UK Employment Appeal Tribunal

Background

UK legislation provides that, when a UK employer proposes to make redundant 20 or more employees at one establishment within a period of 90 days or less, the employer is required to collectively consult representatives of those affected, prior to implementing that proposal. Failure to do so can lead to the employer being required to pay up to 90 days’ pay to each affected employee (a Protective Award).

In 2013, when considering the lawfulness of the collective redundancy process carried out by Woolworths in the throes of its closure, the UK Employment Appeal Tribunal caused havoc by deciding that the words “at one establishment” should be deleted from the legislation.

The deletion meant that, in order to avoid liability for a Protective Award, an employer proposing make 20 or more redundancies, anywhere in their UK business, within the relevant timeframe, needed to collectively consult about those proposals, no matter how geographically disparate and wholly unconnected the proposed dismissals might be.

Response

The Court of Appeal, thinking that this really could not be right, asked the European Court for a preliminary ruling on the issue.

The way the European system works is that an Advocate General (AG) first considers the question and then delivers his opinion. The European Court then uses the AG’s opinion to assist it in coming up with its Judgment. The European Court can disagree with the AG, but it usually follows the AG’s recommendation.

In this case, the AG decided that, in his opinion, the term “establishment” in UK legislation means the local employment unit to which the relevant workers are assigned to carry out their duties.

European Court Decision

On April 30, 2015, the European Court confirmed that the trigger for collective redundancy consultation is a situation where, within a 90 day period, an employer proposes to make 20 or more employees redundant at one establishment, as opposed to anywhere within its UK business, as had been suggested by the UK Employment Appeal Tribunal.

The court’s decision therefore narrows the instances in which employers will be required to collectively consult about proposed redundancies in the United Kingdom. The focus will now return to how many redundancies are proposed at each establishment within the UK business over the 90 day period. Whether or not a particular site or office qualifies as an establishment for collective redundancy purposes will be determined by the familiar tests used previously.

The UK Employment Appeal Tribunal (the EAT) recently published its judgment in litigation that resulted from the 2008 closure of Woolworths. It confirms initial reports of a significant change to the law on UK collective redundancy consultation.

Background

When a UK employer proposes to dismiss as redundant 20 or more employees, within a period of 90 days or less, it is required to collectively consult representatives of those affected, prior to implementing its proposal. Failure to do so can lead to the employer being required to pay up to 90 days’ pay to each affected employee (a Protective Award).

This obligation arises out of the European Collective Redundancies Directive (the Directive). In implementing the Directive, the UK Government stipulated that the obligation would only be triggered if the proposed redundancies involved 20 or more employees who all worked “at one establishment” within the employer’s organization. UK employers have therefore relied on this for many years as a means of avoiding the obligation to collectively consult when redundancies are proposed across different locations or are otherwise proposed at different “establishments”.

What Has Changed?

The EAT has now held that the words “at one establishment” should be deleted from UK legislation. Why? Because the stated purpose of the Directive is to provide greater protection for workers facing a collective redundancy situation and, in the view of the EAT, without this deletion, UK legislation provides less protection than the Directive requires.

What Does This Mean for UK Employers?

Employers wishing to avoid liability for a Protective Award should now collectively consult when they are proposing to dismiss 20 or more employees as redundant, anywhere in their UK business, within a period of 90 days or less.

Employers will no longer be able to “slice and dice” their UK business into different establishments in order lawfully to avoid the obligation to collectively consult about proposed redundancies.

This marks a significant change to UK collective redundancy practice.

Large employers will be particularly affected, as the obligation to collectively consult will now be triggered even when headcount reductions are proposed independently, by unrelated business units, located across multiple sites. Employers will encounter an inevitable increase in the administrative burden they have to shoulder, not only because of a rise in the number of collective consultation exercises required, but also because of the degree of organization and communication that will in future be necessary to keep track of, and aggregate, disparate redundancy proposals.

Employers should not despair however. The collective redundancy regime remains otherwise unchanged and, whilst employers will now find themselves required to collectively consult more frequently, this judgment does not require collective consultation to take place en masse at one geographic location. Collective consultation exercises can still take place at different establishments if that is a more commercially sensible option. It is worth noting that this change will apply to redundancies that have already been proposed and to those that are on-going.

Please contact your usual McDermott lawyer or Sharon Tan if you would like to discuss the potential impact of this judgment on any current or future redundancy exercises proposed by your business.