Establishment challenged – redundancy law rewritten

Establishment challenged – redundancy law rewritten


Julian Hoskins

Julian Hoskins


In a ground-breaking decision (initially reported in our Alert the Employment Appeal Tribunal (EAT) has made a major change to collective redundancy law.  The EAT looked at whether the collective redundancy consultation duty is  triggered when 20 or more employees across a whole organisation are potentially affected by proposed redundancies; or when 20 or more employees are potentially affected at any individual ‘establishment’, within the larger organisation.  As the EAT characterised it, should employers take a site by site 'atomised' approach or a 'holistic' approach?  As Julian Hoskins reports, the EAT has said that a holistic approach should be taken, thereby dramatically widening the scope for employers' collective consultation obligations to bite. 

The background

Our domestic collective consultation legislation finds its roots in the European Collective Redundancies Directive.  The Directive was implemented into UK law by the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), which sets out that employers' collective consultation obligations arise where they propose to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less (section 188(1)). 

However, there is a mismatch between the Directive and TULRCA: the Directive refers to 'establishments' [plural] and TULRCA refers to 'establishment' [singular]. Owing to this, there has been a run of case law which has highlighted the uncertainty and inconsistency in how 'establishment' should be approached for the purposes of calculating how many employees are at risk of redundancy and, consequently, whether collective consultation is triggered.

This is an important question for employers because the consequences of failing to enter into collective consultation can be costly:  employment tribunals may make a 'protective award' of up to 90 days' gross pay for each affected employee, if collective consultation has not taken place.  Unlike tribunal awards for 'ordinary' unfair dismissal, the protective award is intended to punitive and is not based on the employee's loss of earnings as a result of the dismissal.

In the case of USDAW v Ethel Austin Limited  and another case (Woolworths), the EAT looked at whether the duty to inform and consult under TULRCA had been triggered in respect of employees who worked at individual stores with fewer than 20 employees – thereby making it harder for the collective consultation obligations to bite – or whether collective consultation is triggered when redundancies are proposed anywhere in the employer's organisation.

The facts

Woolworths went into administration in November 2008 and its stores closed shortly afterwards, resulting in large-scale redundancies.  USDAW and employee representatives complained to an employment tribunal, seeking protective awards on the basis that Woolworths had breached its information and consultation obligations under section 188 of TULRCA. 

The tribunal upheld the claim for breach of TULRCA and made protective awards of 60 days' gross pay.  However, it found that each store was a separate 'establishment' for TULRCA purposes.  Consequently, the duty to inform and consult had not been engaged in respect of stores with fewer than 20 employees.  The upshot was that 3,233 of Woolworths' redundant employees were not entitled to a protective award.

In a case heard at the same time, Ethel Austin Limited, a chain of clothing stores, went into administration in March 2010.  It carried out a large-scale redundancy exercise and failed to inform or consult.  Employees who worked at locations with 20 or more employees were awarded the maximum 90-day protective award.  However, the 1,210 employees who worked at locations with fewer than 20 employees received no protective award owing to the 'one establishment' test.

USDAW appealed to the EAT in both cases, arguing that the redundant employees working at stores with fewer than 20 employees were entitled to protective awards.  It argued, primarily, that section 188 of TULRCA should be interpreted so that the collective consultation obligation is triggered whenever 20 or more employees are to be dismissed, irrespective of where they work within an organisation.

The decision

The EAT agreed with USDAW and, in a dramatic decision, held that the wording regarding 'establishment' in TULRCA should be disregarded – so the legislation should be read as if the words "at one establishment", in section 188 did not exist.

The EAT looked at previous case law and how domestic legislation may be interpreted in the light of European law, and also looked at how section 188 was enacted.  Historically, there was no indication in Hansard or in the genesis of TURLCA that Parliament intended that the '20 employee' trigger would have to be met 'at one establishment'.  It therefore appeared that the parliamentary intention was to implement the Directive correctly.

In the circumstances, the EAT said that the words "at one establishment" should be deleted from section 188 of TULRCA altogether.  Therefore, it is now irrelevant where employees at risk of redundancy are located.

What does this mean for me?

Although this is a somewhat sweeping change, we do at least have clarity that whenever 20 or more dismissals are proposed within 90 days, anywhere within an employing organisation, the collective consultation obligations under TULRCA are triggered - with no limitation or consideration of where these employees are located or how the workforce is organised.

Employers will now have to consider a number of practical points.

  • It will no longer be possible to use the ‘establishment’ limitation to avoid triggering the requirement to collectively consult or pay protective awards.
  • For multi-site employers, co-ordination of information regarding proposed redundancies across an organisation is now more important than ever, to ensure that the collective consultation trigger is not missed and an HR1 Form is filed.
  • Bearing that in mind, if various separate redundancy exercises are commenced at different locations over a 90 day period, employment tribunals are likely to look closely at evidence of how many redundancies were contemplated during that period.  Clear evidence will be required if you wish to argue that the collective consultation obligations were not triggered because you were unaware of an earlier redundancy process.
  • Remember that although the trigger for collective consultation has changed, the content of the consultation exercise is the same.  Therefore, local issues on which you would normally consult should remain in place, as should other aspects of a collective consultation – e.g. pools of selection, scoring, and the search for suitable alternative employment.

Finally, this is unlikely to be the last we will hear on this matter.  We understand that an application to appeal has been lodged.  There is also an Irish employment tribunal Reference to the European Court of Justice on the same 'establishment' question.  If there is a successful appeal against the Ethel Austin / Woolworths decision, then the Irish reference to the ECJ will become relevant.

In the meantime, however, the EAT's decision stands.    

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