The duty to carry out collective consultation is set to revert to the original position and only arise where 20 or more redundancies are proposed at one 'establishment', rather than across the whole employer.

This is as a result of the decision of the Court of Justice of the European Union (ECJ) today in the USDAW and Wilson (Case C-80/14) (more widely known as the Woolworths case).

The ECJ held that an 'establishment' is the entity to which the redundant employees are assigned to carry out their duties and, where there are several entities in an undertaking, the European Collective Redundancies Directive (Directive 98/59) (the 'Directive') does not require all the establishments to be aggregated for the purposes of determining whether collective redundancy consultation is necessary.

This is contrary to the previous EAT decision, which held that the words 'at one establishment' should be disregarded and that the duty to consult collectively would arise where 20 or more redundancies are proposed across an employer’s business as a whole, rather than at just one 'establishment'.

The issue

Section 188 of Trade Union and Labour Relations (Consolidation) Act 1992 ('TULRCA'), which implements the 'Directive', states that where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less it is required to carry out collective consultation with representatives of the affected employees.

However, the EAT in Woolworths, decided that the UK had interpreted the Directive incorrectly when drafting TULCRA and that the words 'at one establishment' should never have been included and should therefore be ignored. This would mean that the obligation on employers to carry out collective consultation with affected employees would arise more frequently than before.

The facts

The case involved claims for protective awards by ex-employees following the insolvency of high street stores Woolworths and Ethel Austin. Around 4,500 employees had been denied an award for failure to consult as the tribunal found that the obligation to consult collectively was not triggered as it viewed each store as a separate 'establishment' and there were fewer than 20 proposed redundancies in each of the stores in question.

This decision was overturned by the EAT, which held that the words 'at one establishment' should be disregarded and that the duty to consult collectively would arise where 20 or more redundancies are proposed across an employer’s business as a whole, rather than at just one 'establishment'.

The impact of the decision was significant for businesses as it extended the requirement to consult collectively to cover many more redundancy scenarios. Given the significance of the decision, the Secretary of State for BIS appealed to the Court of Appeal.

The referral

The Court of Appeal made a reference to the ECJ on two points:

  1. Whether the words 'at one establishment' in section 188 of TULRCA should be disregarded as being incompatible with the Directive.
  2. Whether the Directive has direct effect against the Secretary of State.

The ECJ's ruling

The ECJ held the UK has not failed to transpose the Directive correctly and so it did not need to go on to consider the second question as to whether the Directive has direct effect.

The ECJ held that the term ‘establishment’ is a term of EU law that cannot be defined by reference to the laws of the Member States and must, on that basis, be interpreted in an autonomous and uniform manner across the EU.

Previous ECJ case law has decided that the term 'establishment' must be interpreted as designating the unit to which the workers made redundant are assigned to carry out their duties. It is not essential, in order for there to be an ‘establishment’, that the unit in question is endowed with a management that can independently effect collective redundancies. The establishment may consist of a distinct entity having a certain degree of permanence and stability but 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’.

Consequently, where an undertaking comprises several entities meeting the criteria set out above, 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.

IIn the Woolworths case, the ECJ commented that because the dismissals were effected within two large retail groups carrying out business from stores situated in different locations throughout the UK, employing in most cases fewer than 20 employees, the employment tribunals took the view that the stores to which the employees affected by those dismissals were assigned were separate ‘establishments’. It is now for the Court of Appeal to establish whether that is the case in the light of the ECJ's clarification of term establishment.

The outcome

The case has now been referred back to the Court of Appeal which is expected to overturn the EAT’s decision. The duty to consult will then revert to the original position under TULRCA and will only arise where 20 or more redundancies are proposed at one 'establishment', rather than across the whole business.

This decision represents good news for employers, significantly reducing the legal and administrative burden on businesses that are carrying out smaller scale restructuring across multiple sites. 

USDAW and Wilson (Case C-80/14)