April 1, 2003

Subject: EU Directive Increases Employee Rights

The draft European Directive establishing a general framework for informing and consulting employees in the European Community sets out a framework for employee rights.  It is to be set up into the national laws of European Union (EU) member states by 2005.

It is essentially intended to bring industrial relations in countries such as the United Kingdom and Ireland into line with the rest of Europe.  It signals a fundamental change in the relationship between employers and employees in those countries.  Even in continental Europe, where employee representation is more established, the Directive may lead to significant changes to current information and consultation laws.

The Directive will eventually apply to all businesses in Europe employing more than 50 people.  The Directive allows voluntary information and consultation arrangements to be agreed between management and employee representatives any time from now on.  There is no cutoff date for voluntary arrangements.  Where no voluntary arrangement is in place, national implementing laws will define minimum consultation arrangements on a wide-ranging list of business issues.

The issues requiring information and consultation include the situation, structure and probable development of employment within the business and on any anticipatory measures envisaged, in particular where there is a threat to employment.

The Directive does not detail sanctions or penalties.  This is left to national law.  However, the Directive does require national penalties to be “effective, proportionate, and dissuasive.”  Before consultation can take place, information about the relevant issue(s) must be provided to the employee representatives.  Information must be given at such a time, and in such a way, and with sufficient content as to enable employee representatives to conduct an adequate study and, where necessary, prepare for consultation.  The implication is information must be provided in writing.

Consultation should involve the relevant level of management depending on the subject under discussion.  Employee representatives are entitled to provide an 'opinion', to meet with the employer and to obtain a response to their opinion.  Consultation must take place to reach agreement on decisions likely to lead to substantial changes in work organization or contractual relations.  The options for employers are to put a voluntary arrangement in place ahead of national implementing laws, to put a voluntary agreement in place after national implementing laws, and to do what is required by the Directive’s minimum arrangements.

The appropriate course will depend on employer objectives.  In terms of flexibility, however, the option of putting a voluntary arrangement in place ahead of national implementing laws is the most attractive because it provides the opportunity to be pro-active in selecting the scope of information and consultation obligations.

United Kingdom and Irish employers, who are not used to employee involvement in management decision-making, are likely to be highly uncomfortable with the Directive's requirements culturally, and may find them expensive and time-consuming to set up.  Companies in the United Kingdom and Ireland do have an opportunity to avoid or defer starting the key obligations under the legislation by putting in place flexible and less onerous employee consultation mechanisms than those likely to be imposed by statute.  To make the most of this opportunity, however, the employer will need to be clear in its objectives and consider the wider implications of this type of initiative when devising a strategy.  These could include (a) the impact on existing relationships with any trade unions, (b) the potential implications of heightening awareness of collective issues generally, (c) the extent of management involvement required to negotiate information and consultation arrangements, and (d) the internal management changes required to fit more "visible" employee representation.