The obligation to consult with representatives when making collective redundancies is derived from the EU Collective Redundancies Directive (Directive). When implementing the Directive, Member States were able to choose from two possible definitions of “collective redundancies”:
The first option required consultation where, over a period of 30 days, the number of proposed redundancies was: (i) at least 10 employees in establishments normally employing more than 20 but less than 100 workers; (ii) at least 10% of the number of workers in establishments normally employing 100 – 299 workers; or (iii) at least 30 in establishments normally employing 300 workers or more (Option 1); or
The second option required consultation where, over a period of 90 days, the number of proposed redundancies was at least 20, whatever the number of workers normally employed in the establishments in question (Option 2).
The UK chose Option 2. However, the wording in our domestic legislation, the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), took a more restrictive approach and provided that employers were only obliged to consult where they were: “…proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less” (s.188(1)).
It had been argued that under the Directive the duty to consult arose as soon as 20 or more employees were to be dismissed within a 90-day period, regardless of where the employees were employed. By contrast, under TULRCA, the obligation to consult was only triggered where 20 or more redundancies were proposed at a single establishment.
The “Woolworths” case – what did the EAT decide?
In July 2013, in a case brought on behalf of workers made redundant from two separate retail businesses (Woolworths Group plc and Ethel Austin Ltd), the EAT decided that all redundant employees were entitled to be collectively consulted once the overall number of redundancies had reached 20 or more across the entire business, regardless of where the employees worked. The EAT decided that the words “at one establishment” were to be deleted from section 188 of TULRCA in order to give effect to the Directive. You can read our full report on the decision here.
In reaching this decision, the EAT concluded that the existing European case law on the meaning of “establishment” related only to Option 1 of the Directive and that there were no cases concerning the meaning of establishment for the purposes of Option 2 – the approach adopted by the UK. Accordingly, it fell to the EAT to decide the meaning of establishment for these purposes. The EAT concluded that when deciding the meaning of establishment their core objective was to advance the rights of workers in accordance with the Directive and the Charter of Fundamental Rights of the European Union.
This radical decision meant that employers needed to commence collective consultation once there was a proposal to dismiss as redundant 20 or more employees within a 90-day period, wherever they were based. This was particularly onerous for large, multi-site employers.
The Government applied to appeal that decision to the Court of Appeal. In January 2014, the Court of Appeal referred the case to the ECJ, where it was joined with a Northern Irish case and Spanish case concerning similar issues (Lyttle and others v Bluebird UK Bidco 2 Ltd EUECJ C-182/13 and Andres Rabal Canas v Nexea Gestion Documental, SA, Fondo de Garantia Salarial EUECJ C-392/13). The ECJ heard the case on 20 November 2014. We report on the Advocate General’s preliminary opinion below.
Advocate General’s Opinion
The key issue to be determined was what the term “establishment” meant. The Advocate General acknowledged that the ECJ had already interpreted the concept of establishment in relation to Option 1 of the Directive. In his view, the term ought to have the same meaning for the purposes of Option 2 so as to provide legal certainty.
However, the employees’ argument was that a more nuanced understanding of the term was required for Option 2 and that the term should be interpreted purposively, in a way which would maximise protection for workers in collective redundancy situations. This required an examination of the purpose of the Directive.
Social protection aim
The Advocate General considered that the “social protection” aim of the Directive was to provide a minimum level of protection with regard to the information and consultation of workers in collective redundancy situations. However, it did not contemplate full protection for all workers (although Member States could offer more favourable measures of their own volition). In this context, he concluded that:
Although the ECJ had decided in previous cases that the term “establishment” should be interpreted broadly to limit the cases which fall outside the regime, it was misguided to suggest that this meant that the Court should bracket together all dismissals in a single restructuring exercise.
Previous ECJ case law was clear that “establishment” meant the local employment unit and did not equate to the whole undertaking or corporate entity. To take a different approach now would pave the way for a “malleable construction” of the term which turned on the employer’s internal structure.
The Court could not permit a situation where “establishment” had different meanings i.e. the “local employment unit” for the purposes of Option 1 and “the entire business” for the purposes of Option 2.
Further, the Court has stressed the importance of the local context in the meaning of establishment. Clearly, there could be a situation where the aggregate number of dismissals could be high on a national scale but that does not reflect the local impact. Where redundancies are high on a local level this threatens the very survival of local communities.
Internal market aim
The “internal market” aim of the Directive was also considered: the intention here was to harmonise the costs for EU businesses of such protective rules. The internal market aim could not be disassociated from the social protection aim.
In other words, the need to harmonise costs precluded the possibility of establishment having different meanings for Option 1 and Option 2. If, under Option 2, establishment meant the entire business, then the cost of collective redundancies in Member States who had enacted Option 2 would be higher than for those who had chosen Option 1.
The Advocate General concluded that:
(i) “Establishment” must be construed in the same way for both Options 1 and 2 of the Directive and a wider, nuanced understanding of the term for Option 2 was not justified.
(ii) “Establishment” means the local employment unit to which the redundant worker is assigned to carry out his duties. What constitutes the local employment unit in each case is a question of fact for the national courts to determine. The example was given of an employer operating several stores within one shopping centre. The Advocate General said that it was not inconceivable that all of those stores should be regarded as a single local employment unit (i.e. the establishment), but this would depend on a number of factors such as how that group of stores were organised and run.
(iii) The Directive does not require (nor does it preclude) dismissals across all of the employer’s establishments to be aggregated for the purposes of deciding whether the consultation thresholds are met.
Employers will welcome this opinion, which endorses the orthodox approach of counting numbers for collective consultation by reference to the local employment unit rather than across the whole business.
Although this opinion is not binding the ECJ usually follows the Advocate General and so employers have good reason to be hopeful. However, even if the ECJ does adopt the same approach, that is not the end of the matter – the Woolworths case will then return to the Court of Appeal for its decision in light of the ECJ ruling. So it may be some time before we have a final, binding judgment overturning the EAT’s decision.
Consequently, some employers may decide to take a cautious approach and continue to aggregate redundancies across their business for the time being. However, some employers – particularly those with non-unionised workforces – may feel more confident about reverting to the orthodox approach of counting numbers per establishment. However, care still needs to be taken when deciding what constitutes the correct local employment unit.
The ECJ’s decision is expected in the next few months.