A judgement of the Employment Appeal Tribunal, published this week, confirms a radical widening of the scope of the collective redundancy consultation rules. It will hit, in particular, large multi-site employers such as in the retail and banking sectors.

Up until now, an employer who is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less must consult employee representatives about those dismissals. Failure to do so can result in a protective award of up to 90 days’ gross pay per affected employee. The Employment Appeal Tribunal (EAT) has now decided that the obligation to consult employee representatives about the dismissals arises irrespective of whether those employees are based at one large site or over several locations.

This represents a significant change to the current “establishment” based approach to the collective redundancy consultation rules.

Background to the case

The judgement arises out of claims brought by trade unions in relation to the redundancies which took place when Woolworths went in administration in 2008. The judgement also deals with another administration – Ethel Austin Ltd of Liverpool which was joined in with the Woolworths appeal as it covered the same legal issues.

For the judgement, click on this link: USDAW v Ethel Austin Ltd (in administration) and USDAW & another v Unite (1) WW realisation 1 Ltd (2) and Secretary of State for BIS (3)

The trade unions representing the Woolworths employees complained to the Employment Tribunal that Woolworths had failed to comply with its obligations to consult the employees under UK collective redundancy consultation law.

The Employment Tribunal found that each Woolworths store was a separate establishment, so the obligation to consult collectively only arose in larger stores where 20 or more employees were to be made redundant. The result was employees in larger stores received large protective awards, whereas their colleagues in smaller stores received nothing. A similar decision was made by the Employment Tribunal in the Ethel Austin case.

The Tribunals’ decisions were appealed to the Employment Appeal Tribunal (EAT).

The EAT’s decision

The EAT has ruled that the words “at one establishment” in the legislation are to be “disregarded” for the purposes of any collective redundancy involving 20 or more employees. This was necessary in order for UK legislation to properly reflect EU law. EU law provides that the obligation to consult collectively arose where, over a period of 90 days, at least 20 workers were proposed to be dismissed, “whatever the number of workers in the establishments in question”. The EAT interpreted this as meaning it didn’t matter how many workers were dismissed at any particular establishment – the key is that 20 were dismissed across all establishments.

Disregarding words of a statute so that it complies with EU law is a radical step for a court to take, particularly if it seems to go against the original intention of the UK parliament. However, the EAT said it was prepared to do this because, having examined the parliamentary debates leading up to the implementation of the UK legislation, the Government’s consultation on the legislation and the explanatory notes, it was clear that the “one establishment” limitation was never mentioned. The EAT concluded that this limitation could not be regarded as fundamental to the policy of the legislation and that the clear parliamentary intention was to implement EU law correctly. The EAT declined to refer the case to the European Court.

What this means for employers contemplating redundancies

This means that the “new law” has immediate effect, so any employers who are proposing to dismiss as redundant 20 or more employees, irrespective of whether those dismissals take place at a single company site or across several sites, will now be potentially caught by the collective redundancy obligations. The decision raises the question as to whether employers currently engaged in collective redundancy consultation need to start again from scratch where establishments with less than 20 dismissals have, so far, been excluded from the process.

Although the meaning of “establishment” has proved difficult to interpret, large multi-site employers will no longer be able to fall back on the establishment test at all in order to avoid triggering the collective redundancy consultation rules. It will therefore be necessary for all large employers who have a number of branches or offices across the UK to ensure that they have a co-ordinated and centralised oversight which keeps records on how many dismissals which fall under the ambit of redundancy consultation are proposed across the company at any one time. Failure to do this could mean that the company inadvertently breaches the collective redundancy obligations, therefore risking protective awards being made against it.

If nothing else, the decision does make the law clear (in that there will no longer be the need to argue about the meaning of the word “establishment”). It’s also worth remembering that the recent reduction in the consultation period from 90 to 45 days in the case of proposals to dismiss 100 or more employees within a 90 day period, is some good news for organisations faced with this new requirement. However, on the downside, the result is more administration and more risk for larger UK employers - both in terms of the monitoring which will be required, and also the fact that collective redundancy consultation will be required more frequently.

The Secretary of State, which will now have to pay 4400 workers 60 or 90 days’ uncapped pay, has the option to appeal but we have no information yet as to whether it intends to do so.