Europe upholds "at one establishment" rule for triggering employer's consultation obligations on collective redundancies

The European Court of Justice (“ECJ”) has today confirmed that the European collective redundancy rules which have been implemented into UK law require an employer to collectively consult with appropriate representatives where 20 or more redundancies are proposed at an establishment. Where an undertaking comprises several entities, as in Woolworths’ case, “it is the entity to which the workers made redundant are assigned to carry out their duties that constitutes the “establishment”“. 

This returns an employer’s obligations to consult on collective redundancies back to the position pre the Employment Appeal Tribunal (“EAT”) decision in Woolworths and is a welcome end to the long period of uncertainty UK businesses have faced. However, USDAW, the union representing the workers has indicated that it will now be campaigning for a change in the law.

What was the issue?

In essence, the question for the ECJ was whether the use of the word “establishments” in the relevant provision of the European Collective Redundancies Directive (the “Directive”) implemented into UK law in fact meant that the obligation to collectively consult was triggered where 20 or more redundancies were proposed across the whole of an employer’s business i.e. across all its establishments.

Whilst our statutory provisions implementing the Directive had suggested otherwise, referring to the collective consultation obligations applying where 20 or more redundancies were proposed at “one establishment”, the EAT in the Woolworths case took the bold step of holding that this reference to at “one establishment” in our domestic law was wrong and should be interpreted to require collective consultation where 20 or more redundancies were proposed across all establishments. This decision had left employers in a precarious legal position and with difficult practical questions to address. With the cost of getting the collective redundancy rules wrong set at up to 90 days’ actual pay per affected employee, this was a question on which clarification has been urgently needed.

What did the ECJ say?

• It is the entity to which the workers made redundant are assigned to carry out their duties that constitutes the “establishment” for the purposes of triggering the Directive’s requirements. This is not the same as the whole undertaking.  In Woolworths the Employment Tribunal had taken the view that “stores situated in different locations throughout the UK” were “separate establishments“.  It is now for our Court of Appeal (“CA”) to establish whether, in the context of the particular set-up of the Woolworths stores, this was indeed the case.
• In determining what is an “establishment”, the CA will be bound by European case law on this point.
• The ECJ confirmed that an interpretation of the collective consultation obligations bringing within scope “not only a group of workers affected by collective redundancy but also in some circumstances a single worker of an establishment – possibly of an establishment located in a town separate and distant from the other establishments of the same undertaking – would be contrary to the ordinary meaning of the term “collective redundancy“. In addition, “the dismissal of that single worker could trigger the information and consultation procedures referred to in [the Directive], provisions that are not appropriate in such an individual case“. However, the ECJ did not expressly refer to the socio-economic effects of collective redundancies as the Advocate General did in his earlier opinion.
• The ECJ’s reasoning for its decision appears to place greater emphasis on the objective of the Directive to render a comparable burden of costs across all Member States regardless of how have they implemented the collective redundancy consultation obligations. However, the ECJ confirmed that a Member State may still choose on its own accord to introduce provisions which are more favourable to workers (increasing its burden). That is not what the UK has chosen to do.

What does this mean for employers?

• This is a welcome and sensible decision. It makes sense for both employers and employees that employers are able to, in the main, focus their collective consultation efforts on proposals where a large number of redundancies will have a particular impact in a local community, rather than trying to carry out meaningful consultation regarding smaller unrelated pockets of redundancies. And it must be remembered that it does not mean that employers will not be talking to those employees who fall outside of the collective rules. Many employers will consult individually with every employee in any case (and those with two years or more service have a legal right in this respect).
• There will still inevitably be uncertainty as to what is an “establishment” in any particular case, however helpfully the ECJ has confirmed the relevance of European case law on “establishments” (albeit relating to alternative collective consultation triggers provided for within the Directive) to our domestic provisions and which will provide a useful reference point for those embarking on the prospect of collective redundancies. We shall be happy to provide further guidance on this.
• This decision also brings good news for administrators who in many cases have difficulty in complying with the collective consultation rules on the at “one establishment” basis, let alone seeking to ensure compliance across the whole business. Recognising the difficulties administrators face, the Department for Business Innovation and Skills has recently issued a call for evidence to understand what happens in consultation with employees when a business is imminently facing or is in a formal insolvency process, seeking suggestions for how outcomes for both employees and businesses may be improved. The call for evidence closes on 12 June 2015 and a link can be found here. Please do not hesitate to contact your usual OC Contact if you would like to discuss this in more detail.
• As indicated above, USDAW, the union representing the workers has indicated that it will now be campaigning for a change in the law (see here). With the General Election on 7 May, there may well be interesting times ahead. We shall keep you updated on developments.

The ECJ press release is here and decision is here.