Some good news for employers- size does matter in redundancies

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In the past few weeks, Tesco, Morrisons and Sainsbury’s have all announced plans to close a number of their stores, potentially resulting in significant job losses. 

These include 400 staff at Morrisons with 10 stores reportedly closing, 500 staff at Sainsbury’s and around 2,000 staff at Tesco, which plans to close 43 stores.

They – and many other employers of all sizes - are likely to welcome today’s Opinion of the Advocate General at the European Court of Justice (ECJ) in a case about when an employer has to engage in collective consultation about proposed large-scale redundancies.

The background to today’s Opinion is the so-called Woolworths case (although other retailers, such as Ethel Austin Ltd were also involved).

Back in 2008 Woolworths went into administration. This resulted in large-scale redundancies when stores were closed and there was no collective consultation with the recognised trade union, USDAW about the proposed redundancies. This resulted in successful claims for “protective awards” to former staff worth £67 million.

However, the Employment Tribunal held that this did not apply to staff who worked in stores with fewer than 20 staff because (in the Tribunal’s view) the collective consultation obligations did not apply. This was because each store was treated as a separate “establishment” for collective consultation purposes and UK law requires that an employer is only obliged to consult collectively with staff representatives where they propose to make 20 or more employees redundant at “one establishment” within a period of 90 days or less[i].

On appeal, the Employment Appeal Tribunal (EAT) held that the words "at one establishment" should be disregarded, in order to give effect to the EU Directive which underlies UK law. This potentially hugely widened the consultation requirements for employers with multiple sites, as well as leaving open the possibility of very large protective awards for thousands of Woolworths staff who had been employed in stores which had less than 20 employees.

This question was then referred by the Court of Appeal to the ECJ. The ECJ is yet to make a final decision but it’s advised by the Advocate General, which is why today’s Opinion is very important.

In a nutshell, the Opinion is very good news for employers because:

  • it clarifies that the key factor in identifying the “establishment” where the individual works is the “unit” where the individual is assigned to carry out their duties, rather than the organisation as a whole;
  • in other words, the starting point is to look at how many redundancies are proposed at the employee’s local workplace (like a local store or branch) rather than looking at the number of redundancies across the company overall;
  • it concludes that UK law gives proper effect to EU law;
  • it means that, in most cases, redundancies at workplaces with fewer than 20 employees won’t be caught by the collective consultation obligations.

It will be some months before the ECJ gives its judgment and although it is not obliged to agree with the Opinion, it will be taken into account and may well be followed by the ECJ.

Commenting on the Opinion, Matthew Smith (employment partner at Blake Morgan) said:

“This will come as a great relief to many employers who will have been concerned at the apparent widening of the cases where they needed to consult collectively on proposed redundancies.

“The Opinion stresses that it’s the local impact of proposed redundancies which is important, which is why it’s the number of affected staff at the local store or office which counts.

“Employers going through redundancy exercises will still have to consult their staff on an individual basis but the Opinion suggests that, in many cases, they will be spared the formal requirements of collective consultation, such as the need to elect and consult with employee representatives.

“Importantly, they’ll also not need to worry about the significant financial impact of large “protective awards” for failing to consult collectively”.

[i] S. 188 Trade Union and Labour Relations (Consolidation) Act 1992