Making 20+ redundancies? What does the Woolworths collective consultation case mean for employers?
1 August 2013
Employers' obligations in a collective redundancy situation have been increased by the removal of the "establishment" test which previously triggered these obligations. The change comes from USDAW v WW Realisation Ltd, the case concerning the protective award previously made following the collapse of Woolworths. This is an updated version of our earlier article on the Woolworths case, which was written before the written judgment was available.
Employment Tribunal decision
Following Woolworths' financial difficulties in 2008, around 27,000 staff were made redundant. The Employment Tribunal originally decided that every individual store was a separate establishment. This meant that Woolworths' administrator was not required to pay the protective award (for failure to consult collectively) to any employees who were employed in stores with less than 20 employees. As a result, around 3,000 employees around the country lost out on a protective award.
Employment Appeal Tribunal (EAT) decision
The EAT has now reversed this decision and decided that the words "at one establishment" are inconsistent with the European legislation. The Judge therefore effectively deleted the words from the UK legislation. As a result, once an employer proposes to make 20 or more employees redundant, the collective consultation obligation will be triggered.
Implications for employers
This decision is a key change in the law. Employers thinking of announcing 20 or more redundancies should now consult collectively in more situations than previously. The financial risks of not doing so can be significant. Although the law changed recently to reduce the consultation period from 90 to 45 days where 100 or more redundancies are being made, the penalty is still up to 90 days' pay for failing to consult. In the Woolworths case the total amount awarded in respect of the failure to consult was £70 million and the EAT decision has added another £5 million to the award.
Given the limited role of trade unions, employers will be reliant on consulting with elected employee representatives. These representatives may be ill equipped to deal with the consequences of redundancies of employees who are employed at different locations and businesses.
There are other practical difficulties too. Large employers who have multiple sites may not have a centralised HR team, relying instead on local HR handling small redundancy exercises. Procedures should now be put in place for redundancy proposals to be tracked centrally, as a handful of redundancies in each of various locations around the country can trigger the collective consultation obligations.
The Government has applied for permission to appeal the decision. Given the importance of the issues, permission is likely to be granted. However, the appeal itself is unlikely to be heard until late this year or perhaps next year and may not succeed. In the meantime, employers should be aware of the change so that a conscious decision can be taken to comply with collective consultation obligations or accept the risk of not doing so.
For more information please contact Christopher Bushnell, Associate