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The Rules: Woolworths ruling offers sensible approach to redundancy consultations

IN APRIL, the European Court of Justice (ECJ) ruled in favour of the UK government in the landmark ‘Woolworths’ case on the question of when the obligation to consult on collective redundancies is triggered. The court held that the number of proposed redundancies should be measured in the site to which the workers are assigned to carry out their duties, rather than across the whole organisation.

The long-awaited decision will be welcomed by business leaders and it will significantly reduce red tape and the costs associated with redundancy programmes. The judgment, which has implications for large, multiple site companies across the UK, relates to a case involving former Woolworths and Ethel Austin employees who were made redundant in 2008 and 2010 respectively.

Background

One of the employees made redundant and the trade union USDAW brought claims in the Employment Tribunal for protective awards against the employers arguing that the required redundancy consultation process had not been followed. The Tribunal made protective awards only in respect of those employees who worked in the larger stores employing 20 or more staff.

This was because the Tribunal decided that each individual store counted as one ‘establishment’ and, where there were fewer than 20 employees at a particular store, those employees were excluded from the collective consultation requirements and so were not entitled to protective awards.

USDAW successfully appealed to the Employment Appeal Tribunal (EAT) which decided in July 2013 that the UK legislation should be re-written in line with EU principles, so that the establishment where the workers were based became irrelevant.

The result was that employers had to collectively consult whenever there were 20 or more redundancies across their entire business. This greatly increased the likelihood that collective redundancy obligations would be engaged, and practically, made it very difficult for large employers to ensure they were complying with their obligations, or to carry out headcount reductions quickly and efficiently.

Decision of the CJEU

Having declined to participate in the EAT hearing, the UK government brought an appeal against the court’s decision. The case was then heard last November by the Court of Appeal and referred to the Court of Justice of the European Union (CJEU) to determine the proper meaning of ‘establishment’ for redundancy purposes.

The CJEU decision has backed the UK Government and Advocate General’s opinion earlier this year which said that UK law and the interpretation of the European Collective Redundancy Directive were compatible.

It held that an ‘establishment’ refers to an individual workplace (in other words, the entity to which the workers made redundant are assigned to carry out their duties), not to the employer as a whole.

Implications for businesses

The decision is good news for businesses, particularly large employers operating across multiple sites. The EAT decision forced employers to closely monitor cross site redundancies due to the risk that they could trigger collective consultation obligations. This placed a large administrative burden on businesses, particularly those with large national workforces.

The decision marks a return to the old law, reintroducing the ‘establishment’ test which offers a much more sensible and proportionate approach. Businesses should now be able to engage in less costly and time-consuming periods of redundancy consultation. Companies will only have to collectively consult (e.g. consult in accordance with minimum timescales) where 20 or more staff at one establishment are to be made redundant within a period of 90 days.

The outcome will be particularly significant for those operating in sectors such as retail, logistics and hospitality as individual shops, depots, hotels and restaurants will now be looked at on a location by location basis rather than as part of the employer’s business as a whole.

In respect of insolvency processes, it is common for insolvencies in the above sectors to involve small numbers of redundancies at various business locations. The decision will make organising insolvencies and consequent collective redundancy processes significantly easier for employers within these areas.

What happens next?

The case will now return to the Court of Appeal who will determine whether or not the Tribunal was correct in taking the view that the individual stores to which the employees were assigned were separate establishments. However, it seems unlikely that it will do anything other than reverse the EAT decision and go back to the previous ‘per site’ approach originally adopted by the Tribunal.

It is also worth mentioning that on 23 March 2015, the Insolvency Service published a call for evidence on the collective redundancy rules for employers facing insolvency which suggests that a wider policy review on this area of law might be coming up.

Employers and insolvency practitioners will be interested in the outcome of this review which may provide further guidance on the issues.

Christopher Tutton is an employment partner at Irwin Mitchell in London

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