Collective redundancies: five things you should know

Woolworths staff were left out of pocket by a ruling on the meaning of "establishment" in collective redundancies

There have been a slew of legal rulings related to collective redundancies in 2015, dealing with issues including the meaning of “establishment”, the timing of consultation with employees and notification rules when companies become insolvent. There is also the possibility that the European Commission may decide to move the goal posts. Here is a round-up of key issues employers need to stay on top of.

1. How is “establishment” defined?

The definition and size of establishment rule for who to include in collective redundancy consultations is settled for now. Certainly the European Union is the only likely ray of hope for trade unions who wanted the rule that the consultation obligation for collective redundancy purposes applies where 20 or more employees face redundancy at one establishment changed, so that the rule applied across an organisation or undertaking.

Usdaw general secretary John Hannett said the April 2015 European Court of Justice (ECJ) ruling in the Woolworths and Ethel Austin cases was “a kick in the teeth. It is unfair and makes no sense that workers in stores of fewer than 20 employees were denied compensation, whereas their colleagues in larger stores did qualify for awards.”

The Woolworths – formally Usdaw v WW Realisation 1 Ltd – and Ethel Austin cases, which began in 2008, eventually saw about 3,500 former staff losing out on taxpayer-funded compensation as they had worked at distinct workplaces where fewer than 20 were made redundant. Their colleagues at larger establishments were awarded compensation in 2012.

It may seem unfair, but the ECJ’s ruling on 30 April 2015 appears to have settled the matter.

The ruling also took into account the cases of Valerie Lyttle v Bluebird UK Bidco 2, and a Spanish case, Rabal Canas v Nexea Gestion Documental. The former related to redundancies in the Bonmarché retail chain in Northern Ireland in 2012, and the latter to a case brought by a Spanish mail company employee who was one of 13 employees dismissed in December 2012 on economic grounds.

In these cases, the ECJ ruled that in deciding whether collective redundancy consultations are required, the number of proposed redundancies should be measured in the entity to which the workers who are to be made redundant are assigned to carry out their duties – rather than across the whole organisation.

In the Spanish case, the ECJ said that national legislation that uses undertaking and not establishment as the sole reference unit as a collective redundancy trigger is contrary to the Collective Redundancies Directive.

These rulings effectively nullified an Employment Appeal Tribunal (EAT) ruling in May 2013 in the Woolworths and Ethel Austin cases, which said the duty to consult should arise when 20 or more redundancies were being proposed within a 90-day period across an undertaking.

The ECJ ruling is now with the UK Court of Appeal, which will ponder how it should be applied to the Woolworths case.

Eversheds partner Michael Burns says these cases “confirm that the term ‘establishment’ is the entity to which the workers made redundant are assigned to carry out their duties and…this will depend on the factual circumstances. This is a useful reminder that the EU interpretation of ‘establishment’ is the key issue, though employers and courts are left to apply the limited definition and EU case law to real-life situations.

“It will be helpful to see how the Court of Appeal applies the EU definition to the facts of the Woolworths case when it returns to be heard in the coming months.”

Hogan Lovells counsel Jo Broadbent adds: “What amounts to an establishment has been reasonably settled for a number of years, and employers are generally able to tell whether they are likely to have collective consultation obligations.

“By contrast it can be very difficult to establish when the obligation to start collective redundancy consultation arises, particularly in a business closure situation.”

2. When does the obligation to start collective redundancies arise?

This is another can of worms for employers contemplating redundancies.

“The duty to consult could arise when a strategic decision is proposed that will lead to collective redundancies, which is likely to be at a relatively early stage,” says Broadbent. “Alternatively, consultation could be required at a later stage when a decision has actually been taken and the redundancies are proposed. Even the Court of Appeal has described ECJ case law on this point as ‘not straightforward’.”

Burns shares his doubts about how early the collective consultation point is triggered: “Is it when the employer is proposing but has not yet made a strategic business or operational decision that will foreseeably or inevitably lead to collective redundancies, or only when that decision has actually been made and he is then proposing consequential redundancies?”

This question should be considered when the Court of Appeal gives its ruling in the USA v Nolan case.

This stems from a March 2006 decision by the US Government to close a military base in Hampshire with the loss of about 200 civilian jobs in September of that year. Employees were informed in April, collective consultations began in June and affected employees given three months’ notice.

Nolan was one of these and brought a case saying consultations should have started sooner. After bouncing through the tribunals, the Supreme Court, in June 2015, referred the matter to the Court of Appeal after it deci­ded that UK domestic laws on redundancy consultation do apply to employees of foreign public bodies.

The key issue is whether the duty to consult arises when the employer has made a strategic decision from which collective redundancies will follow, or at an earlier stage when the employer is contemplating a decision from which, eventually, redundancies may follow.

Burns says: “Given that the matter involves EU law and the Court of Appeal has already stated that this law is unclear, we do not expect the Nolan decision to provide the final clarification needed. Instead, employers must continue to weigh up risk and practicalities when deciding when to start collective consultation, bearing in mind that UK case law currently requires employers with workplace closures to initiate consultations prior to making the commercial decision that may ultimately lead to redundancies.”

As Charles Russell Speechlys’ senior associate Emilie Bennetts says, the rule of thumb is that collective redundancy consultations should begin “as early as possible. Employers should ensure that no final decisions are made until consultation has taken place and all the documentation reflects this.”

Broadbent says that it is particularly tricky getting the timing right when redundancies are the result of a business closure. “Cautious employers will consult employees before final decisions about business closures are taken. Consultations will include details of the reasons for the proposed closure and it is important not to suggest that final decisions have been taken before consultation even begins.”

3. Ignorance is no defence if an employer gets the timing wrong

In the case of E Ivor Hughes Foundation v Morris and others, the EAT, in July 2015, upheld an earlier employment tribunal decision to make a maximum protective award of 90 days’ pay to more than 20 employees. They lost their jobs when the foundation, which ran several private schools, closed one of the schools because of falling student numbers.

Its management and governors were unaware of their duty to consult. The employment tribunal held that the trigger point to consult collectively arose when a first meeting was held by management in 2013, when it was decided the school would close unless pupil numbers rose. This constituted a clear, albeit provisional, intention and a strategic decision compelling the foundation to contemplate or plan for collective redundancies, in the view of the tribunal.

4. You are required to notify BIS if making collective redundancies

Finally, employers must, under the Trade Union and Labour Relations (Consolidation) Act 1992, notify the Department for Business, Innovation and Skills (BIS) if they are making 20 or more employees redundant at one establishment. This involves completing form HR1. Failure to do so is a criminal offence that carries an unlimited fine.

This was exemplified when Sports Direct chief executive David Forsey was charged in October 2015 with a criminal offence after failing to abide by the above. About 200 employees at a depot of a Sports Direct fashion division were given 15 minutes’ notice of redundancy in 2014 after it went into administration.

5. Brussels plans an overhaul of EU redundancy law

The European Commission is mulling over responses to a call for comments from social partners on how they think three Directives, concerning collective rights, transfer of undertakings and informing and consulting workers, should develop.

In a statement it said a “fitness check” it undertook on the three Directives found they are “generally relevant, coherent and efficient. But the check did find some gaps and shortcomings related to the practical operation of the Directives as regards wording and definitions.”

This may result in the three Directives being rolled into one or at least being simplified.

The TUC, through the European TUC, has made its views known to the European Commission. It would particularly like, says policy officer Hannah Reed, the definition of what constitutes an establishment for the purpose of collective consultations strengthened. “The TUC supports the European Trade Union Confederation’s (ETUC) view that each separate unit should be considered as an establishment. Ideally we would prefer no thresholds whatsoever and we are concerned employers can avoid thresholds by breaking their organisations up into smaller units.”

Reed says the ETUC does not want the three Direc­tives rolled into one as that “could lead to a watering down of rights”.

Eversheds’ Burns says: “The European Commission’s consultation raises the prospect of adopting the more demanding definitions of information and consultation from the 2009 European Works Council Directive. According to the European Commission, harmonising standards ‘upwards’ in this way would contribute to ‘a more effective exercise of the rights and obligations of all’ concerned.

“This is a concern to employers because stricter obligations to inform and consult could result in delays to business restructuring, mergers, sales and other business change, as well as the potential for more litigation alleging breaches of the new and more extensive consultation rights and an increased risk of leaks of market-sensitive, confidential information.”

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