In April and May this year, the European Court of Justice (ECJ) gave its judgment in three separate cases, which each considered how an employer should determine whether it has reached the threshold for collective redundancy consultation – Woolworths (USDAW and another v WW Realisation 1 Ltd (in liquidation), Ethel Austin Ltd and another (C-80/14) –commonly referred to as the “Woolworths case”),Lyttle (Lyttle and others v Bluebird UK Bidco 2 Ltd (C-182/13)) and Cañas (Cañas v Nexea Gestión Documental SA and another (C-392/13)).

In the Woolworths case, the ECJ was asked to rule on the interpretation of the second of two alternative definitions of “collective redundancies” in the EU Collective Redundancies Directive (98/59/EC, the Directive). In particular, it was asked whether a reference in that definition to “at least 20” redundancies over a 90 day period refers either to the number of dismissals across all of the employer’s establishments or to the number of dismissals in each individual establishment. In both the Woolworths and Lyttle cases, the ECJ was also asked how the term “establishment” should be interpreted.

The Cañas case also concerned when the threshold for collective redundancy consultation is reached. The ECJ was asked whether Spain had correctly implemented the Directive when it adopted the first of the definitions of “collective redundancies” in the Directive but replaced the word “establishment” with “undertaking”.

Headline summary

The ECJ in the Woolworths case confirmed that there is no requirement under EU law for an employer to take account of the number of proposed dismissals across all of its establishments when determining whether the threshold number for collective redundancy consultation has been reached. It is sufficient to determine this by reference to each individual establishment. In other words, it may be possible to treat individual sites or premises as individual establishments for the purpose of determining whether there is a requirement to collectively consult and what period of collective consultation applies, rather than having to “pool” across different sites and premises (although this will remain fact-dependent).

The judgment has been warmly received by UK employers. It was feared that the ECJ might conclude that the UK had incorrectly implemented the Directive and that an employer had to aggregate the number of redundancies across all its establishments when determining whether it had to collectively consult with its workforce.

The ECJ in Cañas confirmed that the use of the word “undertaking” in Spanish collective redundancy legislation was inconsistent with the Directive and that the threshold for collective redundancy consultation should be set by reference to the number of dismissals and employees in each establishment (as provided in the Directive).

The Cañas case is welcomed as it clarifies an uncertain area of law. However, for some employers, it will mean that collective redundancy consultation will be required more often than was previously the case. The impact of the decision on a particular employer will depend on how many employees are engaged at a particular establishment, the number of proposed dismissals and the size of each establishment within the overall undertaking.

If an employer has a series of fairly small establishments, for example in a retailing context, the decision in Cañas may now mean that collective redundancy consultation is not required where only a small number of dismissals is proposed at each establishment. However, if a higher number of dismissals is proposed and the threshold is reached by reference to a number of its establishments, an employer will now need to run several consultation processes where in the past it may only have needed to run one process at national level.

The Collective Redundancies Directive

The Directive sets out the obligations of an employer to consult with its workforce where it is contemplating collective redundancies. When implementing the Directive, Member States are permitted to choose between two alternative definitions of “collective redundancy”. Article 1(1)(a) provides that “collective redundancy” is either:

  • The dismissal, over a period of 30 days, of at least:
    • Ten workers in establishments with 21-99 workers.
    • 10% of the number of workers in establishments with 100-299 workers.
    • 30 workers in establishments of 300 or more.

or

  • The dismissal, over a period of 90 days, of at least 20 workers, whatever the number of workers normally employed in the establishments in question. Spain adopted the first of these two definitions. The UK adopted the second.

The Woolworths case

The key question in the Woolworths case, from a UK perspective, was whether a reference in the second Directive definition to “at least 20” redundancies over a 90 day period refers either to the number of dismissals across all of the employer’s establishments or to the number of dismissals in each individual establishment. This question stemmed from the finding by the UK Employment Appeal Tribunal (EAT) (at an earlier stage in the case) that the UK did not correctly implement the Directive in the way in which it set the threshold number of redundancies at which an employer must collectively consult with its workforce.

The relevant UK legislative provision (section 188 of the Trade Union Labour Relations (Consolidation) Act 1992) requires an employer to consult collectively when it proposes to make 20 or more redundancies at one establishment within a 90 day period. The EAT found that the inclusion of the words “at one establishment” made section 188 inconsistent with the overlying Directive and that these words “at one establishment” should be disregarded. The consequence of this would be that an employer would be required to consult collectively with its workforce when it proposes to dismiss 20 or more employees across all of its establishments, ie collective consultation would be required more frequently than was previously understood to be the case in the UK.

The ECJ in Woolworths confirmed that an employer may determine whether the threshold number has been reached by reference to the number of dismissals in each individual establishment and that there is no requirement under the Directive to aggregate the number of dismissals across all of the employer’s establishments when making this calculation.

Meaning of establishment

In the Woolworths case the ECJ held that the term “establishment”, which is not defined in the Directive, is a term of EU law and cannot be determined by reference to the laws of the Member States. It commented that the fact that Member States were permitted to choose which of the two definitions in Article 1(1)(a) of the Directive to adopt was a clear indication that the term “establishment” had the same meaning in each definition and must be interpreted in a uniform manner across the EU.

In both the Woolworths and Lyttle case, the ECJ confirmed that “establishment” means “the unit to which the workers made redundant are assigned to carry out their duties” (the finding of the ECJ in Rockfon A/S v Specialarbejderforbundet I Danmark, acting for Nielsen & Ors [1996] IRLR 168) but that it is for the national court to determine what constitutes that “unit” in any particular case.

It is therefore for the local courts to decide in each case by reference to its specific facts whether an employer has correctly identified the “establishment” for the purpose of calculating whether it has reached the threshold for collective redundancy consultation and what period of consultation applies. Going forward, the question of what constitutes an “establishment” will continue to be one which requires careful consideration and, in many cases, legal advice.

Undertaking or establishment?

In another decision of the ECJ, the Athinaiki decision (Athinaiki Chartopoiia AE v Panagiotidis and others C-270/05 [2007] IRLR 284), which is relevant to the Cañas case, the ECJ confirmed that there is a substantial difference between the concepts of “establishment” and “undertaking”, and that whilst an establishment is normally part of an undertaking, it may potentially be a distinct entity with a degree of permanence and stability, a separate workforce and a distinct organisational structure.

As the ECJ first held in Athinaiki, and then reiterated in Woolworths, in order to constitute an “establishment”, the entity in question does not need to maintain legal, economic, financial, administrative or technological autonomy from the rest of the business nor does it have to be geographically separate from the other units or facilities within the undertaking.

The Cañas case

Spanish legislation which implements the Directive and which sets out the obligations of Spanish employers to collectively consult on redundancy uses the term “undertaking” rather than “establishment” when setting the threshold at which collective redundancy consultation is required. “Undertaking” here means the undertaking as a whole. The ECJ in Cañas ruled that this reference to “undertaking” rather than to the “establishment” is contrary to the Directive and that employers in Spain should consult collectively where they reach the threshold for collective redundancy consultation by reference to each establishment. The ECJ confirmed that where an undertaking comprises several entities, it is the entity to which the workers made redundant are assigned to carry out their duties that constitutes the “establishment” for the purposes of the Directive. Spanish legislators are now required to take action and amend Spanish collective redundancy legislation to take account of the decision in Cañas.

The judgment in Cañas concerned Nexea Grupo which has two separate establishments in Madrid and Barcelona with 164 and 20 employees respectively. When 13 of the 20 employees in Barcelona were dismissed for economic reasons, these employees challenged their dismissal on the grounds that Nexea had failed to comply with its obligation to collectively consult under EU law.

The ECJ noted that, on the facts of Cañas, the threshold for collective consultation in the Directive had not been met as there was not a sufficient number of employees in Nexea’s Barcelona establishment. It did, however, confirm that the use of the word “undertaking” in Spanish collective redundancy legislation was inconsistent with the Directive and that the threshold for collective redundancy consultation should be set by reference to the number of dismissals and employees in each establishment (as provided in the Directive).

As noted above, the impact of the decision of the ECJ in Cañas on a particular employer will depend on how many employees are engaged at a particular establishment, the number of proposed dismissals and the size of each establishment within the overall undertaking, but generally it has not been welcomed by Spanish employers.

If an employer has a series of fairly small establishments, for example in a retailing context, the decision in Cañas may now mean that collective redundancy consultation is not required where only a small number of dismissals is proposed at each establishment. However, if a higher number of dismissals is proposed and the threshold is reached by reference to a number of its establishments, an employer will now need to run several consultation processes where in the past it may only have needed to run one process.

By way of example, in an undertaking with 150 employees in Spain which is made up of three sites of 50 employees each, if the employer dismissed 16 employees over those three sites over 90 days (5 from Site 1, 5 from Site 2 and 6 from Site 3), the position pre and post-Cañas will differ. Pre-Cañas, the employer would need to consult as it would be terminating 10% of the workforce employed by its overall undertaking. Post-Cañas, it would not need to consult if each of the sites constituted a separate establishment, as it would be dismissing fewer than 10 employees at each establishment. In contrast, where an employer has 400 employees spread over three sites (100 employees at Site 1, 150 employees at Site 2 and 150 employees at Site 3) and proposes to dismiss 15 employees at each site, it will now have to run three separate consultation processes in parallel, whereas, pre-Cañas, it would only have had to have run one consultation process at national level.

The ECJ in Cañas also confirmed that it is clear from the wording of the Directive that fixed term or specific task contracts are excluded from its scope. Therefore the termination of these types of contracts on their expiry dates does not need to be taken into account by an employer when determining whether the threshold for collective redundancy consultation has been reached.

As is the case in Woolworths, it will be important for an employer to consider whether it has correctly identified the “establishment” for the purpose of calculating whether it has reached the threshold for collective redundancy consultation. As noted above, the question of what constitutes an “establishment” will require careful consideration.

Implications in other countries

In a number of European countries the situation is already clear as local legislation complies with the Court of Justice’s interpretation of the Directive. This is true for example in Belgium, where the first definition offered by the Directive was adopted and a collective redundancy is defined as a mass lay-off for reasons unrelated to the person of the relevant workers (eg economic, technical and/or organisational reasons). For the purposes of the Belgian collective dismissal regulations, “establishment” means the technical business unit. This concept is flexible and may correspond to the legal entity, several legal entities or a division of it. Therefore, the ECJ decisions referred to above are unlikely to have any real impact on Belgian employment law.

The same is true for Italy, since Italian law already provides a more favourable regime for employees than that provided by the Directive. In particular, the relevant threshold for consultation is five dismissals within a period of 120 days in the same working unit or in different working units in the same province.