A victory against common sense

The Government has announced plans to review the law on consultation over
collective redundancies. But new obligations created by the tribunals have
already made it a trap for unwary employers, reports Nicholas Robertson

There is a lot of speculation at the moment about the state of the British
economy. If there is a downturn, this will inevitably mean a corresponding
increase in the number of large scale redundancies. For many employers this
will mean getting to grips with the current thinking on their duty to consult
staff where collective redundancies are proposed.

Ensuring that all the staff receive the news at the same time is difficult.
Personnel director Allan Johnson of steel giant Corus recently refuted
accusations that the company did not consult with staff before it announced
over 6,000 redundancies. He said, "Once announced, the proposals were big
news and were straight on the news wires within one minute, but not before
consultative meeting had begun in every plant affected."

As Johnston’s experiences demonstrate, collective redundancies are never
easy. Preparation and advanced planning will go a long way to smoothing the
path. However, as a result of three recent tribunal decisions employers need to
be fully up to speed on their legal obligations as well and factor these into
their planning. The difficulty is that those who take a common sense approach
may easily find themselves in hot water.

Basic rules on collective consultation

The basic principle is that an employer should consult with appropriate
representatives of employees affected by large scale redundancies. The duty to
consult arises where the employer is: proposing to make redundant 20 or more
employees; from any one establishment; in any 90-day period.

The first three elements of this duty have recently been reviewed by the
courts, and on each occasion interpreted in a manner designed to give maximum
protection to employees. The penalty for failing to consult in accordance with
legal obligations is a maximum of 90 days’ remuneration.

Is it a "proposal" or an option?

Scotch Premier Meat v Burns

In this recent case the company reviewed its business operations following a
downturn in trading. There was a board meeting on 15 April in which it was
decided the business would either be sold as a going concern or closed and the
land sold. If the business was closed then more than 150 employees would lose
their jobs. This meant that there should have been at least a 90-day
consultation process. The closure operation was subsequently followed through
and completed by 1 June, by which time the redundancies had gone through.

The employees claimed there had been a failure to consult in accordance with
the employer’s obligations, an allegation which the company defended on the
ground that there had not been sufficient time to consult. This meant it was
necessary to decide when the company was first proposing to dismiss staff by
reason of redundancy.

The employment tribunal decided that the employer had proposed to dismiss
staff from 15 April, even though this was not the only option under active
consideration. The company had gone a fair way down the road of formulating the
redundancy option even though there was an alternative which would not have
necessitated redundancies. Consequently, the tribunal decided the company
"proposed" redundancy on 15 April. Since consultation had not started
at all during April, there was a breach of the legislation.

The EAT accepted this finding was open to the tribunal, and refused to
overturn the decision.

This analysis of the point at which the employer was "proposing"
to dismiss is puzzling. It is difficult to understand how an employer can be
"proposing" redundancy when it is actively and genuinely considering
alternative options. It is not what most people would understand by the term.

In many cases the point will not be crucial. Employers are no longer obliged
to consult "at the earliest opportunity". They merely have to consult
in good time and in accordance with the minimum period laid down by statute. If
the employers here had been able to allow 90 days for the consultation period
then it would not have mattered whether the employer first proposed redundancy
on 15 April or subsequently. However, since the tribunal found there had been
less than adequate consultation, the start date became crucial.

Is the employer proposing "redundancies"?

GMB v Man Truck

Following a merger, the employer wanted to harmonise the terms and
conditions of two groups of employees. As a result it gave notice of
termination of the old contract and accompanied this with an offer of
employment on new terms. The employer wanted all members of staff to accept the
new offer as there were to be no job losses. The employees claimed there had
been a breach by the employer of its obligations to consult on a collective
basis. The employer claimed there was no need to consult as no-one was being
made redundant.

The EAT rejected the argument. It confirmed that the term
"redundancy" has an extended meaning for the purpose of the
collective consultation obligations. It pointed out that under the legislation,
collective consultation is required where 20 or more employees are being
dismissed for reasons which are not related to the individuals concerned. In
this case the old contracts were terminated by the employer. Consequently there
were dismissals. These were unconnected with the capability or conduct of the
employees, and so the collective consultation obligations were triggered.

Are the redundancies from one "establishment"?

Mills & Allen v Bulwich

The employer is only obliged to consult if 20 or more employees are being
made redundant from any one establishment. The legislation does not define the
term "establishment" but the meaning had been relatively clear-cut
until recently. The few reported cases in this area have tended to focus on
whether satellite offices should be aggregated with main offices or whether
they should be treated as separate for the purposes of establishing whether the
threshold is met. In the Mills case, however, the employer had a number of
sites across the country. There was a direct sales force, which included the
applicant, of which 23 were made redundant. The employer took the view that it
was not required to consult collectively because the Manchester office, where
the employee was based, had only two redundancies. But the applicant claimed
the employer had been obliged to consult on a collective basis.

The applicant’s claim was upheld by both the employment tribunal and the
EAT. According to the tribunal, the direct sales staff were autonomous and
treated as a separate entity within the organisation – they were not really
linked with the office out of which they worked. Redundancies were announced as
applying to the direct sales force. On that basis the tribunal decided the
"establishment" was the employer’s direct sales team and not the
Manchester office. Consequently, there had been a breach of the legislation.

This is undoubtedly the most significant of the three cases. Until now it
was commonly understood that an establishment meant a physical location. This
is the first time, in any reported case, that a tribunal has taken a department
located across a number of separate sites and treated that as an establishment.
This seems to be a very artificial interpretation of the word
"establishment". No one speaking in an ordinary non-legal context
would describe a sales force as an establishment.

Unfortunately, we understand that the employers in this case have decided
not to appeal to the Court of Appeal, which means this case will be the
yardstick by which future cases are judged, for the time being at least. It is
likely to mean that employers will have to consult more frequently than at
present or risk indirectly breaking the law.

Nicholas Robertson is a partner in the employment department at Rowe
& Maw

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