A Private Members' Bill has been presented to Parliament, proposing to amend the Companies Act 2006. The changes would require companies to have worker representative directors. At the moment these changes are purely speculative, and unlikely to become law, but they could lead to positive outcomes.
What is a worker representative director?
In addition to their responsibilities as a company director, a worker representative director would be responsible for bringing a worker's perspective to the boardroom in qualifying companies.
What is a qualifying company?
A “qualifying company” is one which:
- has 250 or more workers, or
- has 100 or more workers and those workers have triggered the right to have worker representative directors through a procedure to be prescribed under this section, or;
- made a pre-tax profit of £2.5 million or more in the last year for which accounts are published.
“Worker” here means someone who has entered into or works under a contract of employment, or other contractual arrangement, to personally perform works or services for another party, who is not a client or customer of the business that individual undertakes.
Qualifying companies would need at least one director who is a worker representative director, and these directors must comprise at least one third of board membership.
The amended regulations would provide for the nomination of worker representative directors (also by recognised trade unions) and by worker election.
Those private companies with a shareholder’s agreement to manage governance and a shareholder split at Board level will need to reconsider these arrangements should they approach the qualifying size (if the Bill becomes law). It would be better to do this with time on their hands, rather than facing such alterations to governance in the pressure moments of being forced to accept worker representative directors.
Will the changes become law?
The legislation has been introduced as a Private Members’ Bill, which are presented by non-government ministers and rarely become law.
It is unlikely that the Bill will become law, but a second reading is scheduled for 18th March 2022. The Bill is drafted to come into force 90 days from the day on which it is passed.
Is this a good proposal?
An employer’s natural reaction may be against the proposed amendments, as it could lead to the flow of delicate information through the company workforce, and potentially a lack of team spirit with creation of factions at Board level. However, this could be short sighted. Boardroom discussions are often speculated by the workforce and having a “man on the inside” could help to improve transparency and the level of trust between the Board and workers.
A worker representative director’s split responsibilities could help to improve decision making where workers are involved. Positive changes, if well received by the workforce, could lead to greater efficiencies where workers have the comfort of knowing they have a representative on the board that is specifically responsible for bringing their perspective to the boardroom.
If you would like to discuss the implications of this potential change in legislation, please contact a member of our Corporate Team.
