Large-scale redundancies: quicker and cheaper from April 2013
Author: Darren Newman
Consultant editor Darren Newman looks at what the Government's proposed changes to the consultation requirements regarding large-scale redundancies mean for both employers and employees.
I cannot remember a time when so many changes to employment law were in the offing; it really is hard to keep track of them all. The latest is the announcement from the Government that the "consultation period" for large-scale redundancies involving 100 or more employees is to be reduced from 90 days to 45. I've put "consultation period" in inverted commas because, if we are going to be picky, "consultation period" isn't quite the right way to describe it. Using that phrase suggests that the employer has to consult the union or representatives for the full period, but that's not quite what the law says.
Section 188(2) of the Trade Union and Labour Relations (Consolidation) Act 1992 does not specify how long consultation has to last, but simply says that it must start at least 90 days before the first dismissal takes effect (when 100 or more employees are being dismissed from the same establishment). The actual consultation may well be over much sooner than that, and there is no need for the two sides to keep coming up with things to talk about once the key issues have been decided. The 90-day period was not arrived at because it was thought that that was how long it took to conduct a consultation exercise. Its importance lies in allowing employees time to prepare for being made redundant, and allowing the local economy to brace itself for a shock.
Reducing the period to 45 days is, of course, of benefit to those very large employers that can carry on trading even after losing 100 or more employees. The politics of employment law, however, mean that every measure has to be described as helping employees too. Business Minister Jo Swinson pointed out that the 90-day period can "make it difficult for those affected to get new jobs quickly". What she means is that an employee who finds a new job well within the 90-day period cannot simply walk away with the redundancy package intact. This is true, but it would be absurd to claim that the 90-day period is being reduced in order to help employees. For every employee who immediately finds new work and is impatient to be dismissed quickly there are surely many more who will simply find themselves unemployed more than a month earlier thanks to this change. The simple fact is that large-scale dismissals will, from April 2013 when the changes are timetabled to take effect, be quicker and cheaper. That can be seen as a good thing, depending on your point of view, but it's certainly not good for everyone.
It is not clear from the information we have at present if the cost of ignoring the need for consultation will also be reduced. The protective award - the punitive damages paid out to dismissed employees when their representatives succeed in showing that the employer did not consult properly - is set at a maximum of 90 days' pay, even when the consultation period is just 30 days (as it is for redundancies affecting 20 to 99 employees). There is no indication in the Government's announcement that it intends to erode the protective award, but it will surprise many employers to learn that, by failing to consult 45 days in advance of redundancies, they can be made to pay out 90 days' pay to each employee.
One other change to the collective consultation rules is that the expiry of fixed-term contracts will specifically not count as dismissal for the purposes of s.188 consultation. This follows the case of University of Stirling v University and College Union [2012] IRLR 266 EAT, which cast doubt on whether or not redundancies consisting of the expiry of fixed-term contracts were covered by s.188. I have some problems with the reasoning in that case (putting it as politely as I can) but there is no doubt that the Directive on which s.188 is loosely based does specify that it does not extend to the expiry of fixed-term contracts. Taking advantage of this exclusion can be seen as removing a small piece of "gold plating" of the Directive.
Removing the expiry of fixed-term contracts from the scope of s.188 will help employers avoid accidentally crossing a consultation threshold because, for example, a contract covering maternity leave happens to expire within the relevant period. However, employers should be careful about trying to avoid consultations by building up a ready-made pool of fixed-term employees in vulnerable areas of the business. Automatically selecting fixed-term employees for redundancy could be unfair and contrary to the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (SI 2002/2034). In addition, once a fixed-term employee gains four years' continuous service over two or more contracts, he or she is deemed (in the absence of objective justification) to be a permanent employee. Where this happens, the employee will be covered by s.188. Taking these factors into account, as is often the case, seeking to avoid the requirements of employment law might actually involve more problems than simply complying with it.
The one area of s.188 that could really benefit from some clarification is the definition of "establishment". This is crucial because it is only when at least 20 dismissals at a single establishment are being proposed that the duty to consult applies. Unfortunately, there is no real definition of what an establishment is, so an employer planning 10 redundancies at each of its three offices might genuinely be uncertain as to whether or not s.188 applies. On this issue, however, the Government is powerless to help. For the meaning of "establishment" we are in the hands of the European Court of Justice, and any statutory definition would inevitably be challenged and could cause more confusion than it would save. The Government is proposing to publish guidance on the issue. However, since the Government has no more idea about what an establishment is than anyone else does, it is difficult to see how that will achieve very much. What we require is some good solid case law. We therefore need an employer to be prepared to fight through years of litigation rather than just err on the side of caution and consult with employee representatives even when it might not have to.
The coming year will see many other changes to employment law taking effect. None of them is radical in itself, but the cumulative effect of all the changes being made is that employment law will be more, rather than less, complex. Governments may aspire to simplifying employment law but, despite the rhetoric, it never actually happens. So brace yourself for 2013 - it's going to be hectic.
