New EU directive threatens to drive a coach and horses through mergers

Corporate takeovers and mergers could be threatened by new laws requiring companies to disclose confidential information to their staff, legal experts are warning.

The European Union directive, which takes effect in Britain from next year, is expected to force businesses to inform staff about secret merger and acquisition negotiations.

Sue Ashtiany, head of employment law at solicitors Nabarro Nathanson, said clients were worried potential deals could be jeopardised by staff leaking information.

"Companies are really anxious about the prospect of leaks," Ms Ashtiany said. "The fear is how they can keep price-sensitive information confidential."

The European Information and Consultation Directive was prompted by controversial decisions by companies such as Danone and Marks & Spencer to shed thousands of jobs without first informing staff, she said.

The regulations require medium to large businesses to consult with staff about an array of issues that may affect them, including strategic direction.

Implementation will be staggered. The laws come into force from April 2005 for companies with 150 or more staff; those with 100 to 149 employees will be affected from 2007, while businesses with 50 to 99 staff are included in the directive from 2008.

Companies face fines of up to £75,000 for each breach of the legislation. The Trade and Industry Secretary, Patricia Hewitt, has said she wants these changes to "lead to a no-surprises culture at work".

One way companies could avoid releasing sensitive information would be to draw up a voluntary agreement with staff, setting out what information would be provided, said Ms Ashtiany.

However, Paul Griffin, employment partner at law firm Norton Rose, said time was running out to broker an agreement. "It's last-chance saloon for companies."

Mr Griffin believes the laws put pressure on companies, even though staff have to keep any sensitive information confidential. "Many companies are taking it very seriously," he said. "There's an inherent mistrust by employers of elected employee representatives."

Chris Booth, head of employment law at solicitors Pinsents, believes there is a caveat that provides an escape hatch. "The employer is not obliged to disclose confidential information if it believes this would seriously harm its ability to operate," he said. "When it comes to M&A, I think companies will rely heavily on the confidentiality non-disclosure clause."

But employment partner Nicholas Squire of Freshfields Bruckhaus Deringer warned it would be dangerous to "try to hide behind the argument that the information is confidential".

Mr Griffin said it would be difficult to convince a tribunal staff should not be warned: "The company would have to prove there had been a series of leaks."