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EU ruling on collective redundancy could be good news for employers

James Watkins - Law on the Web

  1. 12 February 2015
  2. Employment
  3. 0 comments
Redundant man

Rules regarding collective redundancies could soon revert to their original form, if the opinion of Nils Wahl, Advocate General for the Court of Justice for the European Union, is anything to go by.

The European Court of Justice is due to make a ruling on Council Directive 98/59/EC, which sets out what restrictions EU member states can set for collective redundancies.

As the law stands in the UK, any employer planning to lay off more than 20 employees across the company must consult employees collectively – this means that the employer must consult with an employee representative (either a trade union rep or an employee nominated by their peers) to discuss why the redundancies are being made, as well as any measures they could take to limit or avoid redundancies.

Until 2013, employers only needed to conduct this consultation if they were planning to make 20 or more employees redundant from a single “establishment” within a 90-day period – for example, if a retail chain owned a number of different shops, they would not need a collective consultation to lay off 20 employees unless they all worked in the same outlet.

Woolworths and Ethel Austin

This changed in the wake of mass redundancies made by major retailers Woolworths and Ethel Austin, both of which went into administration and eventually out of business. Woolworths employees from smaller stores did not, by law, need to be consulted collectively, even though the number of redundancies across the business numbered in the tens of thousands. As a result, around 3,200 former Woolworths workers missed out on redundancy payments.

The Union of Shop, Distributive and Allied Workers (Usdaw) took up the sword on the behalf of these employees, and the Employment Appeal Tribunal ruled in May 2013 that the reference to “at one establishment” should not apply when it came to redundancies affecting more than 20 people.

This meant that not only would the affected Woolworths and Ethel Austin employees receive their compensation, but that all employees in smaller establishments in future would be entitled to the same redundancy rights.

The ECJ steps in

However, Nils Wahl, Advocate General at the European Court of Justice, has now advised that the UK’s original position on collective redundancies would not be at odds with EU law.

“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,” he said. “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.”

If the European Court of Justice follows the Advocate General’s recommendation, which they are expected to do, the government would be free to restore the original “20 or more within one establishment” restriction, as they attempted to do by appealing the case at the ECJ.

The move has been heralded as a boon for employers, with employment lawyers saying that it would reduce the costs and red tape associated with redundancies.

“Collective consultation is not only time-consuming – delaying redundancies by at least 30 or 45 days, depending on numbers – but can also be a huge drain on management time,” said Nicola Kerr, head of employment at King & Wood Mallesons. “If this opinion is followed by the Courts[...]this will mean fewer collective consultation exercises and fewer burdens on employers.”

A step too far?

Chris Saunders, employment advisor for DAS Law, agreed that the Advocate General’s opinion was good news for employers.

“The broad reading of ‘establishment’ is, in my view, a step too far and fails to correctly balance the competing interests between employer and employee,” he told Law on the Web. “A reversal of the EAT’s decision will effectively mean that collective redundancy situations will once again become less common, resulting in significant savings in both administrative resource and financial expense; and this can only be a righteous consequence.”

However, he added that the Advocate General’s position did not guarantee that the ECJ would follow suit, or that the law would revert back to exactly how it was before.

“The comment from the Advocate General that it will be for national courts to determine the extent of each employment unit, giving the example of several stores in one shopping centre forming a single employment unit, may also be of relevance,” he said.

“For the time being however, we are left with no further clarity in the area of the law, and employers will be well advised to adopt the cautious yet admittedly frustrating approach by taking into account proposed redundancies across all of the business.”

Usdaw was disappointed by the ruling. John Hannett, the union’s general secretary, said: “It makes no sense that workers in stores of less than 20 employees were denied compensation, whereas their colleagues in larger stores did qualify for the award.

“These were mass redundancy situations where one central decision was made to close the whole company down, with no individual analysis of the viability of each store on a case-by-case basis.”

The ECJ’s ruling on the matter is not expected for another six months.

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