Redundancy: "Establishment" limitation on collective redundancy consultation requirement removed

This report relates to 1 case(s)

In Usdaw v Ethel Austin Ltd (in administration); Usdaw and another v Unite the Union and others [2013] IRLR 686 EAT, the EAT held that s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 must be read so that the requirement for collective redundancy consultation is not limited to individual establishments where the proposal is to make 20 or more redundancies within 90 days.

Key points

  • The threshold requirement for triggering collective redundancy consultation obligations contained in s.188 of TULR(C)A - that the obligation arises only in respect of individual establishments where it is proposed that 20 or more redundancies will be made - is not consistent with the Collective Redundancies Directive.
  • The ECJ in Athinaiki Chartopoiia AE v Panagiotidis and others had decided that the term "establishment" can be interpreted broadly or narrowly, so long as the chosen interpretation does not undermine the core objective of the Directive of protecting workers.
  • The literal wording of s.188 undermined that objective in that it arbitrarily excluded a great many employees from protection. Adopting the interpretative approach used in EBR Attridge Law LLP and another v Coleman (No.2), the solution was to treat the words "at one establishment" as having been deleted from s.188 altogether.
  • If that approach was wrong, the same practical effect could be achieved by reading the word "establishment" as referring to the whole of the business making redundancies; or by adding the words "at one or more" establishments; or by treating the obligation to consult the whole workforce as arising as soon as there is one establishment within the business where 20 or more redundancies are proposed.

Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULR(C)A) imposes a requirement for consultation of employee representatives where the employer proposes to make 20 or more redundancies within 90 days "at one establishment". There is no definition of what constitutes an establishment for this purpose. However, hitherto it has been generally accepted that, where a large employer proposes a large number of redundancies across a number of different establishments, the workers based at establishments where fewer than 20 redundancies are proposed do not have an entitlement for their representatives to be consulted. In this case, the Employment Appeal Tribunal (EAT) had to consider whether or not this aspect of s.188 was consistent with the Collective Redundancies Directive (98/59/EC).

Facts

Ethel Austin Ltd (EAL) was a chain of shops consisting of 90 shops and a head office. It went into administration in March 2010, and 469 employees at its head office and distribution centre were made redundant, as were a further 21 employees at a shop in Edgware. Another 1,210 employees who were made redundant worked at shops staffed by fewer than 20 employees.

Woolworths went into administration in November 2008, and ceased trading in January 2009. More than 27,000 employees were made redundant, 3,233 of whom were based at shops with fewer than 20 employees.

Both EAL and Woolworths subsequently ceased trading and entered liquidation.

The employees of both organisations brought claims, via their union Usdaw, that their employer had breached the s.188 duty to consult over collective redundancies, and that they were entitled to protective awards under s.189.

Tribunals dismiss large numbers of claims

The tribunals allowed claims in respect of some employees, but dismissed the claims of the employees who had been based at establishments with fewer than 20 employees. The tribunal dealing with the claims against EAL made protective awards of 90 days' pay, and the tribunal hearing the Woolworths claims made protective awards of 60 days' pay.

In total, 1,210 EAL employees and 3,233 Woolworths employees did not receive any protective award. Usdaw appealed to the EAT on behalf of those employees.

EAT allows appeals

Before the EAT, the issue to be determined was a very narrow one: whether or not the obligation to consult about collective redundancies is restricted to individual establishments where the proposal is to make 20 or more redundancies within 90 days. As the EAT put it, does the law adopt a "site-by-site atomised approach, or a holistic approach"?

Usdaw contended that, as it stood, s.188 was not compatible with the terms of the Directive that it purported to implement. Article 1 of the Directive defines "collective redundancies" (giving rise to the duty to consult representatives) in a number of alternate ways, leaving the choice of threshold to the individual member state. Some of those definitions concentrate on the proportion of employees being dismissed at a particular establishment, but the definition on which s.188 is based applies where the number of redundancies is "over a period of 90 days, at least 20, whatever the number of workers normally employed in the establishments in question".

Section 188(1) transposes that provision as "where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less".

Usdaw argued that it was inconsistent with the Directive for the duty to consult to apply only where 20 or more employees were to be dismissed from one establishment. None of the options in the Directive allowed for such a restrictive approach.

In order to comply with the Directive, Usdaw argued, s.188 would have to be read in one of three ways. It would have to be interpreted as requiring the employer to consult where it proposed to dismiss as redundant 20 or more employees at one or more establishments, or at one establishment, interpreted broadly so as to mean effectively the undertaking as a whole, or with the words "at one establishment" simply deleted from s.188 altogether.

Neither the Secretary of State nor any of the other respondents appeared or made any contrary representations. The EAT was therefore able to test Usdaw's contentions only to a limited extent, by considering arguments that it was able to raise itself.

In the EAT's view, the starting point had to be the terms of art.1 of the Directive. Following Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland [1994] IRLR 392 ECJ, it was necessary to understand the proper meaning of the Directive, in order to be in a position to construe the domestic measure introduced to transpose it (s.188 of TULR(C)A in this case) correctly.

The EAT noted that art.1(a)(ii) of the Directive, when referring to "at least 20" employees, does not relate that number to the size of the wider workforce in the establishment, or to a ratio of those to be dismissed versus those who will remain, which pointed to a view of "establishment" that was wider than each individual site.

In Athinaiki Chartopoiia AE v Panagiotidis and others [2007] IRLR 284 ECJ, the European Court of Justice (ECJ) considered that the term "establishment" had to be interpreted broadly, in order to limit as far as possible the number of cases of collective redundancies that would fall outside the application of the Directive. The primary driver of the term's meaning had to be the core objective of the Directive, which was to provide protection to employees. While the term "establishment" was capable of being applied to a distinct local entity within an undertaking, which does not necessarily have to have its own independent management, this did not mean (in the EAT's view) that "establishment" had to be defined in this way in every case. A broad construction can be adopted or a narrow construction, depending on how best the objective of protecting workers can be met.

Indeed, according to the EAT, the fact that art.1(a)(ii) includes the phrase "whatever the number of workers normally employed in the establishments in question" served only to underline that the location where people work is irrelevant.

In terms of the domestic authorities, the EAT noted that, in MSF v Refuge Assurance plc and another [2002] IRLR 324 EAT, it had been observed by Mr Justice Lindsay that the phrase "at one establishment" in s.188 was not consistent with the terms of the Directive. Nevertheless, the EAT there had considered that it was not possible to read s.188 in any other way that could be compatible. Because it was a private-sector case (meaning that the union could not claim that the Directive had direct effect on the employer), there was nothing that could be done.

Since that case, Ghaidan v Godin-Mendoza [2004] 2 AC 557 HL had been decided, concerning the proper approach to interpretation of legislation in light of the European Convention on Human Rights. This had been relied on in the context of interpreting legislation in the light of EU obligations in EBR Attridge Law LLP and another v Coleman (No.2) [2010] IRLR 10 EAT. The approach identified in those cases is that there is nothing "impossible" about adding words to a statute to bring its meaning into line with EU law, so long as it is done in a way that is compatible with the underlying thrust of the legislation.

Moreover, as the ECJ identified in Marleasing SA v La Comercial Internacional de Alimentacion SA Case C-106/89 ECJ, in undertaking that exercise, words can be added to the legislation, taken away or moved around.

Accordingly, the EAT considered that it was possible to interpret s.188 in a manner consistent with the Directive, by simply deleting the words "at one establishment". The EAT felt fortified in that view by the fact that neither the debate in Parliament over the measure nor the relevant consultation paper had considered a restrictive approach to the question of the definition of establishment as being fundamental to the operation of the domestic legislation; it appeared to have occurred more by accident than by design. The parliamentary intention was to implement the Directive correctly. Applying the principles brought together in Coleman, the EAT considered that it was free in this case to construe s.188 so as to comply with the Directive.

The desired effect could be achieved by simply deleting the words "at one establishment" from the section, and that was the route that the EAT took, primarily because it avoided any fact-sensitive issues that might cause different results in different cases.

In any event, the EAT went further, and decided that, even if that approach was wrong, it would nevertheless adopt Usdaw's second alternative contention that, in this case, the correct way to interpret "establishment" was to define it as referring to the whole retail business of EAL and Woolworths, respectively. That would achieve the same effect, although in a less satisfactory way, in that it allowed for the possibility of different results according to the facts of each case. If the EAT was also wrong about that, it decided that it would still uphold the appeal, on the basis of Usdaw's first alternative contention that the words "at one or more establishments" should be added to give effect to the core purpose of the Directive.

Finally, the EAT offered its own additional basis for allowing the appeal. It considered that a literal approach could be adopted: that as soon as it is proposed to make 20 or more redundancies at any individual establishment, consultation obligations will apply in respect of any further redundancies across the rest of the undertaking.

Accordingly, the EAT allowed the appeals, and protective awards were made in respect of the remaining 4,443 employees.

Comment

Because the employers in this case are in liquidation, it falls to the Department for Business, Innovation and Skills (BIS) to make some of the payments due to the dismissed employees under the insolvency provisions of the Employment Rights Act 1996. BIS is entitled to be represented in cases that might result in such payments, but generally chooses not to make representations and simply accepts the outcome of the legal process.

In this case, however, BIS has made it clear that it will intervene and has appealed against the EAT decision. There will therefore be full argument on the issue before the Court of Appeal and a reference to the ECJ cannot be ruled out. However, the "one establishment" test in s.188 is not found in the Directive - or at least not where there is a strict threshold of 20 dismissals before the duty to consult arises. It seems inevitable, therefore, that the Government will have to revisit the wording of the statute and devise a new threshold for triggering the obligation to consult employee representatives.