A preparatory school forced to close due to falling pupil numbers has been told by the EAT that it should have collectively consulted over staff redundancies when the closure of the school was identified as necessary if pupil numbers didn’t increase. The trigger point was when the provisional decision was made to make redundancies if the situation didn’t improve and not when pupil numbers didn’t increase and the decision was actually made to close the school.
Failure to consult over collective redundancies can cost an employer up to 90 days’ actual pay per affected employee. With a quarter of annual salary costs hinging on your understanding of the obligation, do you know when you should collectively consult your employees over proposed redundancies?
The legal background
Section 188 of Trade Union & Labour Relations (Consolidation Act 1992) (“The Collective Redundancy Legislation”) requires that where an employer proposes to dismiss 20 or more employees within a period of 90 days or less, it must consult with the representatives of the affected employees for a minimum of 30 days. This mandatory consultation period increases to 45 days where the proposed redundancies affect 100 employees or more. Employees should not be dismissed (or served with notice of dismissal) before this period has elapsed.
What happened in this case?
In E Ivor Hughes Educational Foundation v Morris & Ors (EAT), the employer was a preparatory school which had declining pupil numbers. The headmistress and school governors met in February 2013 and discussed various strategies to try to turn around the school’s fortunes but it was accepted that the school would need to close if pupil numbers did not improve by April 2013. Unfortunately, April came and the projected pupil numbers for the forthcoming academic year were such that if the school were to continue, it would face a deficit of £250,000 and therefore the decision was made to close the school. No consultation was carried out with the teaching staff, who were then given notice of termination. 24 teachers were made redundant and brought a claim for breach of the collective consultation obligations.
Key questions considered by the Employment Appeal Tribunal included:
- When was the obligation to collectively consult triggered? The Collective Redundancy Legislation states that the obligation to collectively consult arises at the point the employer “proposes to dismiss…”. In the recent case of United States of America v Nolan, the Court of Appeal questioned whether this means the obligation arises at the point an employer proposes a strategic decision which will foreseeably result in redundancies or at the later point, when it has been decided that redundancies are necessary. The Court of Appeal referred the question to the European Court of Justice who unhelpfully determined that it did not have jurisdiction to hear the question as the United States of America fell within a relevant exemption in the Directive from which our Collective Redundancy Legislation is derived. The matter is now back in the UK courts and we must now wait to see if and if so, how the issue of what is the trigger point is resolved.
- In this instance, the EAT held that the obligation to collectively consult was triggered by the meeting in February 2013 when the decision was made that the school would need to close unless pupil numbers increased, and the evidence suggested that the school accepted such an increase was unlikely. The EAT noted it was not necessary to consider which of the tests was the correct one to apply, as the duty to consult would have arisen at the same point on either analysis as the school’s decision to close unless numbers increased was “either a fixed, clear albeit provisional intention to close the school or … a strategic decision of changes compelling the employer to contemplate or plan for collective redundancies”.
- Is ignorance an excuse for failure to consult on collective redundancies? The school argued that the Governors weren’t aware of the obligation to collectively consult the teaching staff about the school’s closure and the proposed redundancy of their roles. The Tribunal took a dim view of this argument, concluding that the school’s ignorance was a reckless failure to consult relevant legal experts about the employment implications of the decision to close the school. This approach is somewhat predictable, given that acceptance of ignorance as an excuse would potentially open the floodgates to unscrupulous employers seeking to avoid their consultation obligations.
- Could the school rely on the special circumstances exemption? An employer can escape the collective consultation obligations by demonstrating that there were “special circumstances” which meant it was not reasonably practicable for the employer to carry out collective redundancy consultation. These circumstances are very limited and include where a “sudden disaster” hits a company and some insolvency situations. The school argued that it was a special circumstance that information about the possible closure of the school should be kept confidential because if parents learned of the proposal, they were likely to remove their children from the school, thereby sealing its fate and rendering redundancies inevitable. Many employers would sympathise with this argument as when a business is facing difficult times, the need to maintain the confidence and loyalty of both employees and customers is paramount if business is going to improve. The schools argument was dismissed by the EAT. It was not possible to argue with hindsight that consultation would not have been reasonably practicable. The obligation is to collectively consult at the right time and you cannot seek to retrospectively justify a complete failure to consider and implement collective consultation.
- What level of protective award was appropriate? The Tribunal’s decision to make the maximum protective award of 90 days’ uncapped pay in respect of each of the teachers reflected the dim view it took of the school’s complete failure to carry out any collective consultation. The EAT clarified that a protective award is primarily punitive and a Tribunal will look first to the seriousness of the breach. Whilst the Tribunal may increase the amount of the protective award in light of the actual losses suffered by the employees as a result of consultation shortcomings, it is not open to the employer to argue that absence of actual losses mitigate the seriousness of that breach.
What does this mean for employers?
- This decision suggests that employers should commence collective redundancy consultation when redundancies are identified as necessary if the employer’s circumstances don’t improve.
- Consulting on redundancies in the event a commercial situation doesn’t improve will be unattractive in a number of circumstances. Employers keen to maintain client and market confidence will not want to begin collective redundancy consultation at the very point increasing consumer/client confidence is an imperative. In such circumstances, the commercial risks of complying with collective consultation obligations before redundancies are definite may outweigh the legal risks of non-compliance.
- In such circumstances, steps can still be taken to maintain employee relations and minimise the risk and/or value of claims. For example, in this case, in deciding that the maximum protective award was appropriate, the EAT took into account the school’s failure to seek legal advice at any stage and its failure to consult with employees in any way, shape or form. Consultation at a later date may well have resulted in a lower protective award.
- Employers wishing to rely on the special circumstances exemption should keep clear records of why collective consultation is not reasonably practicable. It should be taken into account that this caveat to the consultation requirements is very narrow and legal advice should be taken before relying on this exemption. Any circumstances which the employer subsequently identifies in hindsight are not capable of amounting to special circumstances.
- Employers should inform employees of their confidentiality obligations throughout the consultation. Setting out a clear expectation that confidentiality will be maintained and the implications of employees leaking information to the market will go some way to containing the information.
- Ignorance of collective consultation requirements is not a defence so where required, the cost of HR and legal assistance should be factored into the overall cost of making collective redundancies.
As referred to above, the case of United States of America v Nolan may well provide what will be welcome clarification of this issue from the courts above on this issue and we shall provide further updates as this case progresses.