Background

In last year’s consultation about changes to the rules on collective redundancy consultation, the Government diagnosed the problem it faced as follows: “Legislation is too restrictive, while Government guidance is not clear enough”.

Towards the end of 2012 the Government announced what it was going to do about the problem. It concluded that it would legislate in two areas: to reduce the minimum consultation period for the largest-scale redundancies and to clear up an ambiguity about the position of fixed-term workers. It concluded that the remaining issues could best be dealt with by a non-statutory code of practice, to be put together by ACAS. This code has now been published.

Changes on 6 April

The Trade Union and Labour Relations Consolidation Act 1992, which sets out the requirements employers must follow when proposing collective redundancies, has been amended in two areas. The changes will apply only to redundancies proposed from 6 April onwards. If the requirement to consult has been triggered prior to that date, the old rules will apply, even if the redundancies are not in fact implemented until after that date.

The most significant change is the halving of the minimum consultation period for large-scale redundancies. So, when proposing 100 or more redundancies over a 90 day period at one establishment, the minimum consultation period has been reduced from 90 to 45 days. The shorter consultation period, which applies when proposing 20 or more but fewer than 100 redundancies, remains at 30 days. There has been no corresponding reduction in the maximum protective award, which remains at 90 days’ pay, whenever the obligation to consult is triggered and regardless of the length of the minimum consultation period.

The other change addresses the position of fixed-term workers. There has been uncertainty about whether workers whose fixed-term contracts expire during the 90 day period should be included in the headcount for collective consultation purposes. That in turn depends on whether an employer who lets an employee’s fixed-term contract expire can be regarded as proposing to dismiss that person as redundant. The amendments effective on 6 April resolve this issue by stating clearly that the collective consultation requirements do not apply in relation to fixed-term employees unless the employer is planning to dismiss them on redundancy grounds before the expiry of their contract.

What is an establishment?

Many respondents to the consultation asked the Government to include a definition of establishment in the new legislation. They argued that without a clear definition, it was difficult to decide whether the collective consultation obligations applied at all, since it is only employees at a single establishment which count towards the consultation thresholds.

One recent illustration of the problems of an approach which depends on case law is provided by the litigation surrounding the collapse of the Woolworths chain in 2008. The employment tribunal decided that each local store was a separate establishment for these purposes, although the decision to close them all was taken at a national level. That meant that employees at the smaller stores, with fewer than 20 employees, lost out on a protective award. The union has appealed, and the Employment Appeal Tribunal is due to adjudicate in May.

Despite being aware of these difficulties, the Government has decided that a “one size fits all” definition is not possible, since determining an establishment depends on a number of factors which will vary significantly from case to case. It has, however, distilled a range of factors from the case law which are likely to be relevant, including geographical location, management structure and the level within the organisation at which the decision to dismiss is taken.

The new ACAS code approaches things rather differently, focusing on the unit to which the workers are assigned and assessing whether it can be regarded as distinct in its own right. However it concludes by observing: “This is a complex area, and if you are in doubt you may want to seek legal advice.”

When must consultation begin

Another major area of uncertainty surrounds the precise time at which the consultation should begin. The stipulated minimum consultation period is of course just a starting point. The legislation expresses an overriding requirement for the consultation to start “in good time”. But what does that mean?

The Government admits that recent case law guidance is “useful but not entirely clear”, but has ruled out legislation to provide further clarification. This is not surprising, since reaching a clear understanding of the latest guidance from the European Court of Justice has defeated the best legal minds in the country: our own Supreme Court has recently said as much in a recent case involving the closure of an US base in Hampshire.

For employers, the pragmatic advice remains to consult as early as possible when making decisions that could lead to collective redundancies. This will normally involve a careful balance between commercial realities, the demands of good industrial relations, and the risk of exposure to a protective award.

The ACAS code acknowledges that the decision about when to start is to some extent a balancing exercise: “Keeping people in the dark about what’s happening is not good for emotional wellbeing or productivity. However, people will not appreciate being alarmed unnecessarily, so making the right judgement about when a redundancy situation might arise is vital.”