Employee consultation
Case study
Harry Potts runs a company with more than 80 employees, supplying managed catering services for office canteens and hospitality events.
Recently, he has begun receiving unofficial indications from many of his clients that, because of the worsening state of the economy, they will need to cut costs in the future, including their catering costs. Some clients may withdraw their canteen facilities altogether, whereas some may retender their catering contracts.
Either way, Potts will either have to cut his wage bill or make redundancies. If he does have to make redundancies, a reorganisation of employees' roles will be needed.
Potts wonders at what stage he has to tell his workforce about the prospects. He has spent years putting his workforce together, and a large amount of time and money on training and development. He is worried that, if he lets it be known that the future seems bleak, many of his most valued staff members may defect to his competitors.
This case study is a work of fiction and consequently the names, characters and incidents portrayed in the article are fictitious. Any resemblance to actual persons, living or dead, events or localities is coincidental.
What the law says
Under current UK law, Potts is entitled to hold back information about the future for as long as he can - at least until he formulates some concrete plans for making redundancies and reorganisations.
Once he has established the number of redundancies to be made and the categories of staff affected, in effect the redundancy process begins.
If Potts proposes making fewer than 20 redundancies, he does not have to make an announcement until he has made his provisional selections for redundancy. He must then consult individually with those employees before issuing final redundancy notices. If he fails to consult, he is at risk of claims for unfair dismissal.
If Potts proposes making 20 or more employees redundant within a 90-day period, then in most cases he will also have to notify the DTI and make arrangements for collective consultation (electing employee representatives, providing information, etc).
The consultation process must last at least 30 days (90 days if 100 or more are to be made redundant). The penalties for non-consultation can be as much as three months' pay for each affected employee, as well as any unfair dismissal compensation.
What the expert advises
Matthew Tom is an employment law specialist at solicitors Tarlo Lyons
UK law already provides for collective consultation on large-scale redundancies and certain other situations, such as business transfers. However, the UK will shortly be implementing the EU National Information and Employee Consultation Directive.
Under the new law, employers such as Potts, with 50 or more employees, will have to consult employee representatives about a much wider range of issues, from specific decisions about future job threats or reorganisations to overall economic predictions affecting employment and planned new systems of work.
Under the new law (as already happens in many EU states), employees may also be able to claim compensation if Potts fails to consult his workforce at an earlier stage and on the wider issues. The directive requires that the sanctions for non-consultation that the UK brings in must be "effective, proportionate and dissuasive".
The UK recently announced that it intended to implement the directive over the next three to seven years, depending on the size of the business concerned.
However, the European Parliament has ruled that this timescale does not comply with the directive and that the new rules must apply to all employers with 50 or more employees within three years.
The new law will probably now come into force in 2004, and will mean a fundamental cultural shift in UK employment relations. Unfortunately, while cultural shifts in large organisations rarely come about overnight, employees will often quickly learn about new rights to claim compensation just by seeking advice from their solicitors.
Most of the catering sector employers who will be affected (those with 50 or more employees) will need to establish workforce consultation procedures far earlier than previously thought. Forward-thinking employers can take early action to prepare the ground by establishing consultation procedures, and providing for elections (and subsequent training) of staff representatives.
Contacts
Matthew Tom Tel: 020 7405 2000
E-mail:matthew.tom@tarlolyons.com
Employment Law and Industrial Relations Helpline
020 7396 5100
