Case of the week: Shanahan Engineering v Unite the union

Shanahan Engineering v Unite the union

Facts

In 2007, Shanahan Engineering (Shanahan) won a contract for work on a power station being constructed by Alstom. The work involved the simultaneous construction of two generators.

Unite the union was recognised by Shanahan in respect of its employees. Since the work was by its nature short-term, it was inevitable that some redundancies would arise at the end of the contract, and Shanahan and Unite had reached agreement in advance as to the selection process for redundancies.

At the end of April 2008, construction difficulties arose on site and Alstom asked Shanahan to put forward proposals to resolve the difficulties. One of the proposals was to build the generators one at a time instead of simultaneously. Alstom accepted this proposal and issued an instruction stating that its expectation was that this would result in an immediate reduction in labour.

On 1 May, Shanahan decided how many individuals it would need to make redundant and selected them in accordance with the agreed process. About 50 individuals were made redundant. Their employment was terminated with effect from 2 May.

The redundant employees issued employment tribunal claims seeking protective awards in respect of Shanahan’s failure to consult. Shanahan argued it had a “special circumstances” defence, which rendered it not reasonably practicable to comply with its consultation obligations.

Decision

The tribunal upheld the employees’ claims. It said the fact that a sudden situation arises may or may not, depending on the circumstances, amount to special circumstances, relieving the employer of the duty to consult either entirely or in part. But in this case, the tribunal found that although, in the circumstances, Shanahan was not required to have started consultation at least 30 days before the first dismissal took effect, the company was not relieved of its obligation to consult in any other respect.

The tribunal could see no reason why it would not have been open to Shanahan to carry out some consultation, even if the consultation had only lasted a few days. The tribunal said there was no evidence to suggest that consultation would have placed Shanahan in any great difficulty. It therefore awarded the employees a protective award for the full protected period of 90 days. Shanahan appealed to the Employment Appeal Tribunal (EAT).

The EAT upheld the tribunal’s findings on the issue of Shanahan’s consultation obligations. The EAT commented that “it remained for Shanahan to decide whether employees should be dismissed for redundancy, how many employees should be dismissed, when they should be dismissed, and what, if anything, ought to be done to mitigate the consequences of dismissal”. The fact that there were special circumstances relating to the amount of time available for consultation did not absolve the employer absolutely from the obligation to consult.

But the EAT did not agree with the tribunal’s reasons for awarding a 90-day protected period. It said although there was a complete failure to consult, the tribunal had made findings that would justify a lesser protected period. The EAT said the sudden direction by Alstom to Shanahan to cease work was a mitigating circumstance of considerable weight.

The EAT said although it was well established that the purpose of the protective award is to provide a sanction in respect of failures to consult, it is relevant to consider both the culpability of the employer and the harm or potential for harm of the default. The tribunal should take into account all the circumstances to reach a rounded judgment as to what is just and equitable in the circumstances. The EAT therefore remitted the case to the tribunal to reconsider the length of the protective award in light of its guidance.

Implications

This case illustrates that just because there are special circumstances affecting the timing of consultation in a collective redundancy situation, the obligation to consult (in what little time is available) may still remain and indeed may absolve the employer of all liability in a failure to consult claim. Further, it confirms it will only be possible to establish the special circumstances defence in very narrow circumstances. This case is also a useful example of circumstances when an employer may be successful in persuading a tribunal to award less than the maximum protective award.

Clare Gregory, employment partner, DLA Piper

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