Businesses Need To Know Where They Stand On Collective Redundancy Consultation Obligations

Our head of employment in London, Chris Tutton, reviews the recent case of redundancies at Woolworths and reveals why he thinks there is still hope for UK employers.

In 2013, an Employment Appeal Tribunal (EAT) decision greatly increased the likelihood that redundancies across a business would trigger complex collective redundancy consultation obligations and, in doing so, created much uncertainty. 

In USDAW v WW Realisation 1 Ltd (in liquidation) (otherwise known as the Woolworths case), the EAT decided that European law required businesses to aggregate all redundancies across their business over a 90-day period when assessing whether the threshold of 20 redundancies was met for collective consultation purposes. The Woolworths decision was appealed to the Court of Appeal last year. It decided to refer the case to the European Court of Justice (ECJ) to determine whether the UK had properly implemented the directive on collective redundancies.

On 5 February 2015, the advocate general delivered his opinion in this case (and two others which dealt with similar issues), recommending that the correct interpretation of the European law did not require businesses to aggregate redundancies across separate ‘establishments’. The opinion provides us with some hope that UK employers may in the future be able to determine whether collective consultation is required by reference to the individual establishment, rather than aggregating the number of employees at risk of redundancy across the whole business.

Background

The cases focused on former employees at Woolworths and Ethel Austin who were made redundant in 2008 and 2010 respectively. The claim was that the administrators did not collectively consult with them correctly following the complete collapse of the businesses.

Trade unions (Unison and Usdaw) acting on behalf of the affected staff successfully claimed for protective awards (of up to 13 weeks’ pay per employee) in the employment tribunal.

However, only the employees who worked in larger shops (those with 20 or more staff) received the awards. That left over 4,000 staff who worked at smaller stores without protective awards.

The reason was that the tribunal decided each individual store counted as one ‘establishment’ for the purposes of s188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA). This states that:

"Where an employer is proposing to dismiss as redundant 20 or more employees at one establishment, within a period of 90 days or less, the employer shall consult about the dismissals… [with] appropriate representatives… of the employees…" 

The decision was appealed to the EAT on the basis that the approach to working out what is an establishment is contrary to the Collective Redundancies Directive.

Requirements of the directive

The directive provides two methods for determining when the collective consultation duty is required. 

The first is quite complicated and depends on the numbers being made redundant within a certain time frame, including as a percentage of the workforce employed in establishments. This approach was adopted by the majority of member states.

The UK law (TULRCA) purports to adopt the second approach set out in the directive, which requires collective consultation if:

"… over a period of 90 days, at least 20 [were affected], whatever the number of workers normally employed in the establishments in question."

EAT decision

The EAT took the view that in order to bring UK legislation in line with European law, the words ‘at one establishment’ should be excised altogether from s188(1) of TULRCA. This was a bold move by the EAT judge based on the core objective of the directive – to protect workers’ rights. The consequence was a significant technical change in the law on collective redundancies.

Previously, the wording of TULRCA had allowed employers to distinguish between business units based on their geography and the level of management autonomy when calculating the numbers of redundancies. This meant that locations where fewer than 20 employees were being made redundant did not usually qualify for collective consultation, even though redundancies were taking place elsewhere in the business.

The EAT decision created a headache for employers (particularly for those with significant workforces) as it increased the likelihood that large-scale redundancy programmes would be required. 

Some of the issues include that:

• large-scale redundancies have become more expensive because minimum consultation periods have to be met (30 or 45 days), and employees have to be employed for longer.

• diverse or disparate businesses have had to put systems in place to ensure they are aware of when the obligation to consult collectively will be likely to arise; and

• there is an increased risk of protective award claims arising when the business incorrectly identifies the numbers at risk of redundancy. This is exacerbated by the fact that ‘redundancy’ for the purposes of TULRCA is widely defined and includes, for example, employees who leave their role to be redeployed into new positions.

Rather surprisingly (given that the state was liable for paying the substantial protective awards), the secretary of state for business, innovation and skills chose not to make submissions at the EAT hearing, stating that: 

"… he has nothing to usefully contribute about the consultation process between the parties."

It was only once the additional cost to business resulting from the decision became clear that the secretary of state seems to have taken a more active interest, lodging an appeal against the EAT ruling. On 7 July 2014, the government revealed that over £18m had been paid out to former employees of Woolworths.

The Court of Appeal heard the government’s appeal against the EAT decision on 22 January 2014. Recognising the tension between domestic and European redundancy legislation, the court referred this question of interpretation to the ECJ, which considered it at the same time as two cases from Northern Ireland and Spain that raised the same issues.

The opinion

The advocate general’s opinion was released on 5 February 2015. He reasoned that the law on interpreting the concept of ‘establishment’ was settled following two earlier cases heard by the ECJ, Rockfon A/S v Specialarbejderforbundet I Danmark, acting for Nielsen [1996] and Athinaiki Chartopoiia AE v Panagiotidis [2007].

Accordingly, he held that the term means:

"… the unit to which the workers made redundant are assigned to carry out their duties."

In fact, these previous decisions related to the first option under the directive (which the UK chose not to implement) and their outcome was favourable to the workers. However, the advocate-general indicated that ‘establishment’ should be interpreted consistently across the directive unless the ECJ determined otherwise, which it had not in these cases.

Relying on these cases, he considered that the trigger for collective consultation purposes is linked to the local employment units rather than to how the employer is structured internally. This means the unit to which the redundant workers were assigned to carry out their duties. In addition, the directive does not equate ‘establishment’ with the meaning of ‘undertaking’ or with a corporate entity with legal personality, such as a limited liability company.

The advocate general said that the directive does not contemplate protection for all workers as a starting point, even where the total number of dismissals exceeds the minimum threshold. This is because the directive was intended to address the socioeconomic effects which collective redundancies may have in a local context and social environment on the basis that:

"… it is precisely the local community that may wither and fade away without protection from collective redundancies. Conversely, directive-relevant local dismissals which are below the thresholds do not pose the same threat to the survival of local communities. Although the aggregate number of dismissals effected in a restructuring process might be high on the national scale, that does not say anything about how those effects are felt locally. Local jobseekers might, where they are not many, more readily be reabsorbed into the employment market."

In the advocate general’s view, European law does not require UK businesses to aggregate all redundancies – which is, in principle, good news for employers. However, he also confirmed the directive does not require or preclude member states from aggregating the number of dismissals in all establishments to verify whether the thresholds are met. They can also decide to include additional levels of protection – provided that on every occasion this is more favourable to workers than the European law requirement.

In other words, there is nothing to stop the UK ‘gold-plating’ European employment rights. However, it is difficult to see why the UK government would interfere with a piece of legislation that has been on the statute books since 1992 and had been applied up until the EAT’s decision in 2013.

What happens next?

The advocate general’s role is to provide an official opinion on cases before the ECJ makes definitive rulings. The ECJ is not obliged to accept opinions, but almost invariably will do.

The ECJ is expected to rule on this matter later in the year and we hope that common sense prevails and that it accepts the advocate general’s opinion.

Businesses need to know where they stand and this situation is wholly unsatisfactory, not least because the risk of getting the process wrong can expose them to protective awards running into hundreds of thousands of pounds. The government has confirmed that there are a number of cases stayed in the tribunals awaiting a decision while this lack of certainty on the correct approach continues. 

In the meantime, companies have explored a number of potential ways around this decision, but they are far from straightforward and are not without risk. For example, some have attempted to keep redundancies down to 20 at a time (within each 90-day period), resulting in rolling restructuring programmes.

However, unless managed well, this can lead to employee disillusionment (and a dip in productivity) if the programmes appear to be never ending. Businesses that have adopted this approach have found themselves facing arguments about when the redundancies were ‘proposed’, which leads them 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’.

For the time being, we recommend that businesses continue to include all potential redundancies taking effect within a 90-day period when determining whether the trigger to collectively consult has been triggered. It is too risky to do otherwise until the ECJ clarifies the law. However, there is reason for some optimism.

• Case C-270/05 Athinaiki Chartopoiia AE v Panagiotidis & ors [2007] ECR I-1499

• Case C-449/93 Rockfon A/S v Specialarbejderforbundet I Danmark, acting for Nielsen & ors [1996] ECR I-04291 Case C-80/14 USDAW 

• Wilson v WW Realisation 1 Ltd (in liquidation), Ethel Austin Ltd and BIS (2015) unreported, 5 February, Advocate General’s Opinion, Advocate General Wahl