UK law provides that an employer requires to collectively consult with appropriate representatives where there is a proposal to dismiss 20 or more employees at one establishment within a 90 day period. A failure to do so can result in a Protective Award of up to 90 days' gross pay per affected employee irrespective of their length of service.
It is therefore crucial for employers to be clear as to when these obligations are triggered.
The law has been in a state of flux since the two well known retail chains Woolworths and Ethel Austin went into administration. Their employees were made redundant without consultation. Claims were brought on behalf of all employees but only those working in stores with 20 or more employees were made a Protective Award. This was on the basis that each store was treated as a separate "establishment". This meant that around 4,500 employees received no award which attracted significant adverse publicity at the time.
However, this decision was overturned in the Employment Appeal Tribunal. The UK requires to comply with the European Collective Redundancies Directive ("the Directive"). The EAT held that, having regard to the Directive, the UK legislation was incorrectly framed and there was no need to consider whether the obligation to collectively consult was triggered by reference to the word "establishment". As such the question was simply whether 20 or more employees, across the entire workforce, had been made redundant. This meant that all the employees were found entitled to a Protective Award.
The decision was appealed to the Court of Appeal which referred the matter to the ECJ. This created significant uncertainty in the intervening period. Many employers have taken a cautious approach and adopted the policy of recording the total number of potential redundancies that might impact their organisation in a 90 day period across all locations and including all of these employees as part of the collective consultation process.
The Appeal Court asked the ECJ to decide several questions, the two key ones being;
1. what does the term "establishment" mean?
2. if there is held to be more than one "establishment" do you treat each establishment separately or do you combine them in deciding whether there is a proposal to dismiss 20 or more employees?
The ECJ held that the concept of an "establishment" was central to the wording of the Directive although the the term was not defined. The ECJ held that it was not for member states to adopt their own interpretation. That was an issue for the ECJ to decide to ensure a consistent approach is adopted across the EU.
The ECJ considered its previous decisions on this issue. It held that where an undertaking comprises several entities it is the entity to which the workers are assigned to carry out their duties that constitutes "the establishment".
The ECJ stated that it is not essential in order for there to be an "establishment" that the unit in question is endowed with a management that can independently effect collective redundancies. The entity in question need not have any legal autonomy, nor need it have economic, financial, administrative or technological autonomy in order to be regarded as an establishment.
It also held that if an employer consists of more than one "establishment" the number of dismissals in each establishment had to be considered separately in deciding whether there were "at least 20" to trigger the application of the collective redundancy consultation rules.
The ECJ has now remitted the case back to the Court of Appeal for it to decide whether the Employment Tribunal was correct in holding that each shop constituted a separate establishment. The ECJ's decision gives the Court of Appeal clear scope to reject the employees' claims and to overturn the EAT's decison.
Each scenario will still require to be considered on its own merits. The ECJ's decision is likely to significantly reduce the circumstances where the requirement to collectively consult is triggered when there are only small numbers of employees being made redundant at different locations. However, the rules will continue to apply if the different work locations are treated as one establishment and there is a proposal to dismiss 20 or more employees in a 90 day period.