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First update on collective consultation: defining the triggers

11.05.20

In the first of what is planned to be five updates on collective consultation under the shadow of the coronavirus pandemic, David Reade QC and Daniel Northall examine the employer’s proposal for redundancy and the start of collective consultation.

Chaos is merely order waiting to be deciphered.

José Saramago, The Double

Friday 15 May 2020 may prove to be a watershed moment.

The Coronavirus Job Retention Scheme is presently due to end on 30 June 2020. With the Government keen to restart the economy and relax lockdown restrictions, it seems increasingly unlikely that there will be a blanket extension of the CJRS beyond its current expiry date. What seems more likely is a general run-down of the scheme, either through its withdrawal on a sector by sector basis or through a reduction in the amounts that can be claimed, to prevent the “cliff edge” which the Government has promised it will avoid.

If the end of the CJRS forces businesses to leave the period of stasis that the scheme facilitated, then businesses will equally be required to address the future. An aspiration of the CJRS was that it would enable businesses to “kick-start” their operations once they were allowed to resume trading. But what if, to continue the motoring metaphor, the engine will not start – either through insolvency or the realisation that the business cannot continue at all, or in its current form? Redundancies become a very real prospect.

Which brings us back to the date of Friday 15 May 2020. In the event employers realise that the end of the CJRS, or the terms on which it continues, means the business cannot continue in its current form beyond 30 June 2020, Friday 15 May 2020 is the date by which collective consultation needs to commence if the employer’s proposal for collective redundancies concerns 100 or more employees whose dismissals start from 30 June.

This is the first of five planned updates in which we examine key themes within the law concerning collective consultation presented in sequential order. Over the course of the updates we will consider:

  • The proposal for redundancies and the start of collective consultation
  • Representation
  • The mechanics and substance of consultation
  • Consequences of breach
  • Termination issues

There are some obvious practical and theoretical difficulties associated with undertaking collective consultation at a time when employees are scattered by the consequences of the coronavirus pandemic. They include analysing the employer’s proposal at a time of uncertainty, organising representation, ensuring effective communication and consultation and the interplay between the pandemic, the CJRS and the employer’s special circumstances defence. We will consider each of these difficulties over the course of our updates and more besides.

We wanted to start on an optimistic note for employment lawyers and their clients. Identifying practical solutions to problems posed by a proposal to make collective redundancies from a furloughed or post-furlough workforce is unlikely to involve the same degree of uncertainty as planning for furlough itself. The CJRS introduced a new legal concept (furlough) to be applied in novel circumstances, which often sat uneasily alongside an established legal order. For very understandable reasons, the guidance that accompanied the CJRS was often an exercise in plugging the gaps as the leaks appeared, rather than a single, all-encompassing description of the scheme. In contrast, collective redundancy consultation in the context of furlough involves the application of established legal principles with a developed body of case law, albeit to new or unusual circumstances. That is not to say that the answer will always be obvious or straightforward, but at the very least the answer will involve principles with which we are all familiar.

The initial stages of collective consultation

The trigger conditions for collective consultation and the timing of its commencement under s.188(1) TULRCA are well-known, but to recap, the obligation is triggered:

“Where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less…”

As to timing, consultation should begin “in good time” and no later than 45 days before the first of the dismissals takes effect where the employer proposes to dismiss as redundant 100 or more employee, or 30 days where the employer proposes to dismiss 20 or more employees within the prescribed 90 day period.

So when should collective consultation commence?

The timing of the start of collective consultation is not just a question of whether and when the employer forms a proposal to make collective redundancies. It is also a question of the subject matter of the proposal. Consequently, the issue of when collective consultation should begin throws an employer headfirst into two of the more troubled definitions within s.188: “proposing” and “establishment”.

Proposing v contemplating

Readers will be aware that, whereas s.188 speaks of a “proposal” for collective redundancies, Article 2(1) of the Collective Redundancies Directive (98/59/EC) speaks of the employer “contemplating” collective redundancies. There is in the domestic case law some tension as to whether those terms can be equated. Historically the focus has been on the need to achieve what was perceived to be the requirement of the Directive.

On the basis of the decision of the EAT in UK Coal Mining Ltd v National Union of Mineworkers (Northumberland Area) and another [2008] IRLR 4[1] the critical issue is when a strategic or commercial decision is taken (by either the employer or an entity which controls the employer) which compels it to contemplate or plan the redundancies. That case concerned closure which inevitably would involve redundancies and the duty was therefore engaged to consult on the proposal to close the entire mine.

Whilst the reasoning of UK Coal has held the ascendency there is a body of law at the level of the EAT which is inconsistent. The most helpful summary of the position is to be found in the decision of the Court of Appeal in United States v Nolan [2011] IRLR 40 at paragraph 36 onwards.

In its appeal before the Court of Appeal, the US sought to argue that, on the basis of the reasoning of the CJEU in Akavan Erityisalojen Keskusliitto Alek ry and others v Fujitsu Siemens Computers oy case C-44/08; [2009] IRLR 944, the decision in UK Coal was wrong and that “contemplating” under the Directive was closer to the pre UK Coal Case law on “proposing” than had previously been understood.

In particular that upon the true interpretation of the Directive, the consultation obligation is not triggered by a proposed business decision to effect the closure of a plant; and that the consultation obligation only arises at the later stage when the business decision has been made and the intention to make the employees redundant has been formed.The Court of Appeal’s analysis of the judgment in Akavan  concluded that it contained apparently confliting  passages on this issue and it made a reference to the CJEU on the point.

However, the CJEU[2] declined to answer the specific reference questions because of the scope of the application of the Directive: it did not apply to dismissals from a military base which were excluded from the scope of the Directive by Article 1(2)(b). The Court of Appeal ordered a further hearing to decide the Fujitsu point, expressing regret that it would have to do so without the benefit of guidance from the CJEU. However, the case was dismissed with consent by the Court of Appeal in April 2017 and the point remains unresolved.

The practical problem is that until another case arises which refers the same questions over the meaning of Akavan to the CJEU an answer will not finally be resolved.  The reasoning of the Court of Appeal is that Akavan leaves uncertainty, but there is no imminent prospect of the uncertainty being resolved. There is the added complexity that it may eventually fall to be decided in the UK at a point when a reference is no longer possible; or at a point when it is decided by the CJEU, but when the decisions of the CJEU are no longer binding on UK tribunals.

For the moment, it seems that the safe view is to assume that UK Coal remains good law. The key question is then whether the employer contemplates a strategic decision that would inevitably lead to redundancies.  It is then necessary to ensure that consultation can take place over that plan at a point at which it remains capable of change.

This rather extended discussion of the contest between “contemplating” and “proposing” has been necessary because the distinction is thrown into sharp relief by the uncertainties that surround redundancy planning during the coronavirus pandemic.

It is tempting to conclude that the economic picture is so uncertain that the duty to consult does not arise until the employer has formed a concrete proposal as to the number of redundancies and the affected employees. Indeed, some commentary has suggested that the existence of the CJRS and the inherent uncertainty of the pandemic mean that there cannot be a proper assessment of the potential redundancy situation such that any collective consultation undertaken would be premature.

We think there are inherent risks to this approach, for these reasons:

  • Firstly, the decision in UK Coal requires collective consultation to begin at a relatively early stage of the decision making process and an earlier stage than a plain reading of s.188 would suggest.
  • In the current circumstances, it is easy to conceive of situations in which employers take strategic decisions which require them to contemplate or plan for redundancies, even though the precise numbers of redundancies and the areas of the business affected are not yet fully formed. Redundancies may be the inevitable consequence of the decisions even if the precise numbers or locations have yet to become clear.
  • An employer is unlikely to be criticised for starting collective consultation too early than too late.
  • Collective consultation, even at an early stage of the employer’s decision making process, will still qualify as collective consultation that sets running the minimum prescribed period, whether 45 or 30 days.
  • If the employer has formed a “proposal” (which concept is interpreted consistently with the domestic and European case law), collective consultation should not be criticised as being too early to be meaningful. On the contrary, the current law regards consultation at an early stage as being a necessary component of the collective consultation duty.
  • There are real dangers associated with identifying the collective consultation obligation too late, given the fact a failure to file a HR1 form attracts criminal liability.

In all this, it should be remembered that the triggers for collective consultation are seen through the lens of the employer’s proposal. Whether the collective consultation duty has arisen can only be decided on a full and proper analysis of the employer’s decision making.

Establishment

Whatever the shape of the employer’s proposal, the duty to consult collectively is only engaged where the prescribed number of redundancies is proposed at a single establishment.

The approach to identifying the establishment is, unlike most other areas of the law on collective consultation, unlikely to be influenced by the unique circumstances of the coronavirus pandemic of the furloughing staff. It is simply a critical analysis of the structure of the employer’s business

That is not to say that the analysis is straightforward. Where the employer operates a single site business, the issue of establishment is unlikely to be problematic. However, where the employer operates a geographically and/or organisationally complex business, identifying the establishment or establishments becomes more difficult.

It is therefore necessary to explore the legal meaning of “establishment” in some detail.

“Establishment” is a Community law concept which again derives the Collective Redundancies Directive. Article 1 of the Directive gave member states a choice  over the implementation of conditions for triggering collective consultation. It provided as follows:

Article 1:

1     For the purposes of this Directive:

 (a)     ‘collective redundancies’ means dismissals effected by an employer for one or more reasons not related to the individual workers concerned where, according to the choice of the Member States, the number of redundancies is:

 (i)     either, over a period of 30 days:

—     at least 10 in establishments normally employing more than 20 and less than 100 workers,

—     at least 10% of the number of workers in establishments normally employing at least 100 but less than 300 workers,

—     at least 30 in establishments normally employing 300 workers or more,

 (ii)     or, over a period of 90 days, at least 20, whatever the number of workers normally employed in the establishments in question

Section 188 TULRCA adopted option 1(a)(ii).

in Rockfon A/S v Specialarbejderforbundet i Danmark [1996] IRLR 168, the ECJ determined that an establishment was something different to the employer’s entire undertaking. It interpreted “establishment” as designating, depending on the circumstances, the unit to which the workers made redundant are assigned to carry out their duties. It was not essential to the definition of establishment that a unit had its own autonomous management capable of effecting redundancies.

A more complete definition of establishment was given by the ECJ in its later decision of Athinaiki Chartopoiia AE v Panagiotidis [2007] IRLR 284 in which it clarified that an ‘establishment’, in the context of an undertaking, may consist of:

  • a distinct entity,
  • having a certain degree of permanence and stability,
  • which is assigned to perform one or more given tasks,
  • and which has a workforce, technical means and a certain organisational structure allowing for the accomplishment of those tasks.

Thus, not only is an establishment conceptually distinct from the employer’s entire undertaking, in most circumstances it is something smaller in size and scope.

Following these decisions, doubt still lingered as to whether the concept of establishment was unitary in its meaning and application across both sets of trigger conditions contained in Article 1 of the Directive. For example, in relation to option (ii) adopted by the UK, was collective consultation triggered where the employer proposed 20 or more redundancies at one establishment (as s.188 TULRCA explicitly requires), or across its entire workforce. The point was resolved by the CJEU in Lyttle and others v Bluebird UK Bidco 2 Ltd , Rabal Cañas  v  Nexea Gestión Documental SA and USDAW v Ethel Austin [2015] IRLR 577[3], which determined that the trigger is focused upon redundancies at one establishment in both options (i) and (ii) of Article 1 of the Directive. Section 188 TULRCA should therefore be applied in its unvarnished form.

Applied in this way, section 188 can lead to results which, on their face, appear arbitrary. Taking the collapse of Woolworths as an example, in which the establishment was defined as each Woolworths store: those workers employed at stores with at least 20 employees could claim a protective award, whereas those workers employed at stores with fewer than 20 employees could not, even though both sets of employees were equally impacted by the collapse of the business. The right to a protective award was determined by the sheer good fortune of being assigned to a store with at least 20 employees.

However, as  the decision of the CJEU in Lyttle makes plain, provided the definition of establishment is applied correctly, the consequences of doing so should not act as a deterrent.

One reason for this, as expressed by the CJEU in Lyttle, is that the Directive is not solely directed towards the social policy objective of ensuring consistent protection of workers’ rights in the event of collective redundancies. A further objective of the Directive is to harmonise the costs that such protective rules would entail for businesses. A wide interpretation of establishment would create discrepancies between member states of the costs involved in implementing collective redundancies.

A key characteristic of an establishment is that it is a ‘local’ unit of the undertaking. In Lyttle, the CJEU noted that:

  1. In paragraph 28 of the judgment in Athinaïki Chartopoiïa (C-270/05, EU:C:2007:101, [2007] IRLR 284), the Court held that since Directive 98/59 concerns the socio-economic effects that collective redundancies may have in a given local context and social environment, the entity in question need not have any legal autonomy, nor need it have economic, financial, administrative or technological autonomy, in order to be regarded as an ‘establishment’. 
  1. Consequently, according to the case law of the Court, where an ‘undertaking’ comprises several entities meeting the criteria set out in paragraphs 47, 49 and 51 above, it is the entity to which the workers made redundant are assigned to carry out their duties that constitutes the ‘establishment’ for the purposes of Article 1(1)(a) of Directive 98/59.

(emphasis added)

It is tempting to regard ‘local’ is this context as being purely geographical. Indeed the standard HR1 form, providing advance notification of collective redundancies to the Secretary of State, provides that “an establishment is the site where an employee is assigned to work”, suggesting that an establishment is defined only by its geography. We do not believe this to be correct and a unit of the business may be an establishment through its geography, through its internal organisation, or a combination of the two, provided the definition of establishment contained in the European jurisprudence is met. (For the avoidance of doubt, it is highly unlikely that the contents of the HR1 form will be taken as an aid to the interpretation of “establishment”).

It follows therefore that an establishment may in principle incorporate multiple locations. Conversely, a single location may incorporate multiple establishments. What matters is that each unit meets the definition of establishment. It may be that, in most cases, the geography and internal organisation of a business coincide. The paradigm example is a traditional high street retail business, in which the business is organised around distinct (in both a geographic and organisational sense) stores. However, such a coincidence is not essential to the existence of an establishment.

The need to focus also on the employer’s internal organisation is borne out in other, domestic case law.

Some of the domestic authorities pre-date the European decision of Rockfon and Athanaiki and therefore should be treated with caution. A more modern case, where a wider organisational approach was taken, and in which Rockfon was cited, is Mills and Allen v Bulwich  (EAT/154/99) . The employer company operated an outdoor advertising business with a number of sites throughout the country. It had three sales teams; the national sales team based in London, dealing with advertising agencies; the regional sales team, dealing with regional offices of advertising agencies, with team members based in Manchester, Birmingham, Bristol and Glasgow, and finally the direct sales team which sold poster sites direct to businesses. The employer originally proposed to dismiss the entire direct sales team as redundant and sought to argue that the establishments should be defined as the individual geographic locations, thereby limiting its collective consultation obligation.

The EAT disagreed and held:

“We reject that submission …. The question for the tribunal was, to which unit was the applicant assigned? Had the redundancies been announced locally at the Manchester office it may well be that Manchester would have been the relevant establishment for that purpose. However, these redundancies were directed solely to the direct sales team nation-wide. That organisation is capable of fulfilling the requirements of “a unit to which the workers made redundant are assigned”.

The Employment Tribunal so found. They were, in our judgment, entitled to do so.”

In Seahorse Maritime Ltd v Nautilus International [2017] ICR 1463 the EAT also acknowledged the possibility that an employer’s internal organisation could dictate, or at least shape the identity of the establishments within a collective redundancy.

Seahorse supplied crews of different nationalities to a client company which operated ships undertaking specialised engineering work worldwide. Following a decline in business, several ships were taken out of service and redundancy notices were issued to Seahorse’s employees on those ships. Nautilus, a trade union with collective bargaining rights, presented a claim for a protective award to the employment tribunal. Seahorse sought to argue that each ship was its own establishment and therefore a collective consultation obligation did not arise since fewer than 20 employees were assigned to each ship.

The employment tribunal found that, although most of the employees returned to the same ships for their tours of duty and most ships stayed in the same place, some employees were transferred to other ships in accordance with their contracts, and that the “establishment” to which the employees belonged for the purposes of section 188 and from which redundancies were proposed was not the individual ship to which they were assigned, which were not owned or operated by the employer, but the whole fleet.

On the employer’s appeal, the EAT found that the relevant establishment in such a service industry, set up to provide a certain type of labour, would be the unit within the employer’s organisation to which the employees were assigned and not that of the client for whom the employer provided services; and that no finding of fact or evidence had been relied on by the employer to show that it organised its business into individual ship-based units. Therefore, the employment tribunal was entitled to conclude that each ship was not an establishment for the purposes of section 188.

This decision is significant in two respects. It acknowledges that:

  • The manner of the employer’s internal organisation may be a decisive factor in defining the establishment; and
  • That is especially so in a service industry in which the employer may not own or operate the premises in which its employees work.

On appeal, the Court of Appeal concluded that each ship was a properly distinct establishment. In so doing, it arguably placed greater emphasis on the functional and organisational components of an establishment as opposed to its simple geography.

One final point of principle, briefly referred to above, ought to be considered in further detail. It is widely recognised that, whilst the definition of establishment is a legal concept of European origin, its application is a matter for the domestic courts and is a question of fact. One person’s view of the correct establishments may differ from another’s, with each having perfectly legitimate reasons for defining the establishments in their own way. The difficulty is neatly distilled in the following extract from the EAT’s judgment in Renfrewshire Council v Educational Institute of Scotland [2013] IRLR 76:

“By way of preliminary observation, the search for a ‘unit’ to which employees are assigned to perform their duties may throw up a number of answers each of which may for its own purposes be correct. This is a problem inherent in many systems of classification. The greater whole is always likely to include the lesser, and the lesser the least. Thus – to use an example debated during the appeal – a university lecturer may teach in a particular department, belonging to a particular faculty, which is itself part of a campus, which together with other campuses form the university. He might legitimately be said to be assigned to the department, the faculty, the campus or the university, or indeed to each and all. If in his case the legislation may be applied without error such that more than one might be the answer to the question ‘To which unit is he assigned for the statutory purposes?’, yet the legal answer which the court is required to give demands that one answer alone be given, it cannot be said that that court would be in error in choosing one rather than another: such a choice requires to be treated as an issue of fact, which so long as approached without error, taking into account only the permissible and all the materially relevant considerations, must stand on appeal even if the appellate court might have chosen differently. Yet in such a case a court is likely to strive to find some means other than that which is effectively the toss of a coin to assist determination of the question, for legal certainty is an important aspect of justice: predictability of outcome is important to employers and employees when arranging their respective affairs, and a lack of it likely to be costly.”

7 May 2020

David Reade QC

Daniel Northall

[1]             In which one of the authors came second, he is still grumpy about it.

[2]             [2012] IRLR 1020

[3]  Happily one of the authors did better in this one.

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