New definition of “one establishment” for collective redundancies

USDAW v Ethel Austin Ltd (in administration) and another

For once this is a case where we should briefly set out the statutory provisions.

Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (‘TULRCA’ for short) requires employers to consult collectively if they propose to make redundant 20 or more employees within a period of 90 days “at one establishment”. Historically, employers have treated different locations as separate establishments. They have not collectively consulted, for example, if there were fewer than 20 employees to be made redundant at one office. This is an approach supported by case law (until now!).

TULRCA was introduced to implement a European Directive which does not make any reference to ‘one establishment’. This case considers the conflict.

One final introductory point is that domestic legislation, in this case, TULRCA, must be interpreted by judges in a way which is consistent with and gives effect to European legislation.

Woolworths and Ethel Austin went into administration in 2008 and 2010 respectively. In excess of 28,000 employees were dismissed for redundancy from numerous stores across the country. In the region of 4,400 workers were dismissed from stores where there were fewer than 20 employees employed at that store.

Claims were brought by former employees that Woolworths and Ethel Austin failed to collectively inform and consult with them in breach of TULRCA. The employees claimed protective awards.

Two separate employment tribunals held, consistent with the case law, that each of the stores was a separate “establishment”. This meant that Woolworths and Ethel Austin were only obliged to collectively consult where they were proposing to make 20 or more employees redundant at “one establishment” over 90 days. This excluded the 4,400 or so workers dismissed from stores with fewer than 20 people working there. The outcome was that only employees who had been employed in stores with at least 20 or more employees were eligible for a protective award. The decision was appealed.

The EAT overturned the tribunals’ decisions. The EAT had to interpret TULRCA so that the obligation to collectively inform and consult arises when 20 or more are dismissed ‘irrespective of where they work’.  To do this it concluded that the words “at one establishment” should be removed from section 188 of TULRCA as it did not reflect EU law and should be disregarded from the legislation for the purposes of collective redundancy involving 20 or more employees. Woolworths and Ethel Austin should have consulted with all employees, not just those who were employed at stores with 20 or more employees. All the employees at the smaller stores were, therefore, entitled to the protective award.

The EAT’s decision represents a significant change in the law and overturns years of accepted practice.  It places a more onerous obligation on employers.  It requires an employer to collectively inform and consult whenever it is proposing to make redundant at least 20 employees wherever they are located. The employees’ place of work will be irrelevant. Redundancy exercises will inevitably become more cumbersome, expensive and protracted.

If you are currently in the process of making redundancies, or considering doing so, seek urgent legal advice.  The cost of getting it wrong could be a protective award of up to 90 days’ gross pay for each affected employee – a needless expensive mistake. The employment law solicitors at Quantrills will be happy to help you.

The Department for Business, Innovation and Skills has, we understand, applied for permission to appeal this decision so be on the look out for an update.

23 January 2014 | This case has now been referred to the European Court of Justice.