Employment Eye: Establishing the meaning of establishment

The Employment Appeal Tribunal has revisited the definition of ‘establishment’ in the context of collective consultation over redundancies – can a school be a separate ‘establishment’ or is the correct establishment an education department? This particular case concerned a local authority, but the principles set out by the EAT around the approach to be taken in defining establishments, are of general relevance. Victoria McMeel reports.

31/10/2012

The Employment Appeal Tribunal has revisited the definition of ‘establishment’ in the context of collective consultation over redundancies – can a school be a separate ‘establishment’ or is the correct establishment an education department?  This particular case concerned a local authority, but the principles set out by the EAT around the approach to be taken in defining establishments, are of general relevance.  Victoria McMeel reports.

The background

Under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), an employer proposing to dismiss 20 or more employees at one ‘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.  Otherwise, the consultation must begin at least 30 days before the first dismissal takes effect.

An ‘establishment’ is not defined in the Act; it may be the entire workforce, or it may be a discrete unit within the workforce.   The question of how an ‘establishment’ should be defined is an issue with which the courts have grappled over the years.

The facts

In respect of the proposed dismissals of school teachers, the Employment Appeal Tribunal (EAT) in Renfrewshire Council v the Educational Institute of Scotland was asked to consider an appeal from a preliminary decision of an Employment Tribunal on the definition of ‘establishment’ under section 188 of TULRCA. 

The Employment Tribunal agreed with the teachers in question, and decided that the relevant ‘establishment’ for the purposes of collective consultation was the Education and Leisure Service of Renfrewshire Council, and not

  • the school where the teachers worked; or
  • all the secondary or primary schools in Renfrewshire,

as had been argued by the Council (which meant it had not consulted under s188 as it was contending it did not apply).

The Council appealed.

The decision

The EAT overturned the Employment Tribunal’s decision that the relevant ‘establishment’ was the local authority’s education department. 

Whilst the EAT did not make any finding as to what the correct establishment should be (preferring to remit that question back to the Employment Tribunal), the EAT’s judgment made the following useful points:

  • whilst there is no statutory definition of ‘establishment’, it would usually (although not always) cover less than the whole undertaking of the employer concerned. If the definition of ‘establishment’ was always applied to the whole workforce, there would be no need to engage the concept of ‘establishment’ at all. 
  • ‘Establishment’ implies a physical presence; the EAT noted that the word ‘establishment’ does not conventionally have “an organisational thrust”.  In support of this view, the  EAT quoted from a 2011 Equal Pay Act case,City of Edinburgh Council v Wilkinson, which noted that the use of the word ‘at’ an establishment conveys an association with a locality (such as a school); it does not imply an incorporeal sense of a body or an undertaking (such as a council or local authority).
  • The EAT also noted with approval a 2007 European Court of Justice decision, Athinaiki Chartopiia AE v Panagiotidis, in which the ECJ said that an establishment may consist of a
    • distinct entity
    • having a degree of permanence and stability
    • assigned to perform one or more tasks; and
    • which has a workforce, technical means and a ‘certain organisational structure’. 

This, the EAT said, supported its view that the important point in defining ‘establishment’ in section 188 was to identify the unit to which the workers concerned are assigned to perform their tasks.

  • The EAT rejected the argument that mobility clauses in the teachers’ contracts, which required the teachers to relocate around the City at the request of the Council, meant that they were employed within a wider ‘establishment’, outside of the school.  The mobility clauses were not, in practice, invoked.  And, in any event, the EAT said that a factual, rather than contractual approach should be taken to the question of where the employees were assigned.  In other words, the employee’s link with the place of work is dependent on where the dismissal is ‘at’, not where the contract might otherwise provide for the work to be performed.
  • Does an element of central control point towards employees being employed within the same establishment? The EAT said it does not. It noted that any employer with distinct establishments will inevitably have a degree of central control.  If a ‘local unit’ were denied status as an ‘establishment’ because it lacked high level powers, it would be almost impossible for any smaller part of a large undertaking to be considered a separate ‘establishment’.  Therefore, it is wrong to look at higher levels of control when determining whether a unit is a separate establishment. 
  • An important factor, according to the EAT, was location: a number of establishments may comprise one employer and the definition of ‘establishment’ should (following European case law) be akin to a “local employment unit”.

In conclusion, the EAT firmly upheld the Council’s appeal, saying that “any decision that a school is not a distinct entity flies in the face of reason.”

What does this mean for me?

As the EAT noted in this case, the definition of ‘establishment’ will be very fact sensitive.  That said, when looking at the possibility of breaking down a workforce into discrete units (to possibly avoid, or limit, the requirement to collectively consult), this decision provides a useful steer on the general principles that should be applied to the question of the scope of the relevant unit. 

Whilst it is possible that an ‘establishment’, for the purposes of collective consultation on redundancy may include an entire workforce, usually, an ‘establishment’ will be less than the whole undertaking of the employer concerned. 

The question is likely to relate to practical issues - such as where the employee works – rather than contractual issues, such as the existence of mobility clauses.

Note, however, that the government proposes to reduce the 90-day minimum consultation period to either 30 days for all collective redundancies or 45 days for planned redundancies of 100 or more employees.  So, in future, the meaning of ‘establishment’ may be less relevant when considering how much flexibility may exist over timescales; but it will still be relevant to whether the requirement to collectively consult is triggered at all.  Consultation on this matter closed in September and a response is awaited.
 

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