European Union directive puts staff consultation at centre of company life

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Imagine a situation in which a bank dismissing an employee for poor performance is obliged first to discuss the matter with his or her colleagues. Or one in which bankers are informed whenever there is an inkling of redundancies.

Both scenarios may sound reminiscent of practices in continental European countries, where labour laws favour employees. However, on April 6, such a law will come into force in the UK.

The European Union's information and consultation directive establishes a framework for business communications with employees. To meet its requirements, lawyers are advising employers with more than 150 staff to set up groups of elected employee representatives by the start date.

Companies that delay risk the imposition of a default model of representation, in which employees will have a role in wide-ranging decisions, which are the preserve of management.

The idea of employee consultation is not new. UK employers have been obliged to consult employees over redundancies since the 1970s and additional regulations have been in place since 1981.

However, from April, banks will have to consult employees even if only a handful of staff are to lose their jobs, according to Fraser Younson, head of employment legislation at law firm McDermott Will & Emery.

They must consult when any redundancies are envisaged and employees will have a say in issues such as the choice of outsourcing provider. Companies will also have to set up permanent groups of employee representatives instead of ad hoc forums.

Jeremy Willoughby, group compliance and risk director at fund management group Schroders, said the new regulations would make a big difference. "It's a tremendous change. Forums will formalise staff consultation and allow staff to articulate their concerns."

But Younson said investment banks have been slow to make preparations for the new law. "A lot think it doesn't apply to them. They say brokers, dealers and marketmakers aren't interested in this kind of thing; there's no appetite for it," he said.

They may be right. Despite the industry's reputation for swingeing redundancies, there are no trade unions representing corporate financiers and traders.

After April, just 10% of staff have to demand representation and employers will have the default model foisted on them. Younson said: "It only takes a handful of secretaries to get together and banks will find themselves consulting on things they never dreamed of." The topics include changes in organisational or contractual relations, including individual dismissals, the state of the business and risks to job security to be discussed at the earliest possible stage.

Some banks, including UBS and Citigroup, are aware of the changes and have formed groups of employee representatives to meet senior management. Dresdner Kleinwort Wasserstein, Deutsche Bank and Schroders plan to elect employee representatives in the next two months. Others, including Morgan Stanley, are retaining their existing arrangements, which may not be compliant with the new law.

The notion of consultation has been around for some time. UK employers are obliged to consult staff over redundancies under the collective redundancies requirements of the 1970s and the transfer of undertakings (protection of employment) regulations of 1981.

However, Younson said the default model took matters a stage further: banks would have to consult employees even if only a handful of staff were to be made redundant; they would have to when redundancies are merely envisaged; and employees would have a say in strategic issues such as the choice of outsourcing provider.

Banks that comply immediately have the advantage. By electing employee representatives before the implementation date, they will be able to specify the range of subjects to be discussed with management, avoiding the more onerous default model.

After April, at least 40% of employees must demand a change of agenda, which might be a level of militancy considered impossible in banking.

Deutsche Bank, which is making 6,000 staff redundant around the world, said its UK representatives will be informed in more detail about the job losses when they are elected next month. "We felt it would be good practice to discuss what we'll be doing with employees," said Elizabeth Warren, head of UK human resources.

However, Deutsche's forum is likely to be informative rather than discursive. Warren said employees would not be given the power to impede the restructuring programme.

Matters discussed at UBS's employees' forum have included spaces in the bicycle sheds.

Amanda Robinson, head of employee relations, said: "The forum is a communication tool between management and employees. We use it as a sounding board for things we want to get views on and sometimes it can be even the small things that make a difference."

Despite the apparent toothlessness of existing forums, HR staff claim they are valuable. One departmental head said: "This is a way in which you can get collective input from staff. They are useful when it comes to changing pension plans or the benefits system. Obviously, we wouldn't talk about how much we're going to pay people."

Some bankers uphold the benefits of talking shop. One forum member said it tries hard to make a difference: "Management set the agenda but we get a chance to talk about things like travel arrangements, headcount and the direction of the business."

For individual bankers, forum membership has attractions beyond the urge to negotiate a better deal for colleagues: it is a networking opportunity. "You get a chance to meet senior staff and people from other areas of the group. You can network vertically as well as horizontally," said one.

Most importantly, being an employee representative could be a way of sidestepping redundancy. Representatives given the chop might conceivably claim it was because they criticised information disclosed at the forum. This could make them whistleblowers, who may claim considerable compensation if made unfairly redundant.

Banks may yet find their employee forums are more popular than they expected.

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