Compulsory consultation warning

Financial burden: firms come under pressure as new regulations require businesses to talk to employees about strategy


Law firms have been warned that rules to inform and consult employees on business issues – which come into force this week – could put a significant financial burden on them.


City firm Reynolds Porter Chamberlain (RPC) advised that firms will not only have to bear the cost in management time but also the costs of time spent by employee representatives reviewing and commenting on information provided and of ensuring the ballot to appoint representatives is fair.


The information and consultation regulations require employers in firms of more than 150 staff to inform, and in some cases consult, employees on a wide range of business issues if 10% of employees request consultation and thus set up a works council.


Firms of between 100 and 150 staff have two further years to comply and reach potentially more favourable voluntary agreements in advance, while those with between 50 and 100 have three years.


Issues include the financial state of the business, business reorganisation, takeovers, mergers, potential redundancies, outsourcing, expansion plans and staff changes.


Simon Whysall, an assistant at RPC, explained: ‘Looking at the guidance from the Department for Trade and Industry, the regulations cover mergers, restructuring, opening or closing offices, senior management changes, recruitment, redundancies and flexible working. It is clear they will have an impact on law firms.’


He added that firms can withhold confidential information where it is ‘in the legitimate interest of the undertaking’ or where disclosure ‘would seriously harm the functioning of’ or ‘be prejudicial’ to the undertaking.


Geraldine Elliott, head of employment at RPC, said: ‘Employers will fear that the process for making important decisions will become even more drawn out and painful than it already is.’


She said keeping staff informed and gathering their feedback may be best practice but the statutory provisions go further. ‘They require businesses to establish a dialogue with employees via their representatives over strategic decisions,’ she explained.


Nikki Duncan, a partner at south-west firm Bond Pearce, said many employers have yet to prepare for the rules. ‘Many employers have been trying to put off the inevitable for as long as possible by hoping that existing arrangements on staff consultation will suffice, but frequently they won’t,’ she said.


However, she said it could bring benefits: ‘Handled carefully, a works council should be an effective body which helps pool the experience of all staff to drive the business forward in an increasingly competitive world.’

Michael Short, chairman of the Law Society’s employment law committee, said: ‘While there will be certain large firms who have put consultative structures in place, my instinct is that perhaps most of the profession is waiting to see what happens.’