Back to the future for the 'establishment' criterion in collective redundancy consultation - common sense prevails

30 April 2015


Employers will welcome today's (30 April 2015) judgment of the Court of Justice of the European Union (CJEU). It confirms that the UK can legitimately limit the threshold for redundancies necessitating collective consultation to those where 20 or more redundancies are proposed at a 'single establishment'.

The decision means that the law returns to its pre-Woolworths litigation position; employers must look at the 'establishment' question to decide whether the duty to collectively consult arises. It will be back to the future to argue, once more, about independence of management in a local context. There will be no automatic need for collective consultation where 20 or more redundancies are proposed across the business as a whole.

Why the kerfuffle?

Following claims arising from the collapse of Woolworths, an Employment Tribunal found that Woolworths had breached is collective consultation obligations. A key issue in the case was the concept of an 'establishment' for the purposes of determining whether the duty to consult was triggered.

The Tribunal held that each store was an establishment, rather than Woolworths' nationwide retail operations. Each store was physically distinct and had its own organisation and distinct purpose. Consequently, the duty to consult was not engaged in respect of stores with less than 20 employees and so employees at those stores could not benefit from a protective award.

However, on appeal in 2013, the Employment Appeal Tribunal (EAT) held that section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 did not correctly implement the underlying EU Directive. In the EAT's view, the words 'at one establishment' are to be disregarded for the purposes of any collective redundancy involving 20 or more employees.

This controversial decision meant that the duty to collectively consult would be triggered when proposing to dismiss 20 or more employees across the employer's business as a whole, no matter where the employee was assigned to carry out their duties.

Following a further appeal to the Court of Appeal, the crucial 'establishment' question was referred to the CJEU. The dispute arises as a result of discrepancies in the wording used in the UK legislation as compared to the wording of the underlying European Directive - see our alert of 5 February 2015 for further information.

What has the CJEU said?

The Directive does not require all 'establishments' to be aggregated for the purpose of the 20-employee threshold.

The CJEU agrees with the Advocate General's Opinion that the discrepancy in the wording of the UK legislation has not resulted from the Directive being implemented incorrectly. It is the inconsistent interpretation of the Directive into various languages that has caused the fuss.

The fact that some language versions of the Directive use 'establishment' (singular), but others use 'establishments' (plural), is irrelevant. Interpretation of the Directive by the courts must be consistent to ensure comparable protection for workers' rights across all Member States. Inconsistent interpretation of the Directive would entail very different costs for undertakings, which would be contrary to the EU legislature's objective of rendering the burden of those costs comparable in all Member States.

The CJEU has held:

  1. Where an undertaking comprises several entities, it is the entity to which the workers made redundant are assigned to carry out their duties that constitutes the 'establishment'.

    As previously established, an 'establishment' in the context of an 'undertaking' may consist of a distinct entity having a certain degree of permanence and stability. The entity need not have a legal autonomy, nor need have economic, financial, administrative or technological autonomy in order to be regarded as an 'establishment'. Thus, an undertaking may be comprised of several entities meeting the criteria for 'establishment'.
  2. The interpretation of the words 'at least 20' requires account to be taken of the dismissals effected in each establishment considered separately.

    The Court points out that to interpret it otherwise "would bring within the scope of the directive not only a group of workers affected by collective redundancy but also, in some circumstances, a single worker of an establishment - possibly of an establishment located in a town separate and distant from the other establishments of the same undertaking - which would be contrary to the ordinary meaning of the term 'collective redundancy'."
  3. As such, the Directive does not prevent national legislation that lays down an obligation to inform and consult workers in the event of the dismissal, within a period of 90 days, of at least 20 workers from a particular establishment of an undertaking, and not where the aggregate number of dismissals across all of the establishments or across some of the establishments of an undertaking over the same period reaches or exceeds the threshold of 20 workers. In other words, the wording of the UK legislation is not incompatible with the Directive.

What now?

For the former Woolworths' employees, the CJEU observed that since the dismissals were effected within a retail group carrying out activities from stores situated in different locations throughout the United Kingdom, employing in most cases fewer than 20 employees, the first-instance tribunals took the view that the stores to which the employees affected by those dismissals were assigned were separate 'establishments'.

It is now for the Court of Appeal to establish whether the Tribunal was correct in classifying the individual stores as separate 'establishments'. So it is back to the future to argue, once more, about independence of management in a local context. While the CJEU has not conclusively determined that each individual store should be considered a separate establishment, the judgment strongly suggests that this was a permissible approach for the tribunal to take.

While we await the ultimate decision of the Court of Appeal, what is clear is that where an undertaking comprises several entities, there will be no automatic need for collective consultation where 20 or more redundancies are proposed across the business as a whole.


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