Any delay at the start of a redundancy consultation exercise, even when provisional options are being considered, could prove to be an expensive mistake, as the recent case of E Ivor Hughes Educational Foundation v Morris and others has confirmed. As a result of the employer’s “reckless failure” to take legal advice, the tribunal ordered the maximum protective award of 90 days’ pay for each employee.
One of the key issues in this case was when the employers should have started collective consultation. As many employers will be aware, the legal position on what information is sufficient to trigger the consultation process is not clear. Part of the reason for this lies in the difference in wording between the UK legislation (TULRCA) and the enabling EU Directive.
In the UK, TULRCA states that employers should start consultation when they are ‘proposing’ to make collective redundancies, in contrast to the Directive which refers to situations where employers are ‘contemplating’ collective redundancies. The difference in the wording has led to different interpretations of when the duty is triggered:
- In UK Coal Mining Ltd v National Union of Mineworkers the EAT ruled that consultation must begin early enough so that consultation on the business reasons behind the redundancy proposals can be undertaken.
- In Akavan Erityisalojen Keskusliitto AEK ry and others v Fujitsu Siemens Computers Oy it was decided that consultation is triggered at a later time than was decided in UK Coal Mining. The ECJ in Fujitsu said that the duty is triggered once the business, strategic or commercial decision has been taken compelling the employer to plan for collective redundancies.
The Advocate General in United States of America v Nolan subsequently gave his opinion on this issue, stating that the obligation to consult is triggered when a strategic or commercial decision has been taken compelling the employer to contemplate the redundancies and perhaps leading more to the same conclusion as Akavan. These cases have, for now, left the law in a certain degree of uncertainty.
E Ivor Hughes Educational Foundation v Morris and others
In this recent case the EAT upheld the tribunal’s earlier decision that the employer’s duty to collectively consult was triggered when a provisional decision had been taken to close a workplace. This case concerned the closure of an independent school operated by E Ivor Hughes Educational Foundation. Due to declining pupil numbers, the Foundation decided at a meeting in February 2013 that the school would have to close at the end of the academic year, unless numbers increased. Ultimately, the final decision to close the school was taken at a meeting in April 2013. Staff were given their full notice of termination (one academic term) but no collective consultation was ever carried out, the Foundation arguing that it did not know of its legal obligation to do so.
The employees brought claims for a protective award in respect of the Foundation’s failure to consult with them about their redundancies. The tribunal found in favour of the employees and awarded the maximum protective award of 90 days’ gross pay for each dismissed employee. The tribunal ruled that the duty to consult was engaged at the point of the February meeting when it was provisionally decided that the school would close.
The Foundation appealed to the EAT, on various grounds, including the trigger point, explaining that the meeting in February had not triggered the duty to consult because the final decision about the school’s closure had not been made until later, in April 2013.
The EAT swiftly dismissed the Foundation’s argument that it’s lack of legal knowledge satisfied the statutory “special circumstances” exception to the duty to consult. This must be judged on what the Governors knew at the time. The Foundation could not argue that with hindsight there were several reasons for not consulting with staff, when the reality was that in February and April they had not even thought about collective consultation or realised that they should do any.
In relation to the trigger point, the EAT considered the conflicting tests set out in UK Coal and Fujitsu(mentioned above) and agreed with the tribunal that the stage reached at February 2013 in fact satisfied both tests as it was a “fixed, clear, albeit provisional intention” (UK Coal test) and a “strategic decision…compelling the employer to contemplate or plan for the collective redundancies” (Fujitsu test). Accordingly, the EAT did not express a conclusion as to which test applied.
In response to the appeal on the level of the protective award, since the maximum 90 days had been ordered, the EAT took a strict approach, saying that the award is punitive in nature and different from any compensatory award a tribunal might make, noting the Foundation’s “reckless failure” to seek legal advice.
It is obviously vital for employers to know how early in the process they need to start collective consultation. Unfortunately this case does not take us much further forward in identifying the correct legal test.
Employers worried about facing protective awards for lack of consultation are best placed to start at the earlier “business reasons” stage rather than at the slightly later “strategic decision” stage, when firmer options have been identified. Yet for commercial reasons this may not always be realistic, and as this case highlights, both tests were satisfied at the early stage of the process, when a decision had been taken which could be described as both speculative and dependent on future events.
While the facts of this case are unusual and involved an employer with a complete lack of knowledge of the law, difficulties can still arise with collective consultation exercises even where knowledge exists. Taking professional legal advice as early as possible is always sensible.