UK: EAT ruling on multi-site collective redundancies published

Last month saw reports of a significant EAT ruling that the obligation to inform and consult for collective redundancies applies whenever an employer proposes 20 or more redundancies in aggregate, even if this is spread across a number of separate workplaces or business units.  The judgment was published this week (click here) and confirms the position.

HHJ McMullen ruled that the legislative threshold of 20 proposed dismissals "at one establishment" within a 90 day period was incompatible with the EU Directive as he construed it.   (USDAW v WW Realisation 1 Ltd (in liquidation)

The Directive imposes consultation obligations once an employer proposes a minimum number of redundancies and allows member states to choose as the threshold either (i) 10 "in establishments" with 21-99 workers, 10% of the total "in establishments" with 100-299 workers, and 30 "in establishments" with at least 300 workers; or (ii) 20 proposed dismissals "whatever the number of workers normally employed in the establishments in question". 

HHJ McMullen noted that the original UK provisions required consultation with recognised unions when just one dismissal was proposed, and set a period for consultation based on the number of dismissals "at one establishment".  When the UK provisions were amended to require consultation where there was no union further to an ECJ ruling, the government also chose to adopt the limb 2 threshold, but the "one establishment" phrase seems to have been carried across without attracting any parliamentary mention.

HHJ McMullen was persuaded that the principle to be derived from ECJ jurisprudence on limb 1 of the threshold test is simply that the term "establishment" should be construed to be consistent with the core objective of improving workers' rights (which, in the relevant cases, happened to involve applying the threshold to a small business unit, where redundancies were taking place mainly at one unit, rather than the employer's whole business).  He considered that the reference to "establishments" in limb 2 is simply there to emphasise that the location and size of the workforce is irrelevant in contrast to limb 1, and there was no need to define it in any particular way for limb 2.

He went on to decide that he was able to construe UK law in accordance with his view of the Directive, by simply striking out the words "at one establishment"; this would not, in his view, amount to a change to the underlying thrust of the legislation (which is not permitted).  

HHJ McMullen would also have ruled in favour of the claimants on alternative grounds: (i) that the threshold should be read as 20 "at one or more establishments", (ii) that "establishment" should be broadly interpreted to maximise employee protection and on the facts would mean the whole of the relevant retail business rather than individual stores, (iii) the obligation could be construed as applying to employees in the whole business once the threshold of 20 in one store was met, given they were also "affected" employees, (iv) that there is a directly applicable EU Treaty and Charter right of workers to information and consultation and inconsistent UK legislation has to be disapplied, or (v) the EU Directive has direct effect and can be enforced directly against the Secretary of State, given that he was responsible for payment of the protective awards on the insolvency.   

It is unfortunate that the Respondents were not present at the hearing: the Secretary of State refused to attend despite the prospect of being faced with a very large bill for protective awards from the National Insurance Fund.    

There are certainly grounds for a potential challenge.  One could argue that the overall test is implicitly to be understood as redundancies "at an establishment" of the relevant number prescribed by the chosen (limb 1 or 2) threshold.  This is supported by the fact that "establishments" in the plural is used in both limbs yet the ECJ caselaw on limb 1 has applied that test to a single establishment, and the reference in limb 2 to "establishments in question" could support the contention that one is again looking at a relevant establishment, rather than all of an employer's worksites in aggregate.  

It is noteworthy that the appeal to the EAT was rejected at the initial paper sift stage by the President of the EAT, Langstaff P, who considered that the appeal was unarguable. In his view, there is a clear distinction between 'employer' and 'establishment' and the ECJ interpretation of the term "establishment" should be consistent between the two limbs.  He also noted that the EU Commission seems to have regarded the amended UK provisions as properly implementing the Directive. 

Even if the UK provisions are incompatible, there is also a good argument that striking out the words 'at one establishment' is repugnant to the scheme of the legislation and impermissible. 

Our view, having consulted Dan Oudkerk QC, is that there are good prospects of a successful appeal on these points.

The likelihood of appeal is still unknown; there are 21 days from publication of the judgment to submit an appeal.  Various parties are lobbying BIS to step in.  Another option BIS may consider is amending the legislation to adopt the limb 1 approach, so that employers could safely make up to 9 redundancies at a single business unit without the risk of incurring consultation obligations when these 9 are aggregated with dismissals at other units; of course this would require parliamentary time, a rare commodity. 

Interestingly, a Northern Ireland industrial tribunal has just referred to the ECJ  the issue of the interpretation of "establishment" in the context of limb 2;  in its view the position is not clear and the case for seeking an authoritative ruling from the ECJ was overwhelming (Lyttle v Bluebird UK Bidco 2 Ltd).

In the meantime, any multi-site employers carrying out redundancy consultation at some sites but not others may well wish to include all of their worksites in the process to avoid the risk of legal challenge, particularly if unionised.  Employers making fewer than 20 redundancies at all their workplaces, but more than 20 in aggregate, will have a more difficult judgment to make.

Please contact us if you would like further advice on this issue.