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2.2.1 Approaching social dialogue

There is a requirement in most European states that employers consult with the workforce. The frameworks and structures for the purposes of social dialogue between the partners vary from state to state and often reflect the nature and level of collective bargaining at a domestic level and national legal frameworks. For instance in the UK, where company level bargaining is the predominate form of collective bargaining, social dialogue takes place at company level.In Germany social dialogue takes place at industry level, reflecting the nature of collective bargaining in that country.

Action by social partners must be timely and must be seen as a continuous process, not something begun at the point of a crisis. At the local or enterprise level, companies and trade unions often have established structures through which they engage in social dialogue. For instance in the German company RWE, the employer and union representatives “engage in regular dialogue through the company’s working group of the Works Councils, the company’s economic committee and representatives for disabled workers” (RWE Survey Response).

The limited disclosure of information can act to prevent proper dialogue. The disclosure of information can act to bring the parties closer together and supports open and honest discussions (MIRE).If either party fails to disclose information that could promote dialogue then discussions will be undermined and potential solutions will be difficult to find.To aid good social dialogue, during restructuring E.On established project groups during restructuring on which trade union representatives were invited to sit, in the hope that confrontation could be avoided.This engagement of employee representatives builds trust and widens the knowledge base of the discussions.

Provision for consultation over redundancy with employee representatives is a feature common to all countries, yet the scope and depth of consultation varies between them. However, the extent of negotiation over restructuring may be open to question. In Sweden the Codetermination Act obliges the employer to consult the unions on all important changes in the enterprise or in labour relations; restructuring often gives rise directly to negotiations between the employer and the union, on behalf of the workers they represent. In France and Belgium it is normal for consultation to take place within Works Council structures and in Germany the Works Council is entitled to negotiate, although their rights under the law are defined and limited. In the UK the legal context for restructuring requires consultation with employee representatives, but in the absence of trade union recognition in the workplace dialogue may be limited. In the case of CEZ in the CzechRepublic, the trade unions have both `discussion rights` with regard to addressing the corporate financial situation and information predicting annual results, on organisational changes, training and retraining as well as pay. They also have very broad `information rights` which include the right for the trade unions to be informed about recruitment and redundancies and the environmental impact of the company. The agreement also defines ‘consultation’, and sets out the legislative requirements of the European Directive giving rise to EWCs.

However, simply exchanging information between two parties does not constitute social dialogue. Early, active, collaborative and holistic intervention is key objectives for employers in the restructuring process.Bringing issues to discuss with the trade unions can ensure active engagement from the workforce at an early and critical stage of the process.Employers should view the process of social dialogue as an opportunity to involve the workforce, bringing in their knowledge and expertise, leading to meaningful discussions with the trade unions over the future of the business.Social dialogue is not simply the expression of parties’ views articulated within a forum, but describes a comprehensive, co-ordinated and collaborative approach to problem solving where each party listens, respects and tries to integrate the other’s view point.In one sense social dialogue is co-ownership of the situation in the workplace and of the solutions.It should also ensure that the transition sought through the restructuring process is as smooth as possible.

Social dialogue might require the intervention of third parties. When it becomes clear, following dialogue between the employer and trade unions, that a number of workers could face dismissal, public authorities, for example involving local job relocation initiatives, should be brought in to the discussions.

It is essential for effective social partner interaction that both parties plan ahead so that the aims and objectives are clear and all involved are working towards identical goals. Trade unions and employers will naturally have different interests, but it is possible to come to agreement on specific processes and outcomes and sufficient planning around these at the outset will offer a greater chance of success.One respondent to the survey noted that “many of the proposed changes aren’t fully investigated, and the final decisions that are made as the result of the change is different from the plan”.This comment serves to illustrate that employers need to ensure there is sufficient time for all parties to properly examine the potential consequences of their planned changes.

Union strategies in the context of restructuring have been characterised as ranging ‘from co-operative partnerships and negotiated accommodation to militant resistance’. They can move between resistance and negotiated accommodation over the course of the restructuring process. As with management there may be different responses to restructuring between union representatives at a local and national level. This can facilitate alliances between local union and management representatives, or even promote hostilities, at the local level. The role of the trade unions at local, regional, national, sectoral and European levels is to facilitate and actively engage in dialogue to minimise the effects of restructuring on workers and to safeguard the long terms interests of their membership.Trade unions will have their own structures, which will vary from region to region, sector to sector and state to state.

Unions may also be proactive in suggesting alternatives to job loss in the context of restructuring, generally on the basis of trade-offs between employment security and working time. The clearest example is the Volkswagen agreement of 1993 where 30,000 jobs were protected through a collective agreement on reductions in working time involving wage concessions.

2.2.2 Level of engagement

Although formal and informal discussion and consultation at a local level between social partners is vital, essential decisions are not generally made at the local level.Social dialogue needs to take place at the appropriate level – usually the highest level of the organisation.European Works Council (EWC) representation does not necessarily equate to trade union representation, yet in a period which capital is increasingly transnational EWCs provide a ‘pan European vehicle for co-ordination’ in the context of restructuring.Examination of the EDF case study shows that EWCs have been useful in allowing employees an insight into the company’s operations across a number of states and therefore increasing the worker voice throughout the entire company.This has lent itself to better industrial relations because, by using the EWC, more workers views are represented and the unions are able to contribute greatly to the discussions with the employer over the operations of the business. The EDF EWC also allows for a role of the European trade union federations, thus encouraging a pan-European approach to discussions and negotiations.

2.2.3 Being realistic

In a joint EURELECTRIC, EMCEF and EPSU survey one employer representative highlighted the need for the workforce representative to understand the economics of the restructuring process, in terms of its necessity, and suggested that this might lead to the trade unions moderating demands, particularly where these are outside the employers control. This is a useful comment because it suggests that to have true social dialogue, each party must appreciate what is achievable.

2.2.4 Monitoring and evaluating the restructuring process

The role of the partners should continue even after workers have been dismissed or have voluntarily left the business. Monitoring the restructuring process and its outcomes is often neglected, but is important. This process will mirror existing mechanisms both at national and regional levels. In the case of the Swedish energy company, Vattenfall, a permanent reference group with trade union representation was established to continuously monitor and evaluate workforce reduction at the company over a period of three years. This process is important because it allows the parties to evaluate solutions and outcomes in the short, medium and long term and is especially useful for cross border learning (see Chapter 7).

2.2.5 Adequate time off for trade union representatives

To enable local trade union representatives to effectively represent their members and fully engage with their employer over restructuring they will need to be given adequate paid time off by their employer. Without this local trade union representatives will not be able to properly prepare for consultation and negotiation or to fully participate in discussions with their employer. Trade union lay representatives also need to meet with their constituent members to communicate management proposals, elicit their views and consult over any joint management-union proposals on the restructuring process. Management will also need to give time-off in working time for union meetings at the workplace. In the absence of these measures meaningful consultation will fail.

2.2.6 Privatisation, liberalisation and restructuring

Before outlining the issues arising from both privatisation and liberalisation, it is important to distinguish between the two and the process of restructuring. Restructuring is a response, by companies, to a number of factors including the introduction of new technology, mergers and take-overs. Liberalisation brings pressure to bear upon employers who may restructure their business as a result, but liberalisation itself is brought about by the relaxation of Government regulations. And although privatisation and liberalisation are often associated with each other, the state can still play a role in companies having undergone liberalisation – for example Vattenfall and EDF. Whereas privatisation, although often a response to market liberalisation, is the process by which former state owned industries are transformed into private ownership.

2.2.7 Privatisation

The process of privatisation has been undertaken in a number of the newer EU states over the last decade and is likely to be carried out in other states in the near future as they prepare themselves for inclusion of the EU. A central difference between privatisation and the other types of restructuring is that privatisation tends to heavily involve the Government, given its interest both as employer and owner.

Research by KPMG shows that throughout central and eastern European countries privatisation has taken place to varying degrees. Unbundling specific sectors within the eastern European electricity industries, prior to privatisation, is also evolving at different rates. While a number of countries have unbundled their Transmission System Operators, Romania and Bulgaria are in the process of doing this. However separating and privatisation in the generation sector is happening quickly. Due to this ongoing process we can expect to see a great deal of Government involvement over the coming years.

The rate at which a Government privatises its electricity sector will depend upon the existing structure of the industry. For instance, the speed of privatisation has been the quickest in those economies where generation, distribution and transmission are already separated.

The case of Hungary below is useful here because it demonstrates how the social partners can prepare when confronted with enormous change.

In newer member states the pace of privatisation has made it difficult to enter into social dialogue with the appropriate information. In addition suspicion, brought about by a lack of trust early in the development of a relationship between the social partners, can be a hindrance to information sharing.

One trade union respondent remarked that often only the statutory notice period for consultation is given by their employer and this does not allow enough time for a proper discussion on the issues. Another remarked that consultation sometimes takes place after the event, leaving employees and their representatives powerless and feeling, as though their views are irrelevant. Trade unions, when in this position, refer to their role as simply ‘fire-fighting’ and feel unable to add value to the process or to the organisation.

2.2.8 Liberalisation

While Britain was forging ahead with liberalising its energy markets in the early 1990s, the European Commission began drawing up plans to open up the gas and electricity markets across Europe. Directives issued in 1996 and 2003 set out rules and timetables for member states to open up their markets firstly covering major users and then including all domestic customers so that all retail markets for small users should be open to full competition by 2007 (Thomas 2005). The response from some major national utilities was to begin looking abroad to establish themselves as significant players at a multinational level. This was seen as one way of protecting themselves from the increase in competition and loss of market share in domestic electricity and gas supply.

The liberalisation of the European electricity market was borne out of European Directives (outlined earlier in the toolkit). The adoption of these Directives was perceived by many as a precursor to lower energy prices, which in turn would lead to investment in jobs and new technologies from those sectors reliant on electricity. On the other hand trade unions feared that liberalisation and privatisation would lead to job losses and a worsening of terms and conditions brought about by the reduction in the coverage of collective bargaining.

While the ECOTEC study in 2001 illustrated that many companies have undertaken restructuring in a socially responsible manner, there is no doubt that liberalisation has introduced a number of difficulties that workforces and employers have had to deal with.

2.2.9 SMEs

One of the weaknesses in the existing model of social dialogue at the EU level, concerns the under-representation of SMEs, when compared with their contribution to employment and economic development in the EU (BERR UK Government). SMEs (which are defined by Eurostat as having less than 250 employees) play an essential role in the creation of jobs and are often overlooked because of their size.To highlight their significance, there are approximately 18,000 enterprises involved in electricity, gas and water production across Europe, employing over 210,000 workers.In addition, SMEs make up around 25 per cent of employment within the EU in the electricity, gas and water industries (Eurostat).

It has become common to call restructuring within SMEs “Silent Restructuring” simply because, despite these companies constituting 99 per cent of all companies in Europe, very little is heard about SME restructuring. This is due to a lack of interest in the press and a mistaken belief that there is little knock on effect across an economy as a whole, following major restructuring or the complete closure of a SME. And yet it is precisely these very companies that have the least resources, are less likely to have representative structures at workplace level and which will find restructuring generally more difficult to deal with. From the worker’s point of view, there is likely to be less help and support available from within an SME than from within a large company and this highlights the need for more direct contact between trade unions and SME employers (UEAPME Conference, Lisbon 2007).

The case study of the restructuring of the textile industry in the Tarnregion, below, illustrates the possibilities for promoting social dialogue and representation within SMEs at regional level in the context of restructuring.

2.2.10 Agency and temporary workers

The representation of agency or casual workers is increasingly an issue for the social partners and has become an important issue during restructuring. This issue has even greater resonance with unions in those member states where there is often a deficit in the employment legislation protecting this particular group of workers.

Agency workers are often the first to be affected by restructuring but are not often represented by trade unions and have generally been excluded from both individual and collective representation and participation in social dialogue. However there are positive steps that can be taken to reducing the vulnerability of these workers during restructuring, while still permitting the numerical and functional flexibility desired by employers and this is illustrated in the comparative case study below from the UK.

2.2.11 Labour pools

Another innovative approach to supporting in restructuring is through the use of‘labour pools’. Under this initiative individual SMEs share their resources and at the same time protect agency workers who are particularly vulnerable from change. The case study also illustrates how trade unions, if involved in discussions at an early stage, can help support and publicise any initiative.

2.2.12 Outsourcing

Outsourcing has become a common and widespread form of restructuring across virtually all sectors of the economy and in most countries in Europe. This is where a service, previously carried out in-house by directly employed workers, is transferred to an outside organisation. Cleaning, catering and security were kinds of services initially subject to outsourcing, but now the process is being applied to main other business activities – in the energy sector these include network maintenance, meter reading, information technology, call centres, payroll, billing training, accounting and transport.

While the process might involve the use of overseas contractors, in the case of call centres or “back-office” functions (offshore outsourcing), usually the service will be outsourced to another company operating locally, although this could, of course, be part of a larger international firm.

The reasons behind outsourcing can be varied and relate to the need to benefit from skills, expertise and resources that cannot be provided in-house. It may also be that economies of scale are available to the company providing the service that might mean services of the same quality can be provided at a lower cost.  However, it may also simply be the case of a company wanting to cut costs by using an outsourcing firm that has lower labour costs.

The key issue is for the social partners to have the opportunity to discuss these questions so that employers can set out their strategy for outsourcing and trade unions can respond, with an opportunity to provide alternative solutions if employers are looking for efficiency savings. An EPSU survey carried out in 2005 found that in 24 out of 25 cases of outsourcing in the utilities sector there had been a process of information and consultation over the change.

Even international consultancies that are employed to manage outsourcing admit that it doesn’t always go to plan. A 2005 report by Deloitte argued: “Outsourcing is an extraordinarily complex process, and the anticipated benefits often fail to materialize.” Organisations should “avoid outsourcing when based solely on cost savings.”

Other surveys by consultancies have confirmed that outsourcing has not always delivered the savings or improved services that employers expect. A range of consultancies and business publications have drafted guidelines for how to plan for and implement outsourcing.

Ernst & Young, a leading accounting and management-consulting firm, highlights some of the key elements of a successful outsourcing project, including the need to “establish measurable goals and objectives” and to “continually track and measure performance and provide feedback.”

Mercer Management Consulting has drawn up a checklist for managers highlighting the key points they think organisations should bear in mind when planning outsourcing. The list includes some essential points that trade unions would also be concerned about such as the need to “make an outsourcing decision based on strategic goals, not just tactical urgency”. It also recognises that because things can go wrong managers should: “design an exit strategy – prepare to survive a contract termination, when operations might need to be transferred to another vendor or brought back in-house”.

Studies underline the need for detailed planning at every stage.One checklist that focuses just on the human resources implications identifies over 60 steps in planning, carrying out and reviewing any outsourcing process.

One business analyst underlines the need for clear planning: “The decision to outsource a function should be treated as a fundamental business decision, which requires a sound plan and an associated economic study.” However, he also acknowledges that it is not just about the business side: “In addition to the costs, other considerations that also should be addressed in the business plan include: the impact outsourcing a particular business function may have on customer services, the impact it may have on the community where the company operates, the impact on employee benefits after the implementation of outsourcing plan, as well as the potential political consequences of employee reduction.” He also argues that “No outsourcing effort can be successful without the full support of the affected employees.”

Trade unions would endorse the idea put forward by Mercer Consulting that managers should: “communicate fully with current employees”, although they would add that communication should be more about consultation and negotiation with employee representatives than just keeping individual employees informed.

The most controversial aspect of much outsourcing is the impact on jobs and employment conditions. The risk for the employees affected is that they might be transferred to a company with lower pay and rates and less favourable employment conditions. While the national legislation that implements the Acquired Rights Directive may afford some temporary protection, in the longer term employees may lose out while new employees working on the contract may be recruited on lower pay and conditions and so creating a two-tier workforce.

Ideally consultation between the social partners should mitigate these effects as far as possible and although the following two cases are related to sub-contracting, rather than outsourcing, they do provide useful examples of how employers and trade unions can minimise the potential negative effects on terms and conditions. An agreement in the Norwegian electricity sector, for example, gives the trade unions the right to information on prospective sub-contracting companies and on the pay and conditions that transferred employees will face. Another policy, within EDF lists a number of factors that should be investigated in ensuring that sub-contracting companies meet certain standards of social responsibility.

Combining some of the main points of advice from management briefings and key issues of trade union concern would generate the following outsourcing checklist:

In outlining an outsourcing strategy are there core competencies which should not be outsourced?

How does a specific outsourcing fit into the company’s outsourcing strategy? Is the aim to take advantage of skills and expertise outside the original company or to concentrate on core competencies, for example?

Is the proposed outsourcing is about boosting productivity? If so, have there been internal discussions and employee and trade union consultation about reforms and alternative restructuring that might deliver the same outcome?

Both for effective business reasons and trade union rights employees and trade unions need advanced notice of outsourcing plans and a clear timetable for how the process will be carried out.

Potential bidders need to be assessed from a CSR angle.

Studies have underlined the risks involved in outsourcing.Has the contract set out clearly the process of establishing performance measurement indicators and the process of monitoring these?

Does the outsourcing contract contain any social clauses in the event of failure?

In cases of a planned outsourcing process, there should be an appropriate involvement of trade unions at the right levels on the possible social impact of outsourcing, where possible anticipating and managing potential issues, including during the preparatory stage.

Have issues such as redundancy measures and how to prevent these, redeployment, training and transfers been considered?

As new contractors are taken on to provide services that were previously delivered in-house, this can introduce some complexities into health and safety responsibilities. Clear arrangements for monitoring the outsourcing company should be established.

2.2.12.1 Training

When companies outsource or sub-contract work to another firm they usually do so to the cheapest bidder.There is evidence to suggest that training budgets are one of the first cuts to be made when firms reduce their overheads, thus firms taking on outsourced contracts are less likely to retain a comprehensive training programme. The problem is further compounded by the fact that, as the outsourced arrangement is short-term, the new employer has no incentive to train and maintain a skilled workforce (Business Strategies 2002).

2.2.12.2 Employment conditions

Although European workers are protected somewhat by the Acquired Rights Directive, when they follow a business which has been outsourced, this protection is not permanent and, as a study by ECOTEC in 2001 showed, “contracting out in the longer term often led to a deterioration of employment, pay or promotion prospects as the new companies often fell outside of the collective bargaining arrangements covering workers in the sector”.In the UK there has been an increase, as a direct result of outsourcing, of companies with a ‘two-tier workforce’ where there remains a core of employees on former, and better, terms and conditions, and a newer workforce, employed since the outsourcing, on worse pay and conditions.

2.2.12.3 Quality of services

There is evidence of a worsening of quality of service as a result of outsourcing.Thus observations by ECOTEC in 2001 suggested that the outsourcing of call-centres has generally resulted in a worse service than previously and this is due to a lack of inside knowledge by contractors.

2.2.12.4 Accountability and responsibility of services

This issue usually refers to the outsourcing of maintenance provision within the electricity sector.The difficulty here is that upon liberalisation the distribution company is separated from the original company and the new company may have different priorities and its own commercial agenda (PSIRU 2003).As the study by Steve Thomas from PSIRU shows, sub-contracting can worsen this situation.This problem occurred within the UK rail industry after the fatal rail crash at Potters Bar in 2002.It took over a year for the government agency responsible for overseeing the rail network to determine responsibility for the accident.

Overall a report by PSIRU in 2003 demonstrates that outsourcing within the electricity sector risks bringing the negative aspects of outsourcing, as mentioned above, without any of the positive aspects.The report makes the reference to the company Sydkraft that recognised “that call-centre outsourcing had to be abandoned and in-house service restored, [as] an important warning”. Outsourcing is thus a fundamental issue when consider the subject of restructuring.

2.2.13 Off shoring

Off shoring is a form of outsourcing and occurs when a company seeks to relocate work to another country, usually to reduce costs. The following case studies help to highlight some of the issues.