Court clarifies the threshold for triggering collective consultation obligations.

On 30 April, the European Court of Justice (ECJ) issued its decision on whether the UK Employment Appeals Tribunal (EAT) was right to conclude that UK law was incompatible with EU law in relation to collective consultation obligations and to therefore construe UK law in a way that provides the maximum level of protection to employees affected by a large-scale redundancy exercise. The ECJ concluded that the UK courts were not correct to adopt this approach. This is an important decision that provides much-needed clarity to UK employers embarking on large-scale redundancies across multiple work sites.

Background

Under the Trade Union & Labour Relations (Consolidation) Act 1992 (“TULRCA”), an employer is required to comply with collective consultation obligations when it proposes to dismiss 20 or more employees at one “establishment” within a period of 90 days or less. This law is derived from EU law.

Woolworths and Ethel Austin were national retail companies that entered into insolvency proceedings that resulted in large-scale redundancies across the UK. Following a long line of decisions, Liverpool and London Central Employment Tribunals concluded that individual retail stores of the parent companies were each discrete “establishments”. This meant that there was no duty on the part of the two companies to collectively consult on redundancies at any store employing less than 20 employees when the parent companies went into administration and stores were closed. This was significant for Woolworths and Ethel Austin because they had failed to properly comply with their collective consultation obligations. In such circumstances, the Tribunal would be entitled to award compensation of up to 90 days’ pay per employee. So the number of employees based at an individual store was relevant to whether or not compensation was payable to them.

On appeal by the employee representatives, the EAT decided that the words “at one establishment” within the TULRCA should be disregarded to properly align with EU law requirements regarding collective consultation obligations. The EAT decision ruled that the redundancies across the whole of the retail business operated by Woolworths and Ethel Austin should have been aggregated for purposes of determining whether collective consultation obligations were triggered, and, therefore, the employees at the smaller stores were entitled to protective awards.

This decision created uncertainty for UK employers when deciding how to approach a large-scale redundancy exercise across multiple work sites. As a result, most employers adopted the cautious approach of complying with collective consultation obligations for all of their employees potentially affected by redundancy, irrespective of the number of employees employed at individual work sites.

Following a further appeal to the Court of Appeal, this case was referred to the ECJ for a definitive ruling.

The ECJ’s Decision

In deciding that the EAT was wrong to conclude that UK law is incompatible with EU law with respect to collective consultation, the ECJ referenced its earlier judgment in a Danish case in which it had confirmed that an “establishment” is the economic unit to which the employees who are made redundant are assigned. The ECJ confirmed that the term “establishment” has a different meaning than the term “undertaking”, with the term “undertaking” being understood as covering all of the separate economic units of such undertaking. This meant that although it was possible for an undertaking to have just one “establishment”, this was not always the case. It was therefore entirely permissible for the EAT to conclude that each of Woolworths’ and Ethel Austin’s local stores should be construed as separate “establishments”.

The ECJ’s decision reminds us that an “establishment” may consist of a distinct entity within an undertaking “having a certain degree of permanence and stability, which is assigned to perform one or more tasks and which has a workforce, technical means and a certain organisational structure allowing for the accomplishment of these tasks”.

An argument that has been raised on behalf of the affected employees is that it would be unjust and contrary to the aims of EU law to interpret the collective consultation obligations in a way that provides employees with disparate levels of protection depending on whether they happened to be based at a store with 20 or more employees or not. In the employees’ view, they were affected by a failure of the same parent company and therefore each individual work site should be treated in the same way. The ECJ was dismissive of this argument because, although it is true that aggregating the number of dismissals across an undertaking would significantly increase the number of employees eligible for protection, the purpose of EU law is not only to afford employment law protection, but also to ensure that comparable protection for employees’ rights is available in different EU countries, as well as harmonise the costs with such rules across the EU. A wide interpretation of “establishment” would go against this objective and create discrepancies between EU countries in terms of costs.

Next Steps

The ECJ has referred the case back to the Court of Appeal. Although the ECJ decision confirmed that it was a permissible approach for the Employment Tribunals to adopt in deciding that each individual store was a distinct “establishment”, the Court of Appeal could still decide that the EJC’s decision is not a correct interpretation of the facts. This outcome seems unlikely. However, the case serves as a reminder to employers that they should not assume that they will never need to aggregate the number of employees working from different work sites when evaluating collective compliance obligations. The analysis of whether one or more work site can be defined as an “establishment” is highly fact specific, so employers should always take care when implementing large-scale redundancies.

Furthermore, some employers will want to implement collective consultation obligations as a matter of course across their entire workforce, regardless of whether it is legally required. Some companies could view this cautious approach as a useful mechanism for managing employee-relations issues, ensuring that there is a healthy dialogue between management and employees across an entire organisation, thereby reducing the risk that redundancies will affect the morale of those employees who remain. This approach could also help in other ways, such as providing a useful platform for offering voluntary packages and helping demonstrate to employment tribunals that dismissed employees were treated fairly.