Multi-site employers now face months, if not years, of uncertainty as a result of the Court of Appeal's decision this week to refer to the European Court questions over the meaning of "establishment" in the rules relating to collective redundancy consultation. This case arose out of claims by unions representing Woolworths and Ethel Austin employees who were not consulted collectively about their redundancies when their employers went into administration.
The law, as set out in the statute books, provides that an employer who is proposing to dismiss 20 or more employees "at one establishment" within a period of 90 days or less must consult employee representatives about those dismissals. Failure to do so can result in having to pay a protective award of 90 days' gross pay per employee.
In the Woolworths case, the Employment Tribunal found that each Woolworths store was a separate establishment, so the obligation to consult collectively only arose in larger stores where 20 or more employees were to be made redundant. The result was employees in larger stores received large protective awards, whereas their colleagues in smaller stores received nothing. A similar decision was made by the Employment Tribunal in the Ethel Austin case.
Last year, the Employment Appeal Tribunal (EAT) decided that the statute did not accurately reflect EU law and that the words "at one establishment" should be disregarded. This would have meant each Woolworths and Ethel Austin employee being entitled to a protective award, irrespective of the size of the store in which they worked. The obligation to pay these awards is on the Secretary of State (both companies being insolvent), who appealed the decision to the Court of Appeal.
The result of the EAT decision was to radically widen the scope of the collective redundancy rules because it meant that the obligation to consult employee representatives about proposed dismissals arose irrespective of whether those employees were based at one large site or over several locations.
Larger employers are now at risk of inadvertently breaching the rules unless they have a co-ordinated and centralised oversight which keeps records of how many dismissals fall under the ambit of redundancy consultation are proposed across the business at any one time. Furthermore, there are practical difficulties where dismissals take place over different locations and in different businesses of the same employer, since consultation with the representatives across the sites is inconvenient and not particularly useful if the dismissals are unrelated.
It was perhaps inevitable that the case would be referred to the European Court. Another similar case has already been referred by the Northern Ireland Employment Tribunal (Lyttle v Bluebird). A normal referral can take 18 months to be heard but the European Court has the power to expedite cases in certain circumstances. Until the outcome is known, consultations will need to be operated within the law as it stands.
The added confusion for employers is that the Government has not yet changed any of its guidance to accommodate the EAT's decision. Nor has the Insolvency Service changed its forms or procedures - it still insists on having a separate HR1 form (notification to the Secretary of State of the number of proposed redundancies at any one establishment) for each establishment. On the upside, a least the law is now clearer as the "establishment" debate has been removed, leaving employers to focus on the difficult practical implications of consulting over multiple sites.
We understand that the wording of the questions to be referred to the European Court is due to be agreed by the parties over the next week and an expedited hearing by the European Court will be sought. We also understand that the union is hopeful that the European Court could join and expedite the case with Lyttle v Bluebird which could mean a quicker result.
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