UK employers can breathe a sigh of relief following the publication of the European Court of Justice's decision in the Woolworths case. It has been decided that when calculating the number of employees who are being dismissed for redundancy, and therefore whether collective consultation obligations apply, the "establishment" which should be referred to is the specific unit to which the employee is assigned to carry out his duties and NOT the employer, or undertaking, as a whole.

The Legal Background

Under the European Directive 98/59 (the "Directive") employers have specific obligations to inform and consult when conducting collective redundancies. The Directive defines "collective redundancies" in two ways. The definition for collective redundancies elected by the UK was as follows: "dismissals effected by an employer for one or more reasons not related to the individual workers concerned where the number of redundancies is over a period of 90 days, at least 20, whatever the number of workers normally employed in the establishments in question."

The Trade Union and Labour Relations (Consolidation) Act 1992 ('TULRCA') is intended to implement the Directive and its wording regarding collective redundancies is as follows:

'Where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, the employer shall consult about the dismissals all the persons who are appropriate representatives of any of the employees who may be affected by the proposed dismissals or may be affected by measures taken in connection with those dismissals.' [emphasis added].

The Woolworths case (USDAW and another v WW Realisation 1 Ltd (in liquidation), Ethel Austin Ltd. and another) raised the issue of whether TULRCA, and in particular the requirement that the dismissals take place "at one establishment", is compatible with the Directive.

What happened in the Woolworths case?

The Woolworths case involved two retailers who became insolvent and went into administration resulting in thousands of redundancies across the UK. An employee, backed by the Union of Shop, Distributive and Allied Workers union brought a claim for a protective award of 90 days' gross pay on the basis that the collective redundancy consultation procedures had not been followed.

At first instance, in the UK Employment Tribunal, a number of employees received a protective award but approximately 4,500 employees were refused an award as they worked at a store with fewer than 20 employees. It was considered these employees did not meet the threshold numbers required at an "establishment" to trigger the collective redundancy obligations. This decision was appealed to the Employment Appeal Tribunal ("EAT") on the basis that TULRCA, and the requirement for all redundancies to take place at "one establishment" was incompatible with the Directive.

The EAT held that TULRCA was incompatible with the Directive, and the words "at one establishment" must be disregarded for the purposes of any collective redundancy exercise involving 20 or more employees. This was enormous news within the UK labour market. It not only meant the 4,500 employees who had previously been denied protective awards could now potentially make a claim. Critically for all UK employers, they could now be required to abide by the collective redundancy obligations when 20 or more employees were made redundant within a period of 90 days within the undertaking as a whole, and many cautious employers have been doing so, given the high cost of getting this wrong.

This decision was appealed by the Secretary of State to the Court of Appeal (the Secretary of State for Business could be required to pay the protective awards if the retailers in the Woolworths case were unable to do so). The Court of Appeal referred preliminary questions regarding the wording of the Directive and the meaning of "establishment" to the European Court of Justice ("ECJ").

The ECJ's decision and reasoning

The Court of Appeal asked whether the phrase "at least 20" in the Directive referred to the number of dismissals across all of the employer's establishments in which dismissals are effected within a 90 day period, or whether it referred to the number of dismissals in each individual establishment? Further, if the Directive refers to the number of dismissals in each individual establishment, what is the meaning of "establishment"? In particular, should "establishment" be construed to mean the whole of the relevant retail business being a single economic business unit, or such part of that business as is contemplating making redundancies, or a unit to which a worker is assigned their duties, such as each individual store?

The ECJ held that the term 'establishment', which is not defined in Directive 98/59, is a term of EU law and cannot be defined by reference to the laws of the Member States.

The ECJ went on to refer to the fact it had already interpreted the work "establishment" in prior case law. In particular, in the case of Rockfon (C‑449/93, EU:C:1995:420), the term 'establishment' was held as designating, depending on the circumstances, the unit to which the workers made redundant are assigned to carry out their duties. It was not considered essential in order for there to be an 'establishment' that the unit in question be endowed with a management that can independently effect collective redundancies. In Athinaïki Chartopoiïa (C‑270/05, EU:C:2007:101), the ECJ expanded on this definition and said an 'establishment', in the context of an undertaking, may consist of a distinct entity, having a certain degree of permanence and stability, which is assigned to perform one or more given tasks and which has a workforce, technical means and a certain organisational structure allowing for the accomplishment of those tasks.

The ECJ reasoned that by using the phrases 'distinct entity' and 'in the context of an undertaking', the ECJ had confirmed the terms 'undertaking' and 'establishment' are different and that an establishment normally constitutes a part of an undertaking.

It was also considered that the Directive concerns the socio-economic effects that collective redundancies may have in a given local context and social environment. As a result the entity in question need not have any legal autonomy, nor need it have economic, financial, administrative or technological autonomy, in order to be regarded as an 'establishment'.

The ECJ concluded 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.

The ECJ reasoned that interpreting "establishment" to mean the whole relevant undertaking or business would bring within the scope of the Directive not only a group of workers affected by collective redundancy but also, a single worker — possibly of an establishment located in a town separate and distant from the other establishments of the same undertaking — which would be contrary to the ordinary meaning of the term 'collective redundancy'. The ECJ regarded the information and consultation procedures referred to in the provisions of Directive, would not be appropriate in such an individual case.

The ECJ stated that while different Member States may apply or introduce laws, regulations or administrative provisions which are more favourable to employees, they are nevertheless bound by the autonomous  and uniform interpretation given  to the EU law term 'establishment' in the Directive.

In summary, the ECJ stated the Directive must be interpreted as allowing (or at least not precluding) national legislation that lays down an obligation to collectively inform and consult workers in the event of the dismissal from a particular establishment of an undertaking, and not requiring the aggregate number of dismissals across all of the establishments of an undertaking to be taken into account.

It is now for the UK Court of Appeal to rule definitively on whether each retail branch was an "establishment".

Conclusion - Employers can now plan with confidence

This decision seems to be clear and unequivocal, which is good news for employers throughout the EU. While this particular point is now settled, however, there may still be many further situations in which the identity of an "establishment" may not be entirely clear in an individual case. Care should always be taken - particularly if the number of employees being made redundant across an organisation is 20 or more.