UK: What You Need To Do About Recent Changes To Collective Redundancies Law

Summary and implications

Earlier this month, the EAT delivered its written judgment in the Woolworths collective redundancies case. The written judgment confirms the verbal decision (reported in our June alert) and, effectively, turns on its head employers' and their advisers' understanding of this area of law. The prevailing view, held for more than 20 years, was that the duty to inform and consult (under section 188 Trade Unions and Labour Relations (Consolidation) Act 1992) only arises where an employer proposes to dismiss 20 or more employees at one establishment. As a result, employers focused on redundancy numbers per site, not on a multi-site, business-wide basis.

The EAT's decision – to ignore the words "at one establishment" in section 188 – means that information and consultation duties arise once the threshold of 20 proposed redundancies is met across the business. Although the decision may be open to a challenge (see page 3), it would be imprudent to underestimate the impact of this decision.

  • Information and consultation duties: These will arise more frequently than before and may require the creation of a designated consultative body to avoid the need for frequent elections. The HR1 form (informing DBIS on proposed collective redundancies) will have to be filed to reflect business-wide proposals.
  • HR responsibilities: HR will need to maintain a close grip/knowledge of proposed redundancies throughout the organisation. It may also need to adapt communication and consultation methods – to ensure these are suitable for business-wide implementation.
  • Corporate structure: As the duty to inform and consult falls on "employers", some businesses may benefit from separating various divisions or geographical units, turning them into distinct corporate entities.

Information and consultation obligations will arise more frequently and will cover more employees

The immediate impact of the Woolworths decision is that the duty to inform and consult will arise more frequently, in more circumstances than before, and in relation to a larger number of employees. For example, in the past you did not have to consult when you made 10 employees redundant in one establishment and 15 employees redundant in another. However, following Woolworths, if both sets of redundancies are made within 90 days, the duty to inform and consult applies.

As a result:

  • If you do not already recognise a trade union, or have a standing body of employee representatives for collective consultation purposes, consider putting such a body in place. If you do not go down this route, you will have to arrange elections every time you hit the threshold of 20 proposed redundancies: this is both time-consuming and costly.
  • It makes sense to ensure that your existing (or soon to be elected) employee representatives represent multiple sites and roles (if possible) – to limit the overall number of representatives with whom you consult. Consider carefully how many representatives you need and how individuals can best represent different sites and roles.
  • If you carry out redundancies/reorganisation on a fairly frequent basis, consider whether to adopt a "rolling" information and consultation process, to minimise the risk of inadvertently failing to comply with your duties. This will provide some protection against the risk of a protective award being made against the business. However, you will still need to have accurate data and numbers, as you will need to fill and file form HR1.

The Woolworths judgment has retrospective effect and could result in claims by previously-dismissed employees (subject to time limits on tribunal claims). If you made 20 or more employees redundant in the last six months or so, you may be exposed to legal action and we suggest that you speak to your Nabarro contact.

The duty to inform and consult

Arises where an employer proposes to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less.

The employer must consult with appropriate representatives of employees who may be affected by the proposed dismissals or related measures.

Central HR functions will need to be kept in the loop regarding regional and single-site decisions

Small-scale redundancies decisions are often made on a site-by-site basis. The central HR function may not know about these decisions and, up to now, may have had no reason to get involved. This is going to have to change. In future, it is vital that someone (central HR?) keeps a close count on the total number of redundancies across the business. That individual/unit will also need to keep a close eye on the 90-day period within which redundancies are taking place, as the statutory obligations only arise where 20+ redundancies are proposed to take place within a 90-day period.

It is also vital to ensure that you carry out your information and consultation duties with affected employees wherever in the business they are: do not limit consultation to the distinct unit(s) where redundancies fall. This may require you to overhaul your communication and consultation processes. Think practically about how you can hold meetings, whether you have enough trained managers in each site and who can help you maintain employees' morale globally, during the process.

Finally, you will need to file form HR1 with DBIS as soon as the statutory threshold is met across the business. We are aware of at least one instance where DBIS rejected a form which recorded multi-site redundancies. However, bearing in mind that the failure to file form HR1 is a criminal offence, we recommend taking a cautious approach.

Affected employees

The duty to inform and consult applies only in relation to "affected employees". These include the individuals in the redundancy pool as well as employees who are affected by measures related to the dismissal (e.g. change to working hours or methods). Very rarely does the duty apply in relation to the whole workforce.

As the statutory duties fall on "employers", consider whether it is in your interest to change your corporate structure

The duty to inform and consult rests on an "employer". When the ECJ recently considered (Akavan) the Collective Redundancies Directive (on which the UK legislation is based) it regarded the employer to be the natural or legal person "who stands in an employment relationship" with the employees who may be made redundant. Further, the ECJ said that although the aim of the Collective Redundancies Directive is to protect employees, it does not restrict how groups decide to organise their business. This suggests that businesses which are divided into distinct employing entities may be treated as separate "employers" for the purpose of the legislation, so that the duty to inform and consult will only apply where each employer proposes 20+ redundancies.

Consequently, and bearing in mind the various potential impacts of the decision, some businesses may find it commercially advantageous (and cost-effective) to reorganise their commercial structures. Put simply, it may be advisable to make different divisions or geographically-distinct sites separate legal entities and employers, each with distinct obligations under section 188.

Is this the last word?

In the medium to long-term, the Woolworths decision may be challenged or reversed if:

  • an appeal is lodged. Realistically, only the Secretary of State is likely to lodge an appeal (Woolworths being in liquidation). However, the Secretary of State declined involvement in earlier hearings and may choose not to appeal;
  • the judgment conflicts with an earlier EAT decision: in the normal course of events employment tribunals will follow the later of the two judgments. However, bearing in mind the implications of the judgment, might a brave tribunal refuse to follow Woolworths?; and
  • the Northern Ireland tribunal has referred the question on the correct interpretation of "an establishment" to the European Court of Justice (ECJ). Although the relevant Northern Ireland provisions are found in separate legislation, the wording is identical to that found in section 188. A judgment, however, is not expected before 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Michal Stein
 
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