Woolworths Case Could Have Major Effect On Employers Considering Redundancy Programmes

Irwin Mitchell Warns Employers May Be Required To Engage In More Extensive Collective Consultation

12.06.2013

By David Shirt

The decision in the recent High Court case involving former employees of national retailer, Woolworths, will have huge implications for UK businesses that operate from multiple sites and are considering redundancy programmes - according to national law firm Irwin Mitchell. The firm warns that employers may well be required to engage in collective consultation more extensively than previously.

Following the case, compensation in the region of £5million has been awarded to a large number of ex-Woolworths staff who had worked in stores with less than 20 members of staff. The Court found that Administrators to Woolworths had failed to properly consult with the staff following the complete collapse of the business in 2008. 

Their union, USDAW brought claims for protective awards, which were successful at the Employment Tribunal in relation only to those stores which employed 20 or more staff.  This was because the tribunal decided that each individual shop counted as one ‘establishment’ for the purposes of section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992. This states that  ‘Where an employer is proposing to dismiss as redundant 20 or more employers at one establishment within a period of 90 days or less, the employer shall consult about the dismissals ...(with) appropriate representatives ... of the employees ...’

Tom Flanagan, Head of the Employment and Pensions Group at national law firm, Irwin Mitchell, said: “Here the union appealed on the basis that this approach to working out what is an establishment is contrary to the Collective Redundancies Directive.  Although the decision has not yet been handed down, solicitors acting on behalf of the union have said that the EAT ruled that the words ‘at one establishment’ must be disregarded for the purposes of any collective redundancy involving 20 or more employees.  This would mean that where a business is considering making 20 or more employees redundant within 90 days, the location at which the employees work is irrelevant.

“It may mean that many employers are caught by the requirements to consult for a minimum period of 45 days rather than 30 days (as all potential redundancies will have to be included), or simply to collectively consult at all.  Large scale redundancies may become more expensive for employers who may have to employ all affected employees for longer periods because redundancies cannot be made until the consultation period has been completed (although notices of dismiss can be issued within the minimum consultation periods, in appropriate circumstances). 

“There may be some ways around this decision, but they are far from straightforward.  For example, businesses may try to keep redundancies down to 20 at a time (ie within each 90 day period) meaning that rolling restructuring may become even more common.  This approach is however likely to lead to employee disillusionment (and a dip in productivity) if the programmes are, or appear to be never ending.  Also, it would be open to the argument that an apparent series of redundancy exercises are, in fact, all one exercise and the number of employees to be dismissed in all of them could be aggregated.”

Tom added: “Even if this approach is adopted, businesses may find themselves facing arguments as to when the redundancies were ‘proposed’ which leads us into difficult territory.  There is an argument that this aspect of UK legislation is also incompatible with the Directive which requires consultation to begin when redundancies are ‘contemplated’.  The argument is that 'contemplation' occurs at an earlier stage than a 'proposal'. Although this issue will still be subject to the 90 day period rule, unions will be keen to find avenues to dissuade businesses from trying to circumvent the rules.”