It has long been settled law that employers proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less are required to inform and collectively consult with affected employees, under the provisions of section 188(1) Trade Union and Labour Relations (Consolidation) Act 1992 (known as TULRCA).
It has been determined in an earlier case that by limiting the requirement to inform and consult to a single establishment proposing to make 20 or more redundancies (rather than 20 or more within an entire organisation, regardless of location), TULRCA conflicts with the requirements of the EU Collective Redundancies Directive, which it was intended to implement. However, until recently Judges have ruled that it was not possible to read TULRCA purposively to make it compatible with the Directive.
Under TULRCA, if collective consultation is required but not instigated and/or the required information is not provided, the employer can be liable to pay up to 90 days gross pay per employee as a protective award.
Tribunal claim for protective awards
An important case has now changed the approach that employers must take in large scale redundancies.
Woolworths & Ethel Austin were notable casualties of the economic downturn; both went into administration and closed down very quickly. Mass redundancies followed, without any collective consultation having taken place. Protective awards were subsequently awarded and paid only to employees working at individual stores and office locations with 20 or more employees, whilst those employees at stores of fewer than 20 received no protective award.
As both companies had gone into administration, the protective awards were paid out of the NIF (National Insurance Fund), meaning that they were effectively paid out of public funds.
The Union of Shop, Distributive and Allied Workers, (USDAW) appealed to the EAT in both cases on the basis that, to comply with the Directive, TULRCA had to be read differently and that protective awards were also due to employees who had worked at stores with fewer than 20 employees.
Concerningly for employers, the Secretary of State did not contest the appeal on behalf of the Government, due to what the EAT suggested was a fundamental misunderstanding of the case at hand and the consequences of it.
The EAT considered previous House of Lords rulings on how courts can interpret UK legislation to make it compatible with EU Directives. It was clear from these rulings that the courts have jurisdiction to completely add or remove words in order to make laws compatible.
According to the EAT, TULRCA should never have been drafted to restrict the collective consultation requirement to single establishments. It therefore decided that removing the wording ‘at one establishment’ from section 188 was simply the most practical and straightforward way to instigate the necessary correction to make it compatible with the requirements of the Directive.
As a result of the EAT’s decision, collective redundancy consultation must now be instigated if 20 or more redundancies are proposed in total throughout an employer’s UK business operations, in a period of 90 days or less, irrespective of the number of separate locations affected.
This case clearly has wide reaching ramifications for all employers, especially those with operations spread across the UK. Collective consultation and the provision of required information will now have to be carried out in advance of many more proposed redundancies than was previously the case, although it is very difficult to see how this will work in practice. The EAT’s ruling means that employers will need to find a way of tracking all potential redundancies throughout their sites, or face the risk of paying out large protective awards of up to 90 days’ pay for each dismissed employee.
The Secretary of State was criticised by the Judge for not contesting the hearing (an expensive error, as now the NIF will have to pay protective awards to around 4,400 redundant Woolworths and Ethel Austin employees). It has since been reported that the Government has lodged an application to appeal the decision, which is currently being considered by the EAT.
One suggested solution for employers is, in the absence of having a recognised trade union, the creation of a permanent elected employee body across all locations to provide the representatives needed for the provision of required information and collective consultation. However, the finer points of how such a scheme will work is something that each employer will have to consider carefully. Another more radical option for larger employers to consider might be a corporate re-structuring exercise to assign employees to regional subsidiaries.
From an employers point of view, subject to an appeal against the decision being successful, the only glimmer of light at the end of the collective redundancy tunnel is that a case on very similar facts in front of the Northern Irish Industrial Tribunal (Lyttle v Bluebird), has been referred to the ECJ on the question of what constitutes an ‘establishment’. This could well, eventually, result in a definitive resolution to this question, but a ruling will not be handed down for quite some time.
A copy of the full judgment can be found here.