Information and Consultation of Employees Regulations 2004

– in the House of Lords at 12:58 pm on 21st December 2004.

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Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, the regulations before you today implement EC Directive 2002/14/EC on informing and consulting employees. For the first time, employees in the UK will have a right to be informed and consulted on an ongoing basis about the changes and developments in the organisations they work for.

The Government strongly support the objectives behind the directive. We want to see an end to employees hearing about job losses only from the media over breakfast or by text message. We want employees to feel valued, motivated and committed to the organisations they work for. Business will also benefit.

For companies working in an increasingly competitive environment, involving employees in the business can help them to gain a competitive advantage.

There is a good deal of evidence that the more people are genuinely involved and informed at work, the more committed they become. Business can benefit not just in reduced absenteeism and staff turnover but in higher levels of productivity, performance and customer satisfaction. Many businesses realise this and already have good employee communication policies in place. But we need such good practice to spread more widely in the UK.

The regulations break new ground in that they are based on a framework agreed with the CBI and TUC. I am extremely pleased that we were able to reach an agreement in this way, and I pay tribute to the CBI and TUC.

In agreeing the framework, we were guided by two key priorities—first, to ensure that employees have the right to be informed and consulted on management decisions affecting their future and, secondly, to do so in a way that avoids unnecessary burdens on business and provides flexibility.

We know that no two companies are identical, so we agreed with the CBI and TUC that we would not impose a single, rigid model on all. Companies can tailor arrangements to suit their individual circumstances, as long as employees agree with them.

The regulations implement the framework agreement. I shall briefly explain some of the key provisions. The regulations apply to undertakings in the UK with 50 or more employees. These form 3 per cent of firms, although they employ 75 per cent of employees. The regulations will be phased in, giving smaller firms longer to prepare, although the Government would encourage all organisations, whether or not covered by the legislation, to inform and consult their employees, as a matter of good practice.

Regulation 7 gives employees the right to request formal information and consultation arrangements from their employer. Where at least 10 per cent of employees in an undertaking make a request, the employer will normally be required to initiate negotiations. If employees do not trigger the legislation in this way, the status quo will continue. However, if an undertaking already has a pre-existing agreement on information and consultation and a request for new arrangements is made by less than 40 per cent of employees, the employer may hold a ballot to determine whether the wider workforce endorses the request. It follows that where employers and employees are content with their current arrangements, the regulations do not force them to change anything.

Regulation 9 allows for a combined ballot to be held where there is a pre-existing agreement covering a group of undertakings. Regulation 11 permits employers to initiate negotiations without waiting for an employee request. Where an employer is required to negotiate an information and consultation agreement, Regulation 14 sets out what steps have to be taken.

Regulation 16 sets out what a negotiated agreement must contain and how it must be approved. Agreements must set out the circumstances in which the employees will be informed and consulted but specify neither the method, subject matter, frequency nor timing. It purposely leaves that to the employer and employees to decide, giving them the flexibility to agree arrangements best suited to them.

Once arrangements are in place, information and consultation may take place through elected or appointed representatives, including trade union officials. However, communications can also take place directly with employees, if that is what they want.

The standard information and consultation provisions in Part 4 apply only where negotiations have failed to lead to an agreement, or where an employer fails to initiate negotiations when required to do so. They oblige employers to inform and consult on specified matters in the way set out in Regulation 20. However, employers and information and consultation representatives are always free to reach a negotiated agreement at any time.

Regulation 22 provides for complaints to the Central Arbitration Committee about the operation of a negotiated agreement or the standard information and consultation provisions. It also provides for an application to be made to the Employment Appeal Tribunal for a penalty of up to £75,000 where an employer has failed to comply with a negotiated agreement or the standard provision.

Regulations 25 and 26 allow employers to protect confidential information.

Part 8 provides protections for employees and rights to time off for representatives.

The CAC has a very important role to play throughout the entire process, from taking decisions on the validity of employee requests, through to enforcing arrangements. ACAS also has a central role in conciliating, trying where possible to resolve any disputes.

The rights I have outlined are without a doubt very important and their potential is significant. We have consulted widely and have already begun awareness raising, with many highly successful regional road shows and master classes. DTI guidance has also been produced and we are also grateful to ACAS for putting together good practice advice and training materials.

But we want to do more than just raise awareness of these new rights. We want to encourage business, employees and unions to realise the benefits of a better informed and consulted workforce. The Government have high ambitions for the information and consultation legislation. Approached in the right way, it has the potential to cause culture change in workplaces throughout the UK. I beg to move.

Moved, That the draft regulations laid before House on 8 December be approved [3rd Report from the Joint Committee].—(Lord Sainsbury of Turville.)

Photo of Baroness Miller of Hendon Baroness Miller of Hendon Shadow Minister, Economic Affairs

My Lords, these draft regulations are 33 pages long, followed by a five-page explanatory memorandum, and are accompanied by 39 pages of a regulatory impact assessment. Before I go further, I must apologise for my voice. Inside my head, it sounds awful and I hope that it does not sound as bad to your Lordships.

In that regulatory impact assessment, we have no fewer than 11 pages of tables setting out what are called,

"the assumptions on staff resources and running costs", and,

"the costs of introducing and running an I&C System".

After those 11 pages of tables, there are two pages of so-called flow charts by which an employer can follow a tortuous route to find out whether his business is actually involved—and, if so, when and how.

I invite your Lordships to look at pages 38 and 39 and perhaps those of you who can make head or tail of it might care to offer their services to what I imagine will be a large number of utterly bewildered medium-sized employers. I refer to medium-sized employers because the regulations apply only to businesses with more than 50 employees after 2008 and against larger employers between this coming April and April 2007. I thank the Minister for explaining them so carefully. It was easier than trying to wade through all those pages, but I am not sure how employers will manage to do so.

Fortunately, 97 per cent of businesses in the United Kingdom have fewer than 50 employees and are therefore exempt from this burden. Nevertheless, with perhaps just 3 per cent of businesses which will be burdened by the regulations, the cost will be staggering. On the basis of the Government's own figures set out in the regulatory impact assessment, businesses will incur a total one-off cost of between £24 million and £53 million between 2005 and 2012.

If that wide "guesstimate" is not wide enough, the ongoing running costs will reach between £20 million and £46 million each year—each year by 2012. I venture to suggest that our competitors in China and India, and those in other emerging nations, will not be faced with these totally unproductive and irrecoverable on-costs.

In January of this year during the passage of the Employment Relations Bill, my honourable friend the Member for Eddisbury wrote:

"It is unfortunate that against a backdrop of corporate profitability at its lowest level since 1993, and productivity which has halved under Labour, that the Government believes that it is its mandate to promote regulation rather than innovation".

As we predicted, what is happening is that companies are to be forced to consult staff on the smallest every-day issues, which will be a waste of time for both employers and those employees who actually take part in the consultation. And to what end?

After the consultation, the employer will still have to make his decision based purely on the commercial implications involved. As I have sat on these Benches, sometimes enduring the frustrations of being in opposition, I have watched with dismay how the Department of Trade and Industry, as it has grown, has become the regulator of British business instead of protecting it against a rising tide of stifling regulation. The Secretary of State, especially the present one, has indulged in unprecedented empire-building while her department's budget has ballooned to £8 billion.

We on these Benches would have hoped that the objectives of these regulations could have been achieved by a less prescriptive route. That is not to say that we do not believe that the objectives of the regulations, in making it easier for employees to know what is happening—not simply having it thrown upon them—is not a good one; it is, but there must be another means of doing it. In other words, there should be voluntary co-operation between both sides of industry, where appropriate. This massive hammer to crack a nut, with a one-size-fits-all set of regulations, disregards the needs of individual companies when different circumstances will inevitably prevail. However, I accept what the Minister said, that it is certainly wrong that on major matters of employment the employee should hear what is happening to him only at the very end.

The Minister has commended these regulations to the House. We for our part will follow the usual custom of your Lordships' House, which is, notwithstanding our misgivings—we should have preferred the measures to be voluntary—that we shall certainly not oppose the passage of the regulations, and we certainly hope that they work well.

Photo of Lord Razzall Lord Razzall Shadow Minister, Trade & Industry

My Lords, it will come as no surprise to the Minister to learn that we on these Benches fundamentally disagree with virtually every word that the noble Baroness has just said. The Minister will remember that in the passage of the Employment Relations Bill, certainly in another place and I believe here as well, we pressed an amendment on the Government to try to expedite the introduction of these regulations. We fixed the date of 23 March 2005 as the time by which we wanted to mandate the Government to introduce the regulations. So the Minister has beaten the date, even in our amendment, by three months.

We welcome these regulations. The Liberal Democrats, and the Liberal Party before the Liberal Democrats, has over the past 100 years advocated proposals of this nature. We believe that what has been wrong with so much of British industry has been an absence of consultation between management and workforce, and the "them and us" attitude. We feel that the regulations will go a long way to breaking down a lot of the traditional barriers in British industry. Would that this approach had existed 20 or 30 years ago, before a large element of the manufacturing industry in the UK disappeared. Nevertheless, in relation to those businesses in which manufacturing survives, we feel that the regulations are essential.

There have been some very bad examples recently of workforces having termination of employment redundancies imposed on them without adequate consultation in advance. Academic studies from Warwick University demonstrate that across the board in British industry only a minority of UK companies even remotely, at the moment, match the requirements of the European Union directive and the regulations that flow from it. So we congratulate the Government on introducing the regulations and say all power to their elbow in this matter.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

My Lords, I apologise for dashing in at the last minute to make this short contribution. Due to the timetable for the smoking debate I had to attend a meeting and then come to the Chamber.

I declare an interest in that over many years I have worn two or three hats relevant to the subject that we are discussing. I was involved in discussions in Brussels on social dialogue. I hope that I can put the mind of the noble Baroness, Lady Miller, at rest to some extent. I think she will agree that this matter has involved employers' representatives at every stage. Indeed, one of the first things the Labour Government did in 1997 was to sign the Social Chapter. I remember meeting with Robin Cook in Brussels at that time when he was Foreign Secretary.

The Social Chapter is not top of the pops with the party of the noble Baroness, Lady Miller. Nevertheless, it has produced three or four major reforms involving part-time workers, fixed-term contracts and this measure, which, as the noble Lord, Lord Razzall, implied, has been the subject of debate for 30 or 40 years. Should a worker have the right to representation vis-à-vis his employer? In TUC jargon that is rung one of the employment rights ladder. We have seen further developments in that regard in the past two or three years. I believe that from November of this year a provision of the Employment Act 2002 was brought into force with the result that every firm of any size must have a disciplinary procedure and every firm must have a grievance procedure. As I say, that is rung one.

Rung three concerns what the Government did some three or four years ago regarding trade union recognition—where a majority of workers have voted for that—and terms and conditions of employment. I refer to the case for rung two—the one in the middle. Many questions involving pensions or training have not been included in the relevant mandatory list. However, rung two—the metaphor implies that you may go to rung three—is good news for many firms that have been faced with requirements regarding, for example, collective redundancy, but which have no ongoing machinery to deal with it. A push or a nudge is required to get that set up. How is that machinery to be set up? It does not happen in 24 hours. It requires a lot of thought, but people have had a lot of notice that these regulations would be brought into force. Everyone knows that agreement has been reached with employers in Brussels and in London between the TUC and the CBI.

The measure is to be implemented in three stages. I do not know whether my noble friend would agree that only a small percentage of firms are covered by the measure, and that many small firms do not add up to many millions of workers. However, if everyone who was entitled to do so went down this track, some 70 per cent of the workforce would be covered by the measure. That is not an inconsiderable figure. The measure constitutes a red letter day in the history of industrial relations in this country. It is odd that a reform of such importance is being discussed in a short debate. However, that is the way that our parliamentary procedure works. I very much welcome the Government's determination to engage in dialogue once they had decided that this was the track down which they were going.

Wearing my other hat as a member of the Central Arbitration Committee, I look forward to considering some of the tantalising questions about existing agreements and interpreting whether the new arrangements are satisfactory. We do not know how this will work in detail, but I am pretty confident that with the experience of the trade union recognition the Central Arbitration Committee will be able to play a constructive role for its part. I congratulate all those concerned on getting us to where we have got to so far.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, I am grateful for noble Lords' views. I will respond to a few points. I am pleased that as a whole we had general support from noble Lords on these issues. The noble Baroness, Lady Miller, raised the question of competitiveness with China. We need to deal with that issue first. The wages in China are 5 per cent of what they are here. In many cases, the environmental and working conditions are still deplorable, though steps are being taken forward. We will not be able to compete with China, and we should not try to do so by reducing our costs and the way we treat workers to the level at which they are treated there. We will be able to do that only on the basis of innovation and moving into high value-added areas. That is where we must set our sights. The whole issue of information and consultation is relevant to that.

The noble Baroness also raised the question of costs incurred by business through familiarisation with the legislation and implementation. Initially, there will be some costs arising from the new provisions on information and consultation, as made clear by the regulatory impact assessment, but we have chosen the least costly implementation option for implementing the directive. If you look at this against the ongoing costs of business, they are very small. If you take together the gross costs of all employment legislation introduced since 1997, it is around £4 per worker per week, and that includes all the benefits that go to workers. If you take just the administrative costs, we are talking about just 3 pence for each worker each week. That is not going to make a great deal of difference to the competitiveness of British industry.

The noble Lord, Lord Lea, raised the question of people covered. The regulations, while they apply only to 3 per cent of all firms, cover 75 per cent of all the people employed in firms. The noble Baroness, Lady Miller, raised the question of the length of the regulatory impact assessment. I am sure that if it had been shorter, the noble Baroness would have asked why it did not cover all the information that it needed to cover. Businesses do not need to read the regulatory impact assessment to understand how to comply with the legislation. The noble Baroness also raised the question of firms being required to consult on trivial issues. That is simply not the case; the directive is about strategic decisions affecting employment, although it will ultimately be a matter for employers and employees to agree on the issues they will inform and consult on.

I also thank the noble Lords, Lord Lea and Lord Razzall, for their support for these regulations. They are important, and they can make a great difference to industrial relations. They are another important step in furthering the partnership agenda. The Government have listened to the views of consultees and produced regulations, in agreement with both the CBI and the TUC, which are flexible and which balance the rights and responsibilities of employees and employers. That is how it should be, and I commend the regulations to the House.

On Question, Motion agreed to.