Key developments in redundancy

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From the quarterly Employment Tribunal statistics referred to above, it is clear that redundancy consultation still appears to be problematic for many employers. Getting it wrong can be very costly, especially in a collective redundancy situation.

Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) states that employers are obliged to collectively consult where they propose to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less. Consultation must begin "in good time" and employers must consult on their proposals with representatives of the affected employees and must also notify the Secretary of State of their proposals.

There are minimum time periods depending on the likely scale of the redundancies. Where 100 or more redundancies are proposed, consultation must begin at least 45 days before the first dismissal takes effect. Note that this is a new consultation period which was reduced from 90 days on 6 April 2013. For less than 100 redundancies the consultation period is 30 days. ACAS has published a new guide to collective redundancy consultation "How to manage collective redundancies". This is a non-statutory guide aimed at employers explaining an employer’s legal obligations and how to run an effective collective redundancy consultation and also includes a sample redundancy selection criteria matrix.

But it’s not just changes to the consultation period. A recent decision of the EAT has significant implications for collective redundancy consultation. In USDAW v Ethel Austin Ltd (in administration) and another case (Woolworths), the EAT held that the words "at one establishment" should be disregarded for the purposes of any collective redundancy involving 20 or more employees.  
The facts of both cases are similar. Woolworths went into administration in November 2008 which resulted in large-scale redundancies when its stores were closed. Ethel Austin, a chain of 90 stores and a head office went into administration in March 2010 and there was a failure to inform and consult with staff.

In both cases, USDAW brought claims for protective awards for breach of the TULRCA consultation obligations. The maximum protective award is up to 90 days’ gross pay for each dismissed employee and the statutory cap on a week’s pay does not apply. The award is not based on loss of earnings, but on the seriousness of the employer’s default.

The Employment Tribunal upheld the claims and made protective awards of 60 days' gross pay in the case of Woolworths’ staff and the maximum 90 days for Ethel Austin staff. However, it found that each store was a separate "establishment" for TULRCA purposes. Consequently, the duty to inform and consult had not been engaged in respect of stores with fewer than 20 employees. This meant that 3,233 of Woolworths' redundant employees and 1,210 of Ethel Austin’s were not entitled to a protective award which were in fact paid out of the National Insurance Fund. 

USDAW appealed to the EAT in both cases, arguing that the redundant employees working at stores with fewer than 20 employees were entitled to protective awards. Its primary argument was that, to comply with the European Collective Redundancies Directive section 188 of TULRCA should be interpreted purposively.

The EAT has ruled that the words "at one establishment" are to be disregarded for the purposes of any collective redundancy involving 20 or more employees. The decision has significant implications especially for those organisations with staff in a number of different locations. Redundancy exercises may take longer and organisations will need to be very careful to comply with their collective consultation obligations by ensuring they consider all locations and all affected staff to identify if and when they reach the threshold of 20 employees. As a result of the EAT decision, the place of work will be irrelevant for the purposes of triggering the information and consultation obligations.

Interestingly, the Secretary of State did not make any submissions at the EAT hearing because "he has nothing to usefully contribute about the consultation process between the parties." However, as the EAT stated, this approach appeared "sadly to misunderstood the legal issues in these appeals, and its importance". It has just been reported that the Department for Business, Enterprise and Regulatory Reform (BIS) is seeking permission to appeal the EAT decision which is says has "wide and unwelcome implications." 

Finally, as mentioned above, in a collective redundancy situation, advance notification must be given to the Secretary of State in writing. This is usually done on an HR1 form which states that a separate form should be completed for each establishment. How does the Woolworths’ decision impact on this? Employers should perhaps consider completing an HR1 form but to identify separately the information relating to different establishments. The Employment Lawyers Association is liaising with BIS about the practical implications of the decision and the filing of HR1 forms but there is no further news at present. We will keep you updated.