British
businesses fear continental-style consultation will impede their ability to act
quickly when the commercial need arises. But existing UK consultation laws are
already some of the toughest to work with- and treating them as an annoying
formality could do damage, warns Christopher Mordue
As
business headlines are dominated by announcements of large-scale job cuts and
union complaints of non-consultation, controversial proposals are being
developed in Europe which would give workers greater consultation rights in
advance of redundancies, restructurings and other major business decisions. UK
business leaders fear the introduction of "continental style"
obligations requiring worker participation in business planning, under which decisions
taken without consultation would be void. The much publicised difficulties of
Marks & Spencer’s closure of its French stores are cited as an example of
how such rules could impede swift business responses to adverse economic
conditions.
The
draft directive is a long way from being European, let alone UK, law. In the
meantime, the impact of existing rules on collective redundancy consultation –
under section 188 of Trade Union and Labour Relations (Consolidation) Act 1992
– should not be underestimated. The sanctions for non-compliance are among the
most draconian in UK employment law. At a maximum of 90 days’ pay per affected
employee, protective awards can run into many hundred thousand pounds. Many
employers do not fully appreciate the extent of the obligation to consult (see
box "What is consultation") or regard it as a frustrating and
inconvenient formality.
Advantages
of early consultation
Consultation
must begin within minimum time periods before the first dismissal takes effect.
The express purpose of this rule is to delay redundancies, and allow
consultation to take place. Further delays arise because consultation can only
begin when statutory information (see box "What information must be
disclosed?) is provided to representatives of affected employees. Where there
are no trade union representatives the employer must first of all arrange for
employee representatives to be elected, postponing the start of the 30- or
90-day period.
In
any event, the end of the 30- or 90-day period is not necessarily the earliest
date at which redundancies can occur. Preliminary steps before dismissal will
typically include consultation over whether redundancies should occur at all,
consultation over selection criteria and alternative employment, the
application of the selection criteria, individual consultation over redundancy
selection and alternative employment, followed by the giving of notice.
Employers need to take full account of each step and recognise that the process
can take considerable time if financial penalties are not to be incurred.
Naturally,
these problems are eased if consultation begins at an early stage.
Nevertheless, many employers delay consultation until very late in their
decision-making process. This postpones the point at which the employer can legitimately
make the first dismissal, and makes it harder to demonstrate genuine
consultation with an open mind. A natural tendency to consult only after
alternatives to redundancy (such as part-time working or temporary lay offs)
have been considered and rejected by management results in an inflexible
position that makes consultation appear a mere formality.
It
is not essential to provide all of the statutory information to employee
representatives at the outset of consultation. Some items may require detailed
preparatory work, in particular selection criteria and any enhanced redundancy
terms. The first issue for consultation is always whether redundancies are
necessary at all or in the numbers proposed. So employers could begin
consultation on these issues and provide the remaining information at a later
date.
Successful
consultation is a resource – and a time-intensive operation. It requires the
backing of managers and HR including detailed communications to announce the
redundancies (including external announcements to customers and the DTI) and to
explain the proposals to affected employees, organising the election of
representatives and collating information. Take care that the proposals are not
announced as a "done deal". As the consultation process unfolds
employees should be advised of the progress and outcomes of consultation. It
can be particularly important to communicate directly and regularly with
affected employees, rather than leaving it to elected or trade union
representatives. With large-scale redundancies or site closures, employers may
need to arrange retraining to enable employees to be redeployed internally or
assist with finding alternative employment – or organise job fairs to put
employees in touch with prospective employers.
Employee
representation
In
the absence of a recognised trade union for affected employees, you must
arrange for the election of employee representatives. There are specific
statutory rules for these elections which go beyond the simply procedural. You
must ensure that affected employees are adequately represented. The key issue
is whether the affected employees should elect representatives as one group, or
whether a number of smaller "constituencies" should elect their own
representatives. This latter approach may be particularly appropriate if a
range of employees are affected in different ways, or to ensure that these
groups are properly represented. If affected employees elect representatives as
a single group, the outcome may leave some effectively unrepresented.
There
are opportunities here to maximise the efficiency of the consultation process.
Where different types of employees are affected at the same establishment,
there will inevitably be some issues that are not of common interest. For
example, selection criteria may differ, at least in detail, between different
redundancy pools. It may, therefore, be useful to be able to consult separate
groups simultaneously on specific aspects of the proposals, streamlining the
consultation process and ensuring that consultation is directly targeted for
each group.
There
is no prescribed ratio of representatives to affected employees. The numbers
should be dictated by the consultation structure you wish to achieve. The
greater the number of representatives, the greater the flexibility to set up
specific sub-committees to work on a number of issues simultaneously. It is
also advisable that at least two or three representatives from each group
should be elected, to avoid the need for further elections if a representative
leaves (such as through voluntary redundancy).
Voluntary
redundancies
One
method of implementing redundancies within the consultation period is to invite
volunteers. This is usually desirable in any event to reduce the need for
compulsory redundancies. Employers will typically offer more generous terms to
volunteers and impose a time limit for applications. Though in theory even a
voluntary dismissal inside the period for consultation will be a breach of
section 188, the risk of a significant protective award is small, particularly
if representatives agree to an early leaving date.
Consider
very carefully the details of any voluntary redundancy scheme. Will it be open
only to affected employees, to reduce the need for selection? Will it be
offered to unaffected employees to create re-deployment opportunities? If so,
will acceptance be conditional on an affected employee taking up the role? If
not, the additional dismissals may cause the employer to exceed the number of
proposed redundancies, affecting the length of the consultation period.
When
can the employer dismiss?
Dismissals
must not "take effect" during the consultation period. This refers to
the actual termination of the employment contract. Consequently, you can give notice of dismissal during the 30- or
90-day period. But be cautious about the timing of redundancy notices:
consultation – at least over whether and how redundancies should occur – cannot
take place after notice is given. Notice should only be given during this
period where it has been agreed with representatives or where consultation has
been exhausted without agreement being reached. Note also that individual
consultation will be required, particularly over selection for redundancy and
alternative employment, before notice can be given.
Can
the obligation be avoided?
As
box "Size matters" indicates, the key to the application of section
188 is the number of redundancies proposed by a particular employer at a
particular establishment within any 90-day period. If redundancies are kept
below 20 in any 90-day period, the obligation to consult does not arise. Where
the numbers to be dismissed at the particular establishment are kept below 100,
a consultation period of 30, rather than 90, days applies. If there is
commercial flexibility as to where redundancies are required, it is possible to
manipulate the scale of proposed redundancies to your advantage – spreading
redundancies over time, between different employers or different establishments
– to avoid or limit the requirement to consult.
But
outright avoidance of the consultation obligation, where it applies, is
difficult and dangerous. The defence of "special circumstances" is
very hard to establish. Not only must these circumstances render consultation
not reasonably practicable, they must be "special", that is, out of
the ordinary. Even where special circumstances do exist the employer is not
excused entirely from its obligations, but must take such steps as are
reasonably practicable towards compliance.
Staggering
redundancy proposals can minimise the extent of consultation. When calculating
the numbers of proposed dismissals, redundancies in respect of which
consultation has already begun are discounted. An employer already consulting
over 20 redundancies could propose another 99 within the same 90 day period
without triggering a 90-day consultation period. Deliberately staggering
redundancy announcements in this way, however, is highly dangerous. If the
employer is found to have envisaged 119 redundancies all along, it will be
vulnerable to a protective award.
While
large-scale redundancies will always face opposition, genuine consultation will
at least soften the blow by explaining the basis for the decision. Employers
should also keep one eye on the morale of their remaining workforce – pushing
redundancies through without consultation may send a very negative message and
lead employees to vote with their feet. Â
Christopher
Mordue is an associate at Pinsent Curtis Biddle
What
is consultation?
–
Consultation must always cover ways and means of avoiding redundancies,
reducing their number, and mitigating their consequences
–
Employers cannot argue that consultation would have made no difference
–
Consultation must be undertaken with a view to reaching agreement, although
actual agreement is not required
–
Consultation must be undertaken with an open mind, before an irrevocable
decision is taken and while proposals are still at a formative stage
–
Sufficient information must be provided to allow those being consulted to
properly understand the proposals and reasons for them
–
"Redundancy" means any dismissal which is not for a reason relating
to an individual employee
–
Dismissal includes the termination of any contract of employment and the expiry
of fixed-term contracts without renewal
What
information must be disclosed?
Consultation
begins by providing the following information to representatives
–
A statement of the proposed dismissals and the reasons for them
–
The numbers and descriptions of employees for proposed redundancy and the total
number of employees of those descriptions employed at that establishment
–
The proposed method of selecting employees for dismissal and the proposed
method of carrying out the dismissals, with due regard to any agreed procedure,
including the period over which the dismissals are to take effect
–
How non-statutory redundancy payments will be calculated
The
DTI must also be informed of the proposed redundancies, using form HR1. Failure
to notify is a criminal offence
Size
matters: how the obligation is triggered
–
Consultation is required where an employer proposes to dismiss 20 or more
employees as redundant at one establishment within 90 days or less
–
In the case of 100 redundancies or more, consultation must begin at least 90
days before the first dismissal
–
Otherwise consultation must begin at least 30 days before the first dismissal
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–
Each group company is a separate employer
–
Each geographical location is usually, though not always, a separate
"establishment"
