UK Report on The Employer and the Relationship between Labour Law and Company Law
Charlotte Villiers, Reader in Law, University of Glasgow

The question "who is the employer?" is generally rather neglected in Labour Law manuals in the UK. Labour lawyers tend to focus more on the question "who is the employee?" However, the question "who is the employer?" is extremely relevant in reality since to employees the employer owes a number of obligations. Yet in today's economic and commercial climate it may often be difficult actually to identify who the true employer is. Companies often form groups and businesses often operate in association with others, so that the employee's "boss" if frequently not in a legal sense the person from whom the employee takes direct orders or instructions. In this sense company law and labour law interact to influence the identity of the parties to the employment relationship.

Another sense in which company law and labour law interact is that commercial activity and corporate decisions impact strongly upon the employment relationship. For example a decision to expand or diversify the business or to relocate has potentially enormous implications for the employee. From this point of view one is led to ask "are employees given a role in these corporate decisions?"


In reality, in the UK company law pays very little attention to employees, leaving their relationship with the company to the realm of employment and labour law. The two fields are, in theory, virtually regarded as separate and more often than not the company's interests prevail over the employees' interests where there is a conflict. A notorious example is the case of Parke v Daily News in which,before redundancy payments were introduced, the employees were paid a gratis payment when the company was to close, as a reward for their loyalty and service. The court held this to be an ultra vires gift. In truth the two fields approach the employees' position rather differently: labour and employment generally take a protective stance while in company law the relevance of employees is seen in their potential involvement in decision-making.


Although the two fields are treated separately in theory, the reality is that often there is a practical interaction. Frequently in large commercial law firms company lawyers will attempt to draft directors' service agreements which, stricly, are employment law documents. Additionally, business decisions impact upon the employment relationship and social action impacts upon business decisions, at the very least in terms of costs to business.


The structure of the company also impacts on the employment relationship. Generally speaking in the UK employees are kept away from the corporate organs such as the general meeting or the board of directors. This situation contrasts with other countries in Europe such as germany, where in larger companies, employees are given a role in the supervisory board and therefore are placed closer to the decision-making centre of the company. This is largely explained by the historical development of company law in the UK. During the 19th century companies were actually the shareholders coming together as a group. The company's interests were reflected by the shareholders' interests. That approach still largely prevails today although the stakeholder movement has begun to alter that position.


The consequence of the above is that in company law in the UK very little attention is paid to the employees. The Companies Act 1985 makes a brief reference to the employees. In an Act that contains more than 700 sections one of these - section 309 - refers to the employees. Section 309 states that directors must take into account the interests of employees when performing their functions for the company and that this duty is to be regarded as a fiduciary duty owed to the company. The main problem with section 309 is that employees have no locus standi to challenge decisions of the directors if they feel that their interests have not been taken into account. This is for the company, through its shareholders to do. This means that in reality section 309 offers a very weak form of protection for employees. The other reference to employees in the Companies Act 1985 id that in limited circumstances directors are required to produce information relating to employees in their annual directors' report. Thus from these provisions it is possible to see that employees are virtually ignored by company law.


The consequence of the little regard paid to employees in company law is that where there is a conflict between shareholders' and employees' interests the shareholders' interests generally prevail.


Trade unions in the UK have historically supported this situation, preferring to negotiate with employers/companies at arms' length. In 1977 when the Report on Industrial Democracy was published both trade unionists and industrialists preferred to retain a single-tier board of directors rather than adopt a two-tier board along the lines of the German model. For this reason the Draft Fifth Company Law Direcitve, concerned, inter alia, with corporate structure and which proposes a two-tier board system has never been popular in the UK.


The growth of multinationals presents new challenges for employees vis-à-vis the company and also with regard to the identity of the employer. A classic recent case is that of BMW/Rover in which BMW took decisions that gravely affected the workers situated at Rover in the UK. Despite the fact that their employer was Rover Cars Ltd, the parent company, BMW, was able to make decisions that affected their employment. Additionally, industrial relations were affected significantly when BMW bought Rover. A European Works Council was etablished for the new group but this was not included in the negotiations that led BMW to sell Rover to the Phoenix Consortium in May 2000.


The Department of Trade and Industry in the UK is currently conducting a review of Company Law. It was aired at an earlier stage of the review that employees should be given a more prominent position in company law. However, aas the Review has developed this suggestion has been dropped, with prefernce being given to an "enlightened shareholder" approach. In other words, the shareholder's view will continue to prevail.