Collective redundancy consultation - the ECJ's ruling on the meaning of 'establishment'

Summary

The Court of Justice of the European Union "(ECJ)" has decided that an “establishment”, for the purposes of the directive on collective redundancy consultation, means the entity to which the affected employees are assigned to carry out their duties.

Background

The ECJ has ruled on the meaning of ‘establishment’ for the purposes of determining whether it is necessary to consult collectively with trade unions or elected representatives of potentially redundant employees.

The threshold triggering whether collective consultation must be undertaken is set out in the Trade Union and Labour Relations (Consolidation) Act 1992 "(TULRCA)", which implements the European Collective Redundancies Directive (the “Directive”) in the UK. Under TULRCA, employers must collectively consult if they are “proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less”.

If the obligation to carry out collective consultation is triggered but such consultation is not carried out (or if inadequate consultation is carried out) the employer is liable to pay a protective award of up to 90 days’ gross salary to each affected employee.

The issue of what constitutes an “establishment” has come to prominence in a case involving (among others) employees at former Woolworths stores. Woolworths closed all of its stores in 2008, leading to mass redundancies. USDAW, the recognised union, made a complaint to the employment tribunal that Woolworths had breached its obligations under TULCRA by failing to consult collectively and sought protective awards.

The Employment Tribunal decided that each individual Woolworths store was a separate establishment. Accordingly, individuals who worked in stores with 20 or more employees were entitled to a protective award, as the obligation to consult collectively had been triggered in their case, whereas employees who worked in stores with fewer than 20 employees were not. This meant that over 3,000 individuals were not entitled to protective awards. 

The Union appealed.

The Employment Appeal Tribunal (“EAT”) decided that, in order to properly implement the Directive into UK law, the words “at one establishment” should be disregarded. Accordingly, said the EAT, rather than looking at each establishment individually to see if the threshold had been reached, employers should look at the numbers of redundancies proposed across their business as a whole. Under this approach it did not matter that some employees worked at stores with fewer than 20 employees, as Woolworths as a whole was making more than 20 people redundant.

The case was appealed to the Court of Appeal, which referred the question of what constituted an ‘establishment’ to the ECJ.

ECJ Decision

Prior to the ECJ’s ruling, Advocate General Wahl gave an opinion stating that “establishment” for the purposes of the Directive meant the local employment unit to which the employees were assigned to carry out their duties.

The ECJ broadly agreed with the Advocate General. It held that an “establishment” is the “entity to which the employee is assigned”. In particular, it drew a distinction between the concept of an “undertaking” i.e. the whole of the employer’s business and an “establishment” i.e. a local employment unit. It stressed that for an entity to be an ‘establishment’ it need not have legal or administrative autonomy from the larger business and, in particular, it need not have a management that can independently effect collective redundancies. Therefore while an ‘establishment’ must be a clearly distinct unit, the fact that, as in this case, decisions regarding redundancies may have been made on a national level does not preclude each business unit from being taken as an establishment.

Although the Court took into account the arguments of the Union that to take this approach could lead to ‘an unjust and arbitrary result’, it considered that to do otherwise could lead to single workers ‘separate and distant’ from other employees being drawn into or even triggering a collective redundancy consultation which it said was ‘not appropriate’. Interestingly, both the ECJ and the Advocate General mentioned that the aim of the collective redundancy provisions was to try to mitigate the effects of redundancies on local communities.

The ECJ was clear that it was for national courts to determine how a ‘local employment unit’ was constituted given the facts in each particular case.

Impact on Employers

It therefore appears that the Employment Tribunal applied the correct legal tests in deciding that, based on the facts available to it, each separate Woolworths store was an individual establishment. The Court of Appeal is therefore almost certain to uphold that decision.

Although this must have been a frustrating decision for the Claimants in this case, many of whom will have narrowly missed out on a collective award, it will be a welcome one for employers, particularly in retail and other sectors with a fragmented work force, working across different sites. Not only are they less likely to find themselves having to consult collectively, but they will also not need to deal with the administrative burden of reviewing redundancy figures across their businesses to ensure that the thresholds have not been reached. Having said this, when contemplating redundancies, employers should still turn their minds to how their business operates in practice and to what extent the various parts of their business are, in fact, separate ‘local employment units’ for the purposes of TULCRA.

Search our site