Introduction

The Danish Supreme Court has delivered its judgment in the case regarding the passing on of information by an employee representative that the board of directors of RealDanmark had decided to commence negotiations with Danske Bank concerning a merger.

The Supreme Court found that the disclosure of information to the employee representative's trade union did not constitute a violation of section 36 of the Danish Securities Trading Act.

The intention of this briefing is to clarify the restrictions of employee representatives' duty of secrecy.

Statutory law

Generally, employee representatives are ranked equally with other directors. Accordingly, the employee representatives have no specific obligations to observe the interests of the employees.

The principle of equality entails that the employee representatives are also comprised by the provisions of duty of secrecy in section 160 of the Danish Public Companies Act and section 79 of the Danish Private Companies Act. The provision contains a prohibition against persons making "unauthorised use of knowledge acquired in the performance of their offices or duties."

With respect to listed companies the provisions of the Danish Securities Trading Act should also be observed. According to section 36 a person with inside knowledge must not "disclose such information to any other person unless such disclosure is made within the normal course of the exercise of his employment, profession or duties."

So far there have only been few cases regarding the violation by employee representatives of their duty of secrecy/prohibition of disclosure, which presumably is due to the fact that the violations rarely come to the knowledge of the employer/authorities.

The RealDanmark judgment

In the RealDanmark case the employee representative of RealDanmark informed the chairman of his trade union, the Financial Services Union (Finansforbundet), that the board of directors of RealDanmark had decided to commence negotiations with Danske Bank in order to merge. Subsequently the employee informed the chairman that the merger would be made public the following week, just as he informed the chairman of the exchange ratio between the shares of the two companies.

In continuation of criminal proceedings being initiated against an employee of the Finansforbundet, as the employee had exploited the information which he had concerning the coming merger to acquire shares in RealDanmark, the employee representative was charged with unlawfully having disclosed inside information in violation of section 36 of the Danish Securities Trading Act.

Both the city court and the Eastern High Court ruled that the employee representative had violated section 36 of the Danish Securities Trading Act and imposed a fine of DKK 5,000 on the employee representative.

The Supreme Court changed the judgment and found for the employee representative.

The Supreme Court was of the opinion that the disclosure was lawful and attached importance to the fact that it must be considered to be in conformity with the purpose and the legislative history of the act that "in general an employee representative has the possibility of discussing with the chairman of his trade union questions regarding a merger of significance to the employees".

Furthermore, the Supreme Court attached importance to the fact that the purpose of the disclosure was to discuss "the attitude which should be adopted to the contemplated merger with Danske Bank". The merger would comprise 20,000 of the 50,000 members of the Financial Services Union and would result in the loss of up to 3,500 jobs.

Not only did the Supreme Court find that the disclosure of the information regarding the coming merger but also the information on the exchange ratio between the shares of RealDanmark and Danske Bank was reasonably justifiable.

The consequences of the RealDanmark judgment

Even though the Supreme Court judgment only concerns section 36 of the Danish Securities Trading Act, it must be assumed that the judgment also clarifies the restrictions of the extent of the duty of secrecy under section 160 of the Danish Public Companies Act and section 79 of the Danish Private Companies Act. Accordingly, it is difficult to envisage that in a situation of disclosure a stricter evaluation would take place, if the case is reviewed subject to sections 160 or 79, than if the case is reviewed subject to section 36.

As mentioned in its judgment the Supreme Court attached importance to the fact that the information disclosed was "of significant importance to the employees" and that the purpose of disclosure was to discuss "the attitude which should be adopted to the contemplated merger."

Accordingly, the Supreme Court acknowledges that the formal basic opinion – that the employee representatives exclusively observe the interests of the employer – cannot be maintained in all cases. The employee representatives are therefore also entitled to observe the interests of the employees.

The consequence of the Supreme Court judgment is therefore that an employee representative will be entitled to consult his trade union if

  • the issue is considered to be of significant importance to the employees, and
  • disclosure of information to the trade union improves the possibility of the employee representative to observe the interests of the employees.

Thereby the Supreme Court has not paved the way for employee representatives being entitled in all matters to consult their trade union.

It must be assumed that the requirements of when employee representatives may consult their trade union will be stricter in listed companies, considering the fact that the purpose of section 36 of the Danish Securities Trading Act is to limit dissemination of information which has not been disclosed to the public.

Besides, it is presumably not possible for the employer to extend the scope of the duty of secrecy of employee representatives by stipulating a general prohibition against disclosure of information received at a board meeting. However it is recommended that the board in general – and especially in sensitive matters - impresses the duty of secrecy on the employee representatives, including the consequences of such a violation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.