Determining the trigger for collective redundancy consultation

Redundancy iStock 000006411338XSmall 146x219Graham Richardson looks at the lessons to be learned by local authorities and other public bodies from a recent EAT ruling on collective redundancy consultation.

The decision of the Employment Appeal Tribunal in USDAW v Ethel Austin Limited (in administration) and another (the “USDAW case”) has effectively rewritten the law in relation to when the obligation to undertake collective redundancy consultation is triggered, widening at a stroke the circumstances in which employers are required to undertake such consultation.

This article considers the implications of this decision, including whether there may be an argument that the key decision in the USDAW case does not apply to public administrative bodies, and also looks at a number of further developments which suggest that this may not be the end of the story in this contentious area.

Introduction

In the UK, the obligation to inform and consult collectively with employee representatives in a collective redundancy situation is set out in section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (“section 188”). While there is always an obligation to consult with individual employees about their redundancy, the obligation under section 188 to consult collectively with employee representatives about a proposed redundancy programme is only triggered where 20 or more employees are proposed to be dismissed as redundant in a 90 day period. In such circumstances there is an obligation to inform and consult collectively with employee representatives for a minimum of either 30 or 45 days (depending on the number of redundancies proposed) and an employer may face a protective award of up to 90 days’ pay per affected employee in respect of any failure to inform and consult in compliance with section 188.

No statutory obligation to inform and consult collectively (to be distinguished from the obligation to consult individually) arises where this numerical threshold has not been reached, although there may be a contractual obligation to do so, depending on the employee’s contractual terms.

Employment Appeal Tribunal decision

The USDAW case arose out of Woolworths and Ethel Austin separately going into administration. In both cases, the Employment Tribunal made awards for failure to inform and consult under section 188, but not in respect of stores with fewer than 20 employees. This resulted in 3,233 Woolworths employees and 1,210 Ethel Austin employees not receiving protective awards, who would otherwise have been entitled to do so.

USDAW appealed to the Employment Appeal Tribunal in both cases. It argued that the wording of section 188 was not compatible with the EU Collective Redundancies Directive (the “Directive”). The Directive gave Member States two options in determining the threshold where the requirement to consult collectively with employee representatives about a redundancy situation would be triggered, which we will call “Option A” and “Option B”. The UK Government had in implementing section 188 elected to take Option B. USDAW argued that, on the basis of wording in the Directive, the requirement for at least 20 employees in one establishment to be proposed to be made redundant for the collective redundancy consultation obligation to be triggered at that establishment was only relevant to Option A and did not apply to Option B. It argued that as in implementing the legislation the UK Government had elected for Option B, the number of employees at an establishment threshold was not relevant, and the fact that in section 188 the Government had sought to attach the establishment threshold to Option B meant it was in breach of the Directive.

The Employment Appeal Tribunal essentially agreed with this analysis and ruled that the relevant part of section 188 which referred to the requirement for there to be 20 employees at one establishment proposed to be dismissed as redundant should be disregarded. It was irrelevant where the employees being made redundant were located – essentially the relevant test was whether there were 20 employees at the employer proposed to be dismissed as redundant in a 90 day period.

This decision, if it stands, has serious implications for employers operating from multiple sites who are considering making redundancies. Before this decision, where an employer operated from a number of separate sites which were some distance apart, the conventional wisdom was usually to look at each site separately and consider whether 20 or more redundancies within a 90 day period were considered at the site in question in determining whether a collective redundancy consultation obligation had been triggered at that site. As the law now stands in the light of the USDAW case, in determining whether the obligation to consult collectively about redundancies is triggered, employers are required to consider whether 20 or more redundancies are proposed across their whole workforce in a 90 day period.

Implications for local authorities

There is a possible argument that the main effect of the USDAW case does not apply to local authorities. The primary reason for the Employment Appeal Tribunal’s decision in the USDAW case was that it did not consider the wording of section 188 requiring there to be 20 employees at one establishment proposed to be dismissed as redundant for the obligation to be triggered, to be compliant with the Directive.

However, the Directive specifically states in Article 1 that “This Directive shall not apply to:…(b) workers employed by public administrative bodies or by establishments governed by public law…” On this basis it might possibly be argued that the Employment Appeal Tribunal’s decision that the reference to “at one establishment” should be disregarded when applying section 188, should not hold good insofar as this applies to employees of public administrative bodies or establishments governed by public law, as the issue of non-compliance with the Directive arguably does not arise in the case of those employees.

This argument is untested, as is the scope of the exclusion from the Directive, and as such this needs to be treated with caution. Cautious local authority employers will ensure that the consultation requirements of section 188 are met in any event wherever possible, and consideration will also need to be given to whether there is any contractual obligation to undertake a collective redundancy consultation exercise that meets the requirements of section 188, quite apart from any statutory obligation.

Possible future developments

Two significant developments suggest that the decision of the Employment Appeal Tribunal in the USDAW case may not be the end of the debate.

Government appeal

The Department for Business Innovation and Skills has now been granted permission to appeal to the Court of Appeal against the EAT’s decision in USDAW, and has done so. The Government has a clear interest in the decision as unpaid protective awards in respect of insolvent employers (as in the USBAW case) fall to be paid out of the National Insurance Fund.

The Court of Appeal will therefore consider whether the EAT was right in its interpretation of section 188, or whether the wording in section 188 regarding establishments should be reinstated. At the time of writing we understand that as yet no date has been set by the Court of Appeal for a hearing, but this is a case which will be followed with interest by many employers operating from multiple sites.

Reference to the ECJ

It is however unlikely that a decision by the Court of Appeal in the USDAW case will bring finality to this important question as the matter has been separately referred to the Court of Justice of the European Union (the “ECG”) in the case of Lyttle and Others v Bluebird UK Bidco 2 Limited. This question was referred to the ECJ by the Industrial Tribunal in Northern Ireland, apparently prior to the decision of the EAT in the USDAW case being published.

The Northern Ireland Industrial Tribunal has requested guidance from the ECJ on whether under Option B the appropriate threshold for determining whether collective redundancy consultation obligations arise may be 20 employees proposed to be made redundant at the relevant establishment in a 90 day period, or whether this is contrary to the Directive and the appropriate trigger is 20 proposed redundancies across the employer as a whole.

This is essentially the same legal question as that considered in the USDAW case. It is anticipated that the Court of Appeal will issue its decision in USDAW prior to the ECJ making its ruling in Lyttle. Whatever the decision of the Court of Appeal in USDAW, it is possible that this will effectively be overruled by the ECJ in Lyttle subsequently. However, it is to be hoped that once the ECJ ruling is made this will provide some much needed clarity in this difficult area.

Graham Richardson is a Director at Bond Dickinson LLP. He can be contacted on 0844 984 1500 or by This email address is being protected from spambots. You need JavaScript enabled to view it..