotiations) if a majority of those voting and at least 40% of the workforce, vote in favour of endorsing the request; or
• At least 40% of the workforce makes the request, the employer will have to start negotiating a new arrangement.
What kind of consultation will an employer be obliged to undertake?
If the requirement to negotiate is triggered, employers and staff representatives should try to reach negotiated agreements on consultation, otherwise the default procedures will apply. The regulations set out the default information and consultation procedure requiring employers to inform and consult with representatives about the following three areas of the business:
• Any recent or probable development of the employer's activities and economic situation (here the obligation is to inform only, not consult);
• The situation, structure and probable development of employment within the undertaking and any measures envisaged - particularly where there is any threat to employment. This will include business sales, restructuring and the introduction of new technology;
• Specific decisions likely to lead to substantial changes in work organisation or in contractual relations. This includes an obligation to consult in relation to collective redundancies, or proposed changes to terms and conditions of employment. Here, consultation must include an attempt to seek agreement over the proposed changes.
What happens if the employer fails to comply?
If the employer fails to consult properly, a complaint can be made to the Central Arbitration Committee (CAC). The CAC will be able to make an order requiring the employer to comply with the agreed consultation procedure or default procedure within a specified timeframe.
A penalty notice may also be issued by the appeal tribunal, ordering an employer to pay a penalty not exceeding £75,000 (depending on such factors as the gravity of the failure, the reason for it and the number of staff affected by the failure). An employer will have the right to appeal a penalty notice.
Does this mean an employer can be forced to reveal confidential information?
An employer will not be obliged to disclose confidential information during consultation, although it is possible for employee representatives to challenge the confidential status of information. There is also an exemption for disclosure if it would harm the undertaking. The CAC has the power to order disclosure if it disagrees with the employer about whether information is harmful to the undertaking.
What is a valid pre-existing agreement?
To be valid as a pre-existing agreement there must be one or more written agreements which, taken together, cover all of the employees of the undertaking, have been approved by the employees and which set out how the employer is to give information to the employees or their representatives and seek their views on such information. It is clear that the agreements must be fairly explicit in setting out how the employer is to give information and how it will seek the views of the employees or their representatives so that the agreements "engage with the detailed requirements" i.e. the default consultation provisions - see above (Moray Council v Stewart, UKEAT/0143/0.
What are the advantages of having a valid pre-existing agreement?
There are three key advantages of having a valid pre-existing agreement. Firstly, if staff feel that they have a 'voice', it may be less likely that the workforce or trade unions will press for a negotiated agreement. Secondly, it means that the workforce or trade unions would need significantly more support (at least 40% of the workforce) to force a negotiated agreement, or indeed the default consultation provisions, upon the employer. Finally, it is possible, with a pre-existing agreement, for an employer to have more control over the issues upon which employees are consulted and the method of that consultation.
Employers with valid pre-existing agreements often report additional 'knock-on' benefits. Such agreements can encourage a culture of openness and transparency and give employees a sense of participation in the business, which may have productivity benefits. They can also help the employer to manage change especially if restructuring or other organisational changes are envisaged.
In the light of these advantages, a pro-active employer who does not already have a method of staff consultation likely to meet the requirements of the regulations would be wise to consider putting in place a valid pre-existing agreement.
If you would like any more information about this, or related employment matters, please do not hesitate to contact Adrian Berkeley or Craig Oldale of the Employment department, on 0161 371 0011 or by email: law@claim.co.uk
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