When is the obligation to consult on collective redundancies triggered? When an organisation is considering a proposal that will inevitably lead to redundancies (such as complete closure of a workplace); or only when that decision has been made and consequential redundancies are proposed? It had been a settled position since 2007, that consultation should start when an employer has made a firm (albeit provisional) proposal that will result in redundancies; but this had been thrown into some doubt recently and, this month, the ECJ declined to provide some much needed clarity. Julian Hoskins traces the case law developments and summarises where we are now.
The legal background
Article 2(1) of the Collective Redundancies Directive (the Directive) provides that, where an employer is contemplating collective redundancies, it shall begin consultation with workers' representatives in ‘good time’ with a view to reaching agreement.
This requirement is implemented in Great Britain by section 188 of the Trade Union and Labour Relations (Consolidation) Act (TULRCA). This provides that an employer proposing to dismiss 20 or more employees at an establishment within a 90-day period must consult appropriate representatives of the affected employees. Consultation must begin “in good time” and, where the employer is proposing to dismiss 100 or more employees, at least 90 days before the first dismissal takes effect.
Failure to comply with collective consultation obligations may lead to costly protective awards being made to employees.
There have been a number of important cases about the extent of employers' collective consultation obligations. One of the issues that courts have grappled with is when an obligation to collectively consult is triggered: if a strategic decision would foreseeably or inevitably lead to collective redundancies, at what stage does the employer need to consult the workforce?
That was then…
If you cast your mind back to pre-austerity Britain, you may remember the 2007 Employment Appeal Tribunal (EAT) decision, UK Coal Mining v NUM. This confirmed two important points
- that employers must consult on the business reasons for proposed redundancies; and
- in respect of timing, the obligation to consult over redundancies is triggered not when a proposal which will lead to redundancies is mooted as a possibility but only when it is fixed as a clear, albeit provisional, intention. Note, however, that the obligation is to consult on the avoidance of the dismissals; not the avoidance of the business decision itself.
More recently, the 2009 European Court of Justice case of Akavan Erityisalojen Keskusliitto AEK ry and others v Fujitsu Siemens Computers Oy confused the issue.
On one hand, Fujitsu said that an employer's duty to consult is triggered
- once a firm strategic or commercial decision has been taken compelling it to contemplate or plan for collective redundancies, and
- not when such a decision is merely contemplated.
But, on the other hand, confusingly, Fujitsu went on to say that a consultation which began only when a decision making collective redundancies necessary had already been taken could not usefully involve any examination of possible alternatives with the aim of avoiding them. It was unclear whether consultation must begin early enough to include consultation about the business reasons for making the redundancies
Last November, the Court of Appeal recognised this confusion when it examined Fujitsu at some length, in United States of America v Nolan and made a reference to the ECJ seeking clarity on the correct position. In Nolan, the Commanding Officer of a US Army base informed the civilian workforce, on 24 April 2006, that the base would close at the end of September that year. On 5 June, management wrote to the Local National Executive Council (LNEC), which represented the affected employees, stating that final decisions on redundancies would be made on 30 June, following consultation. On 30 June, the USA gave around 200 civilian employees notice of dismissal, and the dismissals took effect on 29 and 30 September.
One of the redundant employees, Mrs Nolan, brought a tribunal claim arguing that the USA had failed to comply fully with its collective consultation obligations under TULRCA.
The tribunal upheld Mrs Nolan’s claim. It found that, by the time consultation commenced on 5 June 2006, it was not possible for meaningful consultation to take place about the closure of the Hythe base or the dismissals. The tribunal made a protective award, ordering the USA to pay each of the redundant employees 30 days' pay.
The USA appealed to the EAT and then to the Court of Appeal. Amongst other arguments, one ground of appeal pleaded by the USA was that the Fujitsu decision meant that the Directive (and, therefore, TULRCA) does not require employers to consult their employees about a proposed operational decision to close a workplace. Rather, the collective consultation obligations only arise after the employer has made the decision to close the workplace and is accordingly proposing to dismiss the employees as redundant.
It followed, in the USA's view, that the EAT's decision in UK Coal Mining was wrongly decided and the tribunal in this case had erred in following it.
The Court of Appeal accepted the USA’s argument that Fujitsu was inconsistent with UK Coal Mining, but found that Fujitsu was unclear. The Court therefore asked the European Court of Justice for guidance on whether an employer’s obligation to consult about collective redundancies arises:
- 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;
- only when that decision has actually been made and the employer is then proposing consequential redundancies.
…and this is now
In March, the Advocate-General gave his opinion on the reference to the ECJ in Nolan, but did little more than re-state the position under Fujitsu and did not explicitly mention UK Coal Mining.
On 18 October 2012, the European Court of Justice delivered its judgment on the Court of Appeal’s question, but, disappointingly, declined to accept jurisdiction on the issue. The ECJ said that the Directive specifically excludes the class employees concerned in this case and, therefore, it was not appropriate for the ECJ to pass judgment.
The Court of Appeal is now left to determine Nolan, without guidance from the ECJ, on the apparently conflicting decisions in Fujitsu and UK Coal Mining.
This decision leaves us with uncertainty as to what the trigger point for collective consultation should be, and in particular whether consultation must begin early enough to include consultation about the business reasons for making the redundancies.
Until a decision is reached, the safest course of action is to follow the wider consultation requirements set out in UK Coal Mining: to consult over redundancies when a proposal that will lead to redundancies is a fixed, clear, albeit provisional, intention, which would mean, where the redundancies will be as a result of a closure of a workplace, consulting on the underlying commercial reasons for that closure.
Finally, remember that the obligation to collectively consult arises not only in relation to redundancies but in respect of other dismissals which do not relate to the individual employee – most commonly, for example, where employees are being dismissed and re-engaged in order to facilitate a change in terms and conditions. The employment team has a wealth of experience in advising on collective consultation exercises – most recently in relation to our role as advisors to the South West Pay Terms and Conditions Consortium.