COLLECTIVE CONSULTATION: IMPORTANT CASE ON MEANING OF “ESTABLISHMENT”

A landmark case involving two insolvent retailers – Woolworths and Ethel Austin – has changed the face of collective redundancy consultation. We report on this important ruling of the EAT and give guidance for employers on the impact of this decision.

COLLECTIVE CONSULTATION
Collective consultation obligations are governed by statute - section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

The obligation arises where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a 90-day period. In such a situation, an employer is required to consult in advance with representatives of the affected group of employees and the consultation must be completed before any notices of dismissal are issued. The employer must also consult individually with the affected group. A failure to consult will give rise to a Protective Award claim of up to 13 weeks (actual) pay, per affected employee.

NOTE: from 6 April 2013, where an employer is proposing to dismiss 100 or more employees, the time period for starting collective consultation is reduced from 90 to 45 days from before the first dismissal takes effect.

USDAW –v- WOOLWORTHS
In the Ethel Austin and Woolworths cases, each store or workplace was regarded as a separate “establishment” for the purposes of collective redundancy. The Administrators relied on a previous ruling that saw shop workers employed in stores with fewer than 20 staff being considered as separate establishments and therefore not collectively consulted with.

However, the EAT held that all the ex-staff of Woolworths and Ethel Austin were entitled to be collectively consulted with, even where a branch had less than 20 employees. Around 4,400 ex-Woolworths and Ethel Austin staff are reportedly now to share an estimated £5 million in compensation!

EAT – UK LAW INCOMPATIBLE WITH EU LAW
The EAT overturned the decision of the employment tribunal in the Ethel Austin and Woolworths cases (who held that stores with less than 20 employees did not need to collectively consult) and instead held that the words “at one establishment” as contained in TULRCA should be:
“disregarded for the purposes of any collective redundancy involving more than 20 employees, meaning that once it is proposed that more than 20 employees in a single business are to be made redundant, their location becomes irrelevant.” [Our emphasis]

According to the EAT, UK rules on collective redundancy consultation are incompatible with the EU directive and therefore need to be re-written with the words “at one establishment” being removed.

LANDMARK DECISION
The importance of this decision to collective consultation cannot be underestimated. All employers – not just retailers – who have multiple sites across the UK, will have to change the way they plan and initiate collective redundancy programmes. No longer will employers be able to discount smaller offices, shops or branches as not being applicable to collective consultation duties. Now employers must consider the total numbers of staff potentially affective by a decision to close offices or downsize within the WHOLE business - or face potentially huge protective award claims.

The effect of this decision means that, if 20 or more employees are affected by a potential redundancy situation, it will make no difference as to where they are based. Employers will be required to carry out formal collective consultation as set out within the meaning of TULRCA with all staff affected.

For advice on collective consultation or other redundancy issues, please contact us on 0118 952 8284 or via our website www.boyesturner.com.