The much anticipated decision of the Court of Justice of the European Union (CJEU) on the meaning of 'establishment' for the purposes of collective redundancy consultation was handed down on 30 April 2015. This follows the ground-breaking change made to collective redundancy law in England & Wales in the Employment Appeal Tribunal's (EAT) decision in July 2013, USDAW v Ethel Austin and another – commonly known as 'the Woolworths case'. This case effectively re-wrote redundancy law when it established that collective consultation duties were triggered when 20 or more employees across a whole organisation were at risk; rather than 20 or more employees 'at one establishment' within the organisation. On appeal, the Court of Appeal referred this thorny question to the CJEU and Alastair Currie provides an update on their verdict that it is the number of employees assigned to each individual entity that is relevant when considering whether collective consultation is required.
The collective redundancy laws in England & Wales are set out in the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), which implements provisions in the European Collective Redundancies Directive 98/59/EC ('the Directive'). Section 188(1) of TULRCA sets out that employers' collective consultation obligations arise where they propose to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less.
A major issue that has plagued the transposition of the Directive in several Member States is the fact that a mismatch has occurred where the Directive refers to 'establishments' and the domestic legislation refers to one 'establishment'. The differentiation between singular and plural has caused significant problems – which has a knock-on effect on calculating the number of employees at risk of redundancy, and, therefore, informs whether or not collective consultation is required.
The financial implications for employers are obvious, as a failure to comply with any requirement to engage in collective consultation allows an employment tribunal to make a protective award of up to 90 days' gross pay for each employee affected.
Woolworths and Ethel Austin had both gone into administration, resulting in large-scale redundancies. USDAW complained to an employment tribunal regarding the failures of both Woolworths and Ethel Austin to engage in collective consultation.
The Tribunal found that each store was a separate 'establishment', making it less likely that the threshold of 20 or more employees at risk of redundancy would be reached and, thereby, dramatically reducing the likelihood that collective consultation would be triggered.
On appeal to the EAT, the thrust of USDAW's argument was that where it was proposed that 20 or more employees were to be made redundant, regardless of where they worked in the organisation, the obligation for collective consultation would be triggered.
The EAT was largely sympathetic to this argument, and in a ground-breaking change to redundancy law decided that the wording regarding 'one establishment' in TULRCA should not only be disregarded, but deleted. The judgment had the effect that a further 4,400 employees of Woolworths and Ethel Austin would be able to approach the Secretary of State for Business, Innovation and Skills (BIS) for their respective protective awards.
BIS took the case to the Court of Appeal, which in turn asked the CJEU for guidance on whether 'establishment' constitutes either:
• The whole of an organisation OR
• Each individual constituent part/unit within that organisation, such as an individual store (as in the present case) or potentially a hospital or factory.
Advocate General Wahl's opinion
Advocate General Wahl gave his opinion on the meaning of 'establishment' on 5 February 2015. Perhaps happily for employers, Advocate General Wahl stated an 'establishment' should denote "the unit to which the workers made redundant are assigned to carry out their duties". But he also noted that it was for Member States to decide whether aggregating the number of dismissals in all the employer's establishments is an appropriate way to verify the thresholds.
The CJEU's decision
The CJEU announced on 30 April 2015 that it will follow the Advocate General's opinion and has held that "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' for the purposes of Article 1(1)(a) of Directive 98/59." In a strong judgment that goes against the decision of the EAT, the CJEU stated that the term 'establishment' is a term of EU law and therefore "cannot be defined by reference to the laws of the Member States". It clarified that an 'establishment' constitutes a part of an undertaking, although this does not mean that the undertaking itself may not be synonymous with an establishment where that undertaking does not have more than one distinct unit.
It will now be for the Court of Appeal to make its final decision, in accordance with the verdict from the CJEU today. However, in effect, the CJEU's decision clearly suggests that it was permissible for the Employment Tribunal to find that each Woolworths and Ethel Austin store was a distinct entity or 'local unit' constituting an 'establishment' for the purposes of the Directive, so the expectation is that the EAT's decision should be reversed.
What does this mean for me?
This signals good news for employers whose organisation comprises several establishments, because the collective consultation threshold is likely to apply to each individual entity; not to the numbers of employees at risk of redundancy across the whole organisation. This means that it will be more difficult for the threshold for collective consultation to be met and, therefore, there is less risk that collective consultation obligations will bite. Clients, however, should still be careful about how they decide whether to engage the collective redundancy provisions under s.188 TULRCA. Should you wish to discuss the above or have any questions regarding collective redundancies, please contact me, or your usual Bevan Brittan contact.
Alastair Currie, Partner in the Employment Team, Bevan Brittan