Should employers fear the Advocate General’s decision on collective redundancies on Thursday?

Written on 3 Feb 2015

Whilst it is natural to be fearful of an opinion which will influence the final decision of the Court of European Justice (“ECJ”), the Advocate General’s opinion in the “Woolworths” case (USDAW v Ethel Austin Ltd (in administration) and another) due on Thursday should mark the start of much needed clarification on how collective redundancy rules in the UK operate. That large scale redundancies are a live issue for UK businesses has been all to starkly brought home over the past month with the demise of CityLink over Christmas and the subsequent store closures announced by Tesco and Morrisons.

For businesses already grappling with extra costs for holiday pay, further uncertainty on redundancy obligations is an unwelcome addition to the mix. So while the Advocate General’s opinion may not necessarily be warmly greeted by employers and potentially employees, it should at least give both parties clarity on their rights and obligations and enable businesses to manage any redundancies more effectively and with some certainty on the financial implications of doing so.

So what is the issue?

The law in issue is whether or not collective consultation obligations are triggered where 20 or more redundancies are proposed in a 90 day period:

  • at “one establishment” – which is set out in our UK law and will in many cases narrow the reach of the collective consultation obligations. Indeed, establishments with less than 20 employees will be automatically excluded from these rules; or
  • across all “establishments” – which is arguably how the wording of the Directive which our UK seeks to implement should be interpreted and which will in many cases broaden the geographical reach of the collective consultation obligations, particularly given that the rules capture not just redundancy dismissals but also dismissals resulting from changes to terms and conditions of employment, a particularly pertinent issue for many employers in light of the holiday pay litigation. across all “establishments”

Following the demise of Woolworths, claims were brought on behalf of former employees claiming that the administrators were in breach of their collective consultation obligations and that employees who were affected as a result were entitled to protective awards. The Employment Tribunal agreed but limited these awards to those individuals who were engaged at establishments with 20 or more employees on the basis that under UK law, the collective consultation obligations were not triggered at establishments with less than 20 employees.

The Employment Appeal Tribunal (“EAT”) subsequently made a bold decision changing the face of the UK collective consultation rules as employers understood them. The EAT made two important findings:

  • the Directive provisions which the UK had sought to implement into domestic law did require an employer to look at the numbers of redundancies across all establishments in determining whether or not collective consultation obligations are triggered; and
  • the UK law could be interpreted by the courts to give effect to that by the deletion of the words “at one establishment”.

The impact of this decision was that those Woolworths employees at shops with less than 20 employees now benefitted from the collective consultation rules and hence, they too, were entitled to protective awards for breach of those rules. In this case, these awards were payable in part out of the National Insurance Fund since Woolworths no longer existed.

Despite not making any representations at the EAT, the Secretary of State for Business, Innovation and Skills appealed the EAT decision to the Court of Appeal who in turn referred the matter to the ECJ.

So what do employers need to be aware of on Thursday? 

On Thursday we should receive the Advocate General’s opinion. This is not legally binding but will be taken into consideration by the ECJ and is, in many cases, a useful indication of the ultimate decision the ECJ will reach.

If the Advocate General upholds the “at all establishments” interpretation of the trigger for collective consultation, this will reinforce the stance that many businesses have adopted post the EAT decision, that the safest course of action must be to look at the wider business when considering whether collective consultation is required. Arguably it is business as usual. However, looking at the wider business when collectively consulting brings with it a number of logistical challenges and it may be an appropriate time for businesses to take stock on how their business is structured, how the measures they have taken to identify and manage dismissals across locations are working, what issues have arisen when identifying relevant dismissals and consulting on them and whether any arrangements should be more formalised.

Perhaps most interesting will be the reaction of our political parties as they seek to make the right noises in the run up to May’s General Election. Will any be bold enough to assert that should they win power, they will undertake a review of how our collective redundancy rules operate to protect workers? In some instances, small pockets of employees may now be subject to a protracted and unwieldy process which may not necessarily be in their best interests. There is also the potential for abuse by employers dressing up redundancies as performance issues to avoid the trigger for collective consultation. In light of the difficulties faced by the administrators at Comet (and other businesses such as CityLink) new rules would also no doubt be welcomed by those struggling to keep a business going against the backdrop of their legal obligation to collectively consult should redundancies be necessary.

The Directive provides alternative trigger points for collective consultation and a new Government may seek to introduce them if they feel they provide a better balance to protect workers rights where collective redundancies are proposed. Any such introduction would be subject to a wider public consultation. But with any political party hoping to win votes by vowing to alter the collective redundancy regime unlikely to be able to please all interested parties, could this be another issue, along with holiday pay, left in the “too difficult” pile?

And what if the Advocate General indicates that the “at one establishment” approach is potentially acceptable? Given the Directive itself is ambiguous, this is not an impossibility, although arguably a more difficult decision to reach. In this event, many businesses may be tempted to make their redundancies on this basis before the ECJ (and ultimately the Court of Appeal) gives its opinion. The legal risks of this vis-à-vis wider practical implications will need to be considered on a case by case basis.

We shall be watching out for the AG’s opinion and shall update you accordingly.