On the 21st of September 2017, the European Court of Justice delivered two new rulings[1] on whether an employer should initiate consultations with the employees’ representatives - even when non-significant amendments to an employment contract are made.

Case Summaries:

In the first case(C-429/16), a Polish medical clinic had been in financial difficulties for several years. After various attempts to reduce costs, the clinic proposed that all employees accepted salary reductions of 15% for a temporary period. Since not all employees accepted the salary reduction, the employer gave notice of the amended terms (a so-called "amendment-based termination") to those employees who had not accepted the salary reduction.

Since the employer had not consulted the employees' union, the employees initiated legal proceedings against the employer claiming the salary reduction be legally invalid for that reason.

In the other case (C-149/16), a Polish specialist hospital had amended the rules on obtaining the right to a seniority pay supplement. To be precise, the method for calculating the pay supplement was amended to include only actual working hours spent at the specialist hospital.

Also in this case, amendment-based termination notices were given to the employees not willing to accept the new terms. The employer's reason for this amendment was to avoid shutting down the hospital, which had not generated profits for years.

In both cases, two questions to be referred for preliminary ruling arose: 1) was it "redundancy" pursuant to article 1 in the directive re collective redundancies (98/59/EC)? And 2) Should the directive be construed to the effect that an employer is obliged to initiate consultations with employee representatives pursuant to Article 2 when the employer makes an amendment of the salary terms detrimental to only the employees, such amendment resulting in the dismissal of the employees if not accepted by the employees if the amendment was not significant?

The ECJ's Ruling:

In both cases, the ECJ began by reaffirming the precedent that if an employer unilaterally, and to the detriment of the employee, makes a significant amendment to the essential elements of an employee's employment contract for reasons unrelated to the employee this will fall within the concept of redundancy pursuant to Article 1 in the directive re collective redundancies (98/59/EC).

To be more specific about the first case, the ECJ established that a 15% salary reduction may potentially be regarded as a significant amendment of a significant part of the employment contract[2]. However, the reason for the amendment was of a temporary character, which was why the amendment was not necessarily significant.

Conversely, the ECJ assessed in the other case that the amendment of the criteria for the calculation of an employee's seniority and thereby the right to a seniority pay supplement is not a significant amendment of the employment contract[3]. The notice of the amendment did therefore not fall within the concept of "redundancy" in Article 1(1) of the Directive.

But since the employer had indicated that the employees not accepting the amendments would be dismissed – regardless of whether the amendments were significant – the ECJ established that the situation did fall within the scope of the directive. The ECJ's reason for that was that the termination of the employment contract based on the employee's rejection of the amendments thus constituted a termination of the employment contract not attributable to the employee. Therefore, this should have been taken into consideration in the calculation of the total number of redundancies.

As to the cases' second question on whether the employer is obliged to initiate consultations with employee representatives, the ECJ established in both cases that an employer must initiate the consultation process described in Article 2 of the directive before making a decision to terminate employment contracts. The ECJ further stated that the purposes of Article 2; i.e. to avoid or to reduce or lower the number of redundancies; would be jeopardised if consultations were taking place after the employer's decision to terminate employment contracts.

For this reason, articles 1 and 2 should be construed to the effect that an employer is obliged to initiate consultations pursuant to Article 2 when the terms of employment to be amended are intended to be to the detriment of the employee – even if the amendment is insignificant – if the amendment will result in a termination of the employment in case the amendment is rejected by the employee.

Bird and Bird's Comments:

The two rulings show that a significant - as well as an insignificant – amendment to the employment contract may be covered by the directive re collective redundancies. In this case, the employer is obliged to initiate consultations with the employees' representatives if the consequence in case of the employee's non-acceptance is redundancy.