As reported in our briefing last week, the European Court of Justice has delivered its judgment in the case of Union of Shop, Distributive & Allied Workers (USDAW) and another v WW Realisation 1 Ltd (in liquidation) and others (C–80/14) in relation to long running claims brought by former employees of national retailers Woolworths and Ethel Austin, which arose out of the administration and closure of all of their retail stores. The ECJ had to consider the meaning of “establishment” in the legislation, which triggers an obligation to undertake collective consultation when an employer is contemplating making 20 or more employees redundant.
Woolworths and Ethel Austin were national retailers with high street stores throughout the UK. Both companies separately went into administration and, as a result, implemented closures of all of their retail stores, offices and distribution centres. Significant redundancies had to be made as a result of the closures and in the case of Woolworths, nearly 30,000 employees were made redundant.
Under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (the Act), employers who are proposing to make 20 or more employees redundant at one establishment within a period of 90 days or less must undertake consultation with trade union and/or elected employee representatives about the proposed redundancies. Such consultation has to take place over a minimum period of 30 days if between 20 and 99 redundancies are proposed and 45 days if 100 or more redundancies are anticipated. During that period, the employer must consult with representatives about ways of avoiding the redundancies, reducing the numbers at risk and mitigating the consequences of the redundancies. In addition, employers are obliged to provide certain key information to the representatives in writing.
In these cases, the administrators for Ethel Austin and Woolworths failed to comply with the obligations to consult collectively with trade union and elected employee representatives. Accordingly, USDAW brought claims on behalf of the redundant employees for compensation (known as a protective award).
Employment tribunal decision
The claims were heard in the Liverpool and Central London employment tribunals and decisions were issued in November 2011 and January 2012. In both cases, the employment tribunal found that the administrators had failed to comply with their obligation to consult collectively with trade union and elected employee representatives. Protective awards of eight weeks' pay per employee were made in each case. However, the employment tribunal determined that each individual store was a separate establishment and accordingly, the duty to consult collectively had not been triggered in relation to individual stores where fewer than 20 employees were made redundant. As a result, those employees who worked at such stores (approximately 4,500 people) were not entitled to claim the protective award. USDAW appealed to the Employment Appeal Tribunal (EAT).
The EAT upheld the appeal and decided that the words “at one establishment” in the Act were incompatible with the underlying EU Directive on collective redundancies. Effectively this meant that when an employer was contemplating 20 or more redundancies across its entire business, an obligation to consult collectively with trade union and elected employee representatives was triggered.
The matter was then appealed to the Court of Appeal, which decided to refer the case to the European Court of Justice (ECJ). Specifically, the Court of Appeal asked the ECJ to consider the meaning of the word “establishment” in the Act and whether the obligation to consult collectively would be triggered if the employer was contemplating 20 or more redundancies across the whole of its business or whether it could consider each business unit or site as a separate “establishment”.
The ECJ decided that the term “establishment” means the entity to which the workers made redundant are assigned to carry out their duties. In reaching this conclusion, the ECJ reviewed its previous judgments in the cases of Rockfon and Athinaiki, which had referred to the link between the employee and the part of the business to which he is assigned to carry out his duties. Rockfon had also found that it was not essential for such an entity or unit to be endowed with management that could independently effect collective redundancies in order for such an entity to qualify as an establishment. Further, in Athinaiki, whilst the ECJ had considered that an establishment would need to have a certain degree of permanency and stability and would need to have a workforce, technical means and a certain organisational structure, it held that the term “establishment” would normally constitute part of an undertaking. On this basis therefore the ECJ determined that an establishment would mean the particular entity or unit to which the employees are assigned.
The case will now return to the Court of Appeal to decide whether the particular retail stores were separate establishments for the purposes of the collective consultation obligations, based on the judgment of the ECJ. It is highly likely however that the Court of Appeal will restore the original employment tribunal judgment that the retail stores were separate establishments. As the ECJ has decided that the Act is compatible with the underlying EU Directive and has given clear guidance as to the meaning of establishment, it is likely that the previous position on this particular issue will be restored.
The ECJ’s decision in this case is helpful for multi-site employers and hopefully will soon bring to an end a period of confusion regarding obligations to consult collectively in redundancy exercises or when implementing large-scale changes to terms and conditions. Under the EAT's interpretation, any employer who was contemplating making 20 or more redundancies across its entire business over a period of 90 days or less had to undertake collective consultation with trade union/employee representatives. This would have been the case irrespective of the number of employees at each individual site who may have been impacted by any redundancy situation. This could have led to a situation where the employer was obliged to consult collectively where only one employee at a particular site was at risk simply because, elsewhere in the business, another 19 or more employees were also at risk of redundancy. This particular example was picked up by the ECJ in its judgment, which it found would be contrary to the ordinary meaning of the term “collective redundancy” and that an obligation to consult collectively in such circumstances would not really be appropriate.
From now on, providing the Court of Appeal restores the original employment tribunal decision (as is expected), employers will have greater clarity as to when the obligation to collectively consult arises, as they will usually be able to look at each business unit as a separate establishment and determine the number of employees affected at that particular site, rather than having to consider the number of likely redundancies across their entire business. Care does still need to be taken, however, particularly where sites are more closely linked both in terms of management and geographical proximity.
Whilst the ECJ alluded to the possibility of the UK and other member states being able to provide for additional rights beyond those set out in the Directive, none of the major UK political parties has committed to reviewing this in their election manifestos. Despite this, it is likely that USDAW and other trade unions will lobby for a change in the law, particularly in view of the significant number of employees who did not receive a protective award in this case.