Employers are required to collectively consult when proposing to dismiss 20 or more employees at one establishment as redundant within a period of 90 days or less (section 188 Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”).Defining what is meant by “at one establishment” for this purpose has always been tricky, and has led to significant debate. The issue is of particular importance to employers with multiple sites, such as retailers.

But now it seems that such debate has been rendered obsolete, with the Employment Appeal Tribunal (the “EAT”) holding that the words “at one establishment” should be deleted from section 188. Although this makes the law easier to apply, employers should be aware that the price of such clarity is that they are now more likely to be subject to collective consultation obligations when making widespread redundancies.

Collective consultation – the law as we knew it

Section 188 of TULRCA sets out the ‘triggers’ for collective consultation obligations. Where an employer proposes to dismiss as redundant 20 or more employees “at one establishment” within a period of 90 days or less, it is required to consult collectively on those proposals. Such consultation must be meaningful and must commence at least 30 days before the first dismissal takes effect (where it is proposed to dismiss 20 to 99 employees), or 45 days before the dismissal (where it is proposed to dismiss 100 or more employees). Failure to comply with the obligations can result in a protective award being made against the employer of up to 90 days’ pay per employee – a potentially significant cost if the employer gets it wrong.

The meaning of “at one establishment” was of vital importance to the proper interpretation of section 188. Did it mean that the 20 or more redundancies had to take place in one specific location for collective consultation obligations to be triggered? Or could “one establishment” cover more than one of the employer’s locations?

This importance was never more clearly illustrated than in the cases following the administration and subsequent liquidation of two high street chains – Woolworths and Ethel Austin. All of Woolworths’ and Ethel Austin’s stores closed and thousands of employees lost their jobs. Their trade union, USDAW, subsequently brought claims in the Employment Tribunals, seeking protective awards for failure to properly collectively consult.

The Employment Tribunals found that each store was an “establishment” and so only those employees who were working in stores with 20 or more employees were entitled to protective awards.

Those employees working in smaller stores (amounting to around 4,400 employees in total) were not entitled to any protective award.

The trade union appealed, and the EAT’s judgment in the joined cases (USDAW v Ethel Austin Ltd and USDAW v WW Realisation 1 Ltd) was published yesterday.

Rewriting of statute – the law as we now know it

On appeal USDAW’s argument was essentially this: the requirement that employees be “at one establishment” for the purpose of calculating whether the collective consultation obligations are triggered is more restrictive than the EU directive on collective redundancies. Since Tribunals are required to interpret legislation purposively so as to give effect to EU law, the words “at one establishment” should be given a broad interpretation, or disregarded altogether.

And that is indeed what the EAT did – holding that the words “at one establishment” should effectively be deleted from section 188 of TULRCA.

This means that employers who propose to make 20 or more employees redundant within a period of 90 days or less will be subject to collective consultation requirements, regardless of whether those employees are all based in one establishment, or are scattered throughout the employer’s various locations.

Practical points for employers

Employers (particularly those with large workforces in different locations) will need to take account of this very significant change when planning their redundancy processes. Whereas before they may have structured their proposals such that the total number of employees being dismissed was spread over a number of locations, this will no longer avoid the trigger of collective consultation obligations, nor will it work to reduce the relevant time period for starting consultation from 45 to 30 days before the first dismissal takes effect.

But it is also worth bearing mind that the consultation obligations may not be as onerous or as costly as employers might fear. Collective consultation has to start 30 or 45 days before the first dismissals take effect, but – provided the consultation is meaningful – there is no requirement for consultation to continue during that whole period. It is not the case, as is often mistakenly said on behalf of employees, that consultation has to last for 30 or 45 days. It may be possible to give notice during that time, so that dismissals can take effect as soon as possible thereafter. And continuing to employ workers throughout the 30- or 45-day consultation period is still cheaper than dismissing them early without consultation and being required to make a protective award to each of those employees of up to 90 days’ pay.

It is not known whether there will be any appeal in this case. It seems unlikely since neither Woolworths nor Ethel Austin took any part in the case and the Secretary of State for Business, Innovation and Skills (who is obliged to fund protective awards made against insolvent employers) seemed similarly disinterested.  In the meantime, employers should take careful note of the decision’s implications and consider the structure of their redundancy processes very carefully before implementation.