Background

As reported in our blog on 7 June 2013, the Employment Appeal Tribunal has allowed an appeal by the union, USDAW, which fundamentally changes the application of the collective redundancy laws in the UK  - subject to any appeal. The change has come about as a result of the  decision  by the EAT to apply UK employment  law in conformity with EC Directive and will impose a significant burden on employers, particularly larger employers. This will be frustrating for the government, having reduced in April of this year the 90 day consultation period for large redundancy exercises to 45 days, in an attempt to reduce the burden.

We now have the judgement in the case brought by USDAW, which relates to the demise of that very British institution, Woolworths ,when it went into administration in 2008 and then disappeared from our high streets. Whilst news of whether the case will go to a further appeal to the Court of Appeal is awaited, employers will need to comply with the law as it has now been interpreted.

A collective redundancy situation is one where, under UK law, the employer is proposing to dismiss as redundant 20 or more employees over a 90 day period “at one establishment”. The upshot of the EAT’s decision is that the words “at one establishment” will no longer be part of that definition, meaning that the obligation to consult collectively will be triggered where, in  a 90 day period, 20 more employees are to be made redundant anywhere across the business, regardless of where they work.

The EAT’s decision

Following the closure of Woolworths’ operations in Great Britain, all of its employees lost their jobs.  USDAW, with others, brought claims in the employment tribunal asserting that the administrators had not complied with the collective consultation obligations.  The employment tribunal determined that the administrators had failed to comply with the obligations. However, it ruled that each Woolworths store was a separate establishment and therefore only individuals who were formerly employed at stores where 20 or more employees were dismissed received protective awards.  That left 3,233 employees without protective awards.

USDAW appealed the Tribunal’s judgment and on 31 May 2013 ,their appeal succeeded. The written appeal judgment was published on 1 July 2013. The EAT has, despite its previous position, ruled that the words “at one establishment” are here and after to be disregarded by tribunals determining collective redundancy consultation claims.  This means that once it is proposed that 20 or more employees in a single business, regardless of where they work, are to be dismissed for redundancy, the collective consultation obligation is triggered.

The European Collective Redundancies Directive provides member states with a choice of two possible definitions of "collective redundancy" in implementing the Directive:

  • The dismissal, over a period of 30 days, of at least:
    • 10 workers in an establishment with 21-99 workers.
    • 10 per cent of the workforce in an establishment with 100-299 workers.
    • 30 workers in an establishment of 300 or more.

or

  • The dismissal, over a period of 90 days, of at least 20 workers, whatever the number of workers normally employed in the establishments in question.

The UK adopted the second option which refers to “establishments”, not the first option which refers to “establishment”. Hence, the definition of collective redundancy in section 188 of the Trade Union and Labour Relations (Consolidation) Act (“TULRCA”) , referring to “establishment” was quite clearly at odds with the Directive.  However, importantly, the EAT in MSF v Refuge Assurance plc and others [2002] IRLR 324  decided that it was not possible to interpret TULRCA purposively to cure this incompatibility. This approach was upheld recently, albeit tentatively, by the EAT in Renfrewshire Council v Educational Institute of Scotland [2013] IRLR 76.

That approach has now fundamentally changed in the Woolworths case (and also in the related appeal in the Ethel Austin case, heard at the same time).

The EAT looked at the history of the UK legislation. When it was enacted, the collective consultation duty was triggered where any number of employees (including a single employee) were to be made redundant, as long as those employees were represented by a recognised trade union. In the mid-nineties, the government amended the legislation so that it would only apply where a 20-employee threshold was met. However,  it was said that there was no indication in the consultation or the debates that the 20 employees would have to be made "at one establishment". In the event, that establishment test was included in the legislation. Nevertheless, the EAT found, the clear parliamentary intention was to implement the Directive correctly.

In the circumstances, departing from its previous approach, the EAT held that it was entitled to construe section 188 of TULRCA in a way that complies with the Directive. Further, it went so far as to uphold USDAW`s most ambitious construction of section 188, stating that the words "at one establishment" should be deleted from section 188 altogether.  If the EAT had decided ton the basis of the facts of the case that “establishment” should be construed widely, that would have allowed employers to at least argue the establishment point under section 188. However, in the light of the Woolworth’s case, any consideration of what is meant by establishment has become irrelevant.

What does the decision mean in practice?

For employers with one site or with employee numbers where having 20 proposed redundancies over 90 days is going to be very unlikely, the Woolworths decision is not something to worry about. However, with the need to aggregate redundancies across all sites, the Woolworth’s decision will mean that many more redundancy proposals  than previously will be caught by the need to consult with employee representatives and there will be a need in that case for a minimum consultation period before redundancies can be carried out, normally 30 days but extending to 45 days where 100 or more redundancies are proposed.

It follows then that there will be an increased risk of protective awards, which can be up to 90 days gross actual pay per affected employee. The sums involved, intended to be punitive, can be huge.

Plus, it must not be forgotten that the with the duty to consult collectively comes the obligation to notify BIS of the redundancies with the relevant form. Failure to do so is a criminal offence.

Collective consultation carries with it the obligation to seek to reach agreement with employee representatives (or union representatives) over on ways and means of avoiding the dismissals, reducing the number of dismissals and mitigating their consequences.  Consultation has to be meaningful.

Clearly, employers must  put in place a system which tracks redundancy proposals across the entire business and automatically flags when the number approaches  20 in a 90 day period. It is worth checking now what redundancy proposals may have been made in the business in the last 90 days, if you are about to announce redundancies.

If consultation has started on one set of redundancy proposals, then those numbers will not count towards the statutory 20 if there is then a further proposal within the 90 day period. However, tribunals will look to see whether the employer had proposals covering both batches of redundancies when the first proposal was made but then deliberately delayed the second batch in order to avoid consultation obligations. In such a case, an employer would be caught out and incur a protective award.

It is still permissible to break down employees according to the legal entity which genuinely employs them and so only if one legal entity is proposing to dismiss 20 of its employees is the duty to consult triggered. However, deliberately constructing complex group structures to circumvent the collective consultation obligations will be very risky.

Note, putting in place employee representatives in compliance with the legislation takes time and should be factored into a redundancy exercise where numbers may get up to 20. In the absence of a recognised union covering the entire workforce and/or a pre-existing employee consultative body (with a clear mandate to be consulted on collective redundancies), the business will need to do this. So, now is an ideal time to review your employee representative body to ensure that it is sufficiently constituted to deal with a redundancy exercise.  If you do not have one, you may want to consider putting one in place. There are many other reasons why employee representation in the workplace can be positive for your business.

Will there be an appeal?

As Woolworths and Ethel Austin are in liquidation (and hence were unrepresented before the EAT) and it is BIS and the UK taxpayer who will fund the protective awards in these cases, it perhaps surprising that BIS did not submit any representations at the EAT hearing. No doubt BIS are reviewing their position. At present, it looks rather doubtful that an appeal will be brought to the Court of Appeal.

However, in a further development as this article is being written, we have heard that in a separate Northern Ireland case concerning Bonmarche stores, the tribunal has referred the matter of the definition of “establishment” under Northern Ireland law (based the same law as applies in Great Britain) to the European Court of Justice.