Woolworths collective redundancy consultation “establishment” ruling wrong says the Advocate General

The Advocate General of the European Court of Justice has released an Opinion on the meaning of “establishment” for the purposes of deciding whether collective redundancy consultation obligations are triggered or not.

If endorsed by the European Court, the Opinion could have significant positive impact on insolvent business recovery prospects and multi-site employers making redundancies across their business.

6th February 2015

The Advocate General of the European Court of Justice has released an Opinion on the meaning of “establishment” for the purposes of deciding whether collective redundancy consultation obligations are triggered or not.

If endorsed by the European Court, the Opinion could have significant positive impact on insolvent business recovery prospects and multi-site employers making redundancies across their business.

UK Collective Redundancy Consultation Requirements

If an employer is proposing to dismiss as redundant 20 or more employees “at one establishment” within a period of 90 days or less then they need to collectively consult with representatives of affected employees.

Under UK law it had previously been considered that employers were, in most cases, relatively safe to assume that collective consultation obligations were not triggered when an employer was proposing to dismiss fewer than 20 staff over a 90 day period at one site but more than 20 were proposed to be dismissed in total when taking their other sites into account.

Failure to collectively consult could result in awards of up to 90 days’ gross pay per employee being awarded to affected employees as a protective award - a significant liability in large scale redundancy exercises.

Legal Position Post-Woolworths

In the Woolworths case, the EAT said that only looking at one establishment for the purpose of determining whether collective redundancy consultation obligations are triggered did not comply with EU law.  This came as a surprise to many UK employers (not least the administrator in the Woolworths case).

As a result, the EAT held that UK law regulating the requirement for collective redundancy consultation should be read as if the words “at one establishment” were deleted. Following the EAT decision in Woolworths, employers are required to carry out collective consultation if they are proposing to dismiss 20 or more employees across their whole business (over different sites, across varying geographical locations) within 90 days.

This deletion undoubtedly places an additional burden on employers with multiple sites who as a result are required to aggregate redundancies across their workforce to determine if the collective consultation obligation applies. Inevitably, this has resulted in far more redundancy situations being caught by the collective consultation rules, additional cost and management time being incurred and made it more difficult to effect possible business rescue.

The EAT’s decision was appealed to the Court of Appeal who in turn referred the matter for determination to the European Court.  The key point for the European Court to determine (and in relation to which the Advocate General comments on in his Opinion) is whether the words “at one establishment” in the UK legislation regulating collective redundancy consultation should be disregarded on the basis that it is incompatible with European law in this area.

Current position – the Advocate General’s Opinion

In essence, the Advocate General did not consider that the UK legislation (and the inclusion of the words “at one establishment”) to be incompatible with European law.

Effectively what the Advocate General suggests is that it is, on the basis of the facts of the cases before him, the number of redundancies at the single business site or location that count to establish if the number of proposed dismissals and timing triggers the obligation to consult collectively.  UK courts will have to consider as a matter of fact what the “local employment unit” is in each case.

In the Advocate General’s Opinion, the “establishment” is the unit to which the affected employees are assigned and the unit for which they carry out their duties.  What constitutes the local employment unit is a matter for the national courts/tribunals to determine by way of factual analysis of the circumstances of each individual case.

Following this Opinion, in cases similar to Woolworths, where there were thousands of redundancies across multiple sites, it is likely that, collective redundancy consultation will only be triggered provided the number of employees potentially affected meets and/or exceeds the threshold (i.e. 20 or more employees) at any single retail store site.  In other cases, for example, where there are 2 units (owned and operated by the same company) within a retail park which operate closely, with staff being transferrable between the stores, these units, taken together, could potentially be regarded as one “local employment unit” and thus trigger the employer’s obligation to consult collectively with affected employees. Cases are going to hinge on factual analysis.

What does the future hold?

The Opinion could potentially allow large multi-site employers and administrators seeking to sell whole or parts of businesses to breathe a sigh of relief.  However, given that this is only the Opinion of the Advocate General, not the decision of the European Court, employers may wish to tread with some caution and in the meantime remain constrained by the EAT’s ruling in Woolworths. In most cases, the Opinion of the Advocate General is usually followed by the European Court but this is by no means certain.  The wait to find out is likely to be around 6 months.

The financial risk of not following the Woolworth’s ruling meantime could be significant – the possibility of a protective award of up to 90 days’ gross pay per affected employee. Therefore, if there is a need to make large scale redundancies prior to the European Court confirming its position on the “establishment” question, the prudent approach is to consult collectively across your sites.