What's the future for collective redundancies?

What's the future for collective redundancies?

What impact will the Advocate General's (AG's) Opinion on collective redundancy consultation obligations have on employers? David Reade QC of Littleton Chambers examines the Opinion, which he says will give cautious optimism to employers.

Lyttle and others v Bluebird UK Bidco 2 Ltd: C-182/13; Cañas v Nexea Gestión Documental SA, Fondo de Garantía Salarial: C-392/13; USDAW and another v WW Realisation 1 Ltd, in liquidation and others: C-80/14

Why is the meaning of 'establishment' so important to the claimants in these cases?

The claimants in all the UK cases worked in shops with fewer than 20 employees, or they were members of the Union of Shop, Distributive and Allied Workers (USDAW) that represented employees that did. If establishment governs the position and the shop is the establishment there is no collective consultation obligation in respect of a shop with fewer than 20 employees and no possibility of a protective award. If the correct test is whether the whole employer is proposing more than 20 redundancies, regardless of the establishment at which people worked, then everyone would get the protective award in the event of a breach.

What are the competing interpretations of 'establishment'?

The primary argument of the claimants (USDAW appeared at the hearing) was that the establishment test should not apply at all to the question of collective redundancy under the UK model because the UK had elected to use a model under the Collective Redundancies Directive 98/59/EC that did not use the establishment test.

A secondary argument involved suggesting that establishment should be given a different meaning in one part of the Directive to another.

Why have the questions referred to the European Court of Justice (ECJ) drawn such significant interest from the employment law and business community, as well as the UK government?

If the claimants' argument is right, then one looks at the entire employer and asks whether it was proposing to make more than 20 redundancies in a 90-day period across the whole of its workforce regardless of where people worked. For a large employer that may be difficult to ascertain. To be safe one may have to engage in collective consultation even where redundancies are fewer than 20 in number. It is of concern to the UK government because a number of large UK redundancies have been in the context of insolvency and any protective award gets picked up, at least in part, by the Secretary of State. If the claimants are right then all workers in these large-scale collapses would be entitled to a protective award regardless of the size of the store at which they worked.

What did the AG conclude to be the correct interpretation of 'establishment'?

The AG said the earlier case law of the court applied, namely Rockfon A/S v Specialarbejderforbundet i Danmark: C-449/93, [1996] IRLR 168 and Athinaiki Chartopoiia AE v Panagiotidis: C-270/05 [2007], IRLR 284. Establishment meant 'the unit to which the workers made redundant are assigned to carry out their duties' - the local employment unit.

What were his main reasons for favouring this interpretation over that adopted by the Employment Appeal Tribunal (EAT)?

Perhaps not surprisingly, the AG starts from the premise that where the term 'establishment' has been used in different parts of the Directive it should be interpreted consistently (para [38]). Unless, that is, the court had indicated that the interpretation was of limited application but it had not in those decisions. His approach was to assume that this interpretation would apply to the use of the word 'establishment'.

He considered that the court in Rockfon and Athinaiki Chartopoiia had rejected an interpretation of 'establishment' which equated the meaning of that term with the entire 'undertaking' in question or the corporate legal entity. He rejects then the key thrust of the USDAW argument (para [47]):

'Indeed, the approach argued for by the applicants in Cases C-182/13 and C-80/14 is to extend the protective procedure to all workers dismissed in the course of the same restructuring exercise, irrespective of the size of the establishment at which they worked. Conferring the maximum level of protection by downplaying the method of implementation would obviously be to the advantage of those workers who, under the current understanding of the concept at issue, are not entitled to any protective award. However, such an approach would not be consonant with the minimum harmonisation aim envisaged by Directive 98/59, which, as the Commission rightly stated at the hearing, does not contemplate as a starting point full protection for all - even where the number of dismissals exceeds the thresholds - as the temporal requirement must also be met.'

It is further of note that the AG focuses upon the argument that the definition was intended to address the impact of redundancies in 'a given local context and social environment'. In this context it is the local employment unit which is important and he was not persuaded that the social protection aim argued by USDAW required a different approach to be taken.

In the AG Opinion, where is the line to be drawn between the ECJ defining what is meant by 'establishment' and the role of the courts in member states in determining what will be treated as an 'establishment' on the facts of a particular case?

While his conclusion is that the key issue is the local unit to which employees are assigned he does note that what this means is a matter for domestic courts to determine in any given situation (para [62]):

'Lastly, it should also be made clear that it is for the referring courts in all three cases to determine how exactly the local employment unit is constituted in each situation, that being a factual matter. To take an example, if an employer operates several stores in one shopping centre, it is not inconceivable that all those stores should be regarded as forming a single local employment unit. As observed by the Spanish Government, that will depend on a number of factors: (i) whether the joint entity in question can be said to have a certain degree of permanence and stability; (ii) whether it is assigned to perform one or more given tasks; and (iii) whether its workforce, technical means and organisational structure are adequate for the accomplishment of those tasks. It is not necessary for the entity to have legal, economic, financial, administrative or technological autonomy in order to be regarded as an establishment.'

There is nothing radical in UK courts and tribunals directing themselves to apply the definition in Rockfon. Organisationally it is possible an establishment may be found not to be limited to a specific geographical location--for example, a sales team to which employees are assigned that spans a wide geographic area. However, if the AG's observations that the intent of the Directive was to focus upon the impact of redundancies within 'a given local context and social environment' are reflected in the judgment of the court, this will add force to the argument that it will only be in an exceptional situation that the test applies so as to embrace an organisational structure which has wide geographical reach with the 'establishment' test.

What are the next stages for this litigation?

The next stage is the judgment of the ECJ. There were no indications at the hearing as to when the judgment of the court would be handed down. It is not likely to be before early summer 2015.

What should employers do now when calculating whether or not the trigger points for collective redundancy have been met?

In the interim, while the AG's Opinion will give cautious optimism to employers, it is prudent to approach collective redundancies on the basis that the EAT decision remains good law.

David Reade QC is recognised as one of the country's leading silks in commercial litigation and employment law. He has appeared in many leading authorities.

Interviewed by Kate Beaumont.

This first appeared on Lexis PSL Employment

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.


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