The Advocate General (AG) has delivered his opinion on the meaning of the word ‘establishment’ following consideration of three collective redundancy cases (including the Woolworths case).
The Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) implements into UK law the EU’s Collective Redundancy Directive (Directive). TULRCA requires employers to collectively consult when they intend to make 20 or more people redundant ‘at one establishment’ in any 90 day period. The obligation to consult collectively is onerous and penalties for non-compliance are severe (employers can be ordered to pay protective awards of up to 90 days’ gross salary for each affected employee).
What exactly constitutes an ‘establishment’ came to the public’s attention following the collapse of Woolworths in 2008. As is the case with many insolvencies, the administrators of Woolworths failed to collectively consult with staff who were dismissed as redundant.
When the dismissed employees brought claims for the failure to collectively consult, many claims failed on the basis that, for the purposes of collective consultation, the establishment was the individual store in which they were based, rather than the entire Woolworths’ organisation.
However, the Employment Appeal Tribunal (EAT) ruled that the words ‘at one establishment’ in TULRCA should be ignored. The EAT’s decision left the law in a state which was unfavourable to employers as collective redundancy consultation obligations were now triggered where an employer proposed to make 20 or more people redundant regardless of the establishment to which those employees were assigned. Effectively, this resulted in employers having to aggregate proposed redundancies across multiple sites to determine whether collective redundancy obligations were triggered. Fortunately, the case was immediately appealed to the Court of Appeal which has, in turn, referred this on to the Court of Justice of the European Union (CJEU) for clarification on the position.
Prior to the CJEU determining this matter, the AG has now delivered his opinion on the meaning of ‘establishment’. The AG has stated that that the word ‘establishment’ in the Directive should be interpreted as being the ‘local employment unit’, rather than the entire organisation. His opinion is based on the understanding that the aim of the Directive was to mitigate the impact of collective redundancies in a local area.
It is anticipated that the CJEU will deliver its judgment in the summer. Traditionally, CJEU decisions tend to reflect the AG’s opinion, although the CJEU is not obliged to do so. If the CJEU follows the AG’s opinion this may ultimately lead to the Court of Appeal overturning the EAT’s decision.
This would be a welcome development for employers as it would allow the UK courts to revert back to the previous interpretation of the law in terms of what constitutes an ‘establishment’ for the purposes of collective consultation under TULRCA.
However, while the CJEU’s judgment remains outstanding, we recommend that employers remain cautious and aggregate redundancies across all sites for the time being. While this is likely to be administratively burdensome for employers, the potential liabilities from a failure to comply with the law as it currently stands may prove to be even more costly.