Involvement of employees in employer's decision-making

  • 2009-05-28
  • By Kristine Sakarne [Kronbergs & Cukste. Kronbergs & Cukste]
Considering the current economic circumstances in Latvia, many business people are planning various changes involving employees. Such changes often include both collective dismissals and reorganization of companies (including cross-border reorganization). As a result of such changes employees are often transferred to work at another company.
When planning such changes, an employer must comply with effective provisions and its obligations to inform workers on such changes.

The Labor Law of Latvia contains several provisions applicable to companies that are registered and are operating in the Republic of Latvia.
The involvement of employees in a company's decision-making process is also stipulated by laws that regulate EU scale companies and European companies/co-operative societies.
The said laws have been enforced in Latvia by implementation into national legislation per the provisions of respective EU directives.

It must be noted that in the case of cross-border mergers, EU directives stipulate considerable involvement of employees in a company's decision-making process, by ensuring the employees' participation rights.

However, it should be acknowledged that the provisions of European law on companies regarding involvement of employees in a company's decision-making process largely overlaps with the provisions of the law "On Involvement of Employees in European Co-operative Societies."
This applies, for instance, to the procedure of establishing a discussion group and its activity. The said laws also equally regulate the matters of agreement regarding rules of involvement of employees.

In order to prevent repetition of such cases and to define the involvement of employees in decision-making in case of a cross-border merger, the Draft Law "On Involvement of Employees in Decision-Making" is currently advanced for adoption in the Saeima [Latvian Parliament].

The purpose of the new Law is to consolidate valid regulation and to provide a procedure for involvement of employees in decision-making both in a European company/European co-operative society and in an acquirer company in case of a cross-border merger of companies.
In accordance with the currently valid provisions of laws, involvement of employees in decision-making is already stipulated in the laws of Latvia, according to which employees are involved in decision-making in a company, who their employer is, and what is not a European company and not an acquiring company involved in a cross-border merger.

In accordance with the provisions of Section 106 of the Latvian Labor Law an employer is under obligation to consult its employees in case of a planned collective dismissal.
The purpose of such consultations is to evaluate the reasons for collective dismissal and to strive to find a solution to the situation in order to minimize the number of employees subject to the action as much as possible.

Furthermore, in accordance with the provisions of Section 120 of the Latvian Labor Law, in case of the transfer of a company (for instance, by merging two companies and by transferring employees of one company to work in the other company), an employer is under obligation to inform its employees about the reasons for the transfer; the legal economic and social consequences of such transfer, as well as the measures which will be taken in respect to employees.
The above-mentioned provisions are applied to involvement of employees in processes that have direct influence on the employee and employer relations. The law does not require that such measures (informing employees) should result in any kind of agreement or adoption of a specific decision.

However, it should be taken into account that, violation of the above-mentioned provisions of the laws might result in the employer being subject to administrative penalties. The State Labor Inspection may apply an administrative fine to an employer, in accordance with the provisions of the Administrative Violations Code of Latvia, in the amount of up to 750 lats.

Although the new Draft Law will introduce unified regulation on the involvement of employees in decision-making in European companies/co-operative societies and European scale companies, it must be taken into account that the provisions of the Labor Law, as well as liability stipulated in Latvian laws in case of violation of such provisions will still be applicable to companies that operate solely within the territory of the Republic of Latvia.

Kristine Sakarne is a legal consultant at Kronbergs & Cukste. Kronbergs & Cukste is a co-founder of Baltic Legal Solutions, a pan-Baltic legal services provider represented by Jurevicius, Balciunas & Bartkus in Lithuania and Glickman & Partnerid in Estonia.