Rob Riley: European ruling on collective redundancy brings welcome relief for UK businesses

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It seems that UK businesses can breathe a sigh of relief following the European Court ruling on the controversial Woolworths case on collective redundancy consultation obligations.

The case dates back to the collapse of Woolworths back in 2008, and also to the collapse of Ethel Austin in 2010. All employees were made redundant but the retailers did not consult collectively with employees prior to making those redundancies, leading to Employment Tribunal claims by the trade union on behalf of the employees.

Failure to consult collectively exposes employers to claims for a ‘protective award’ of compensation of up to 90 days’ pay per employee which can result in a significant liability where a large workforce is involved, as was the case with Woolworths.

Collective consultation obligations are onerous on businesses, particularly so in the context of a business that may already be facing significant financial difficulty or even total collapse as in the case of Woolworths and Ethel Austin. The process is fairly prescriptive, and can be costly and time consuming, and they are in addition to the existing individual consultation obligations employers are required to meet, which themselves are also rigorous.

Change in legislation

Prior to the Woolworths case, lawyers and HR professionals alike took the view that the collective consultation requirements were triggered only if 20 or more employees were at risk of redundancy within one specific site or branch so that multi-site businesses did not have to aggregate potential redundancies across all sites in order to determine whether collective consultation obligations applied. This did not mean that businesses were avoiding consultation altogether because of the need to consult individually with employees, but it meant that the additional collective consultation processes were less common.

However, two years ago, the Employment Appeal Tribunal (EAT) took a different stance, and controversially held that the location to which employees were assigned was irrelevant. It held that collective consultation was triggered when redundancies reached 20 or more across an entire business, thereby effectively significantly lowering the threshold for triggering collective consultation requirements for multi-site employers.

The EAT decision caused confusion amongst employers and left them with practical difficulties about how to approach a collective redundancy situation, including the difficulties of tracking potential redundancies numbers across all locations so as to not fall foul of the obligations and incur significant liabilities. The new interpretation of the law became another very real challenge to many businesses.

The scope of the ruling

On 30 April 2015, the European Court indicated that the EAT was wrong, signaling what is expected to be a return to what is undoubtedly the less onerous, pre-2013 approach. In justification of its decision, the European Court noted that the objective of the European Directive in this area of law is not only to protect workers, “but also to harmonise the costs which such protective rules entail for undertakings”.

Whilst the matter is still to go back to the Court of Appeal for a definitive position, it now seems likely that the Court of Appeal will hold that each Woolworths store was one individual ‘establishment’ and that collective consultation is not required when less than 20 employees are being made redundant at any one establishment.

There are still questions as to the scope of the ruling, for example, whether a collection of sites within close proximity of each other, who have the same management control (on a local level), will be considered one establishment. There is a strong chance that they will but only time will tell. Nevertheless, businesses can feel confident that the European Court’s ruling has given greater certainty on this complex area of law and has signaled a return to a more balanced and practical approach traditionally accepted in the UK, bringing welcome relief to employers in these already challenging economic times.

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About Rob Riley

Rob Riley is employment partner at legal business DWF.Rob Riley

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