European Court holds that ‘establishment’ means the local employment entity: Woolworths decision wrong

The Court of Justice of the European Union (‘CJEU’) has given its judgment on the meaning of ‘establishment’ for the purposes of deciding whether collective redundancy consultation obligations are triggered or not. The CJEU agreed with the recent opinion of the Advocate General in finding that ‘establishment’ should be interpreted narrowly to mean the individual establishment in which an employee works. In the Woolworths case, this was the individual store.

This ruling will have significant positive impact on insolvent business recovery prospects and multi-site employers making redundancies across their business.

30th April 2015

The Court of Justice of the European Union (‘CJEU’) has given its judgment on the meaning of ‘establishment’ for the purposes of deciding whether collective redundancy consultation obligations are triggered or not. The CJEU agreed with the recent opinion of the Advocate General in finding that ‘establishment’ should be interpreted narrowly to mean the individual establishment in which an employee works. The CJEU explained that where an employer’s business comprises several entities, the relevant ‘establishment’ is the entity where the worker is assigned to carry out their duties. In the Woolworths case, this would be the individual store. In each case, the exact meaning of ‘establishment’ will still turn on its own facts.

This ruling will have significant positive impact on insolvent business recovery prospects and multi-site employers making redundancies across their business. Effectively, the judgment means that the UK will revert to the pre-Woolworths position where collective redundancy consultation obligations are only triggered if there is a proposal to dismiss as redundant 20 or more people at one establishment within a 90 day period. Failure to collectively consult can still result in awards of up to 90 days’ gross pay per affected employee as a protective award: a significant liability in large scale redundancy exercises.

As a result of the CJEU’s decision, we now know that where redundancies are proposed across a number of sites, collective consultation may be required at some of those sites but not all. For example, in the Woolworths scenario, there would need to be collective consultation for stores with 20 or more employees at risk of redundancy. However, this would not be the case in smaller stores with fewer than 20 employees, where only individual consultation would be required.

Many businesses have been eagerly awaiting this ruling from the CJEU to put an end to the uncertainty caused by the Woolworths case. Since the Woolworths decision was made, some large multi-site employers felt obligated to collectively consult in respect of all redundancies. This is because across their organisation as a whole, it was possible that 20 or more redundancies were being proposed in a 90 day period at separate sites for separate reasons. The removal of the ‘establishment’ test meant that these disparate redundancies could be caught by the collective consultation requirement. Often employers did not have the systems in place to monitor redundancy proposals across all business areas and as such, they erred on the side of caution and ran continuous collective consultations. This obviously placed a considerable extra burden on these employers who will now be breathing a sigh of relief at the CJEU’s decision. The CJEU itself reasoned that the purpose of the rules on collective consultation was to capture collective redundancies, not place a burden on employers that just happened to be carrying out a number of distinct redundancies within a 90 day period.

Employers or administrators planning on carrying out a large scale redundancy exercise will also benefit from the CJEU’s decision. These employers may be able to reduce or avoid entirely the need to collectively consult if few or no single establishments have 20 or more employees at risk of redundancy. In turn, this will reduce the potential risk of a protective award for any failure to collectively consult as fewer employees will qualify for that protection.