UK: "Establishment" Made Redundant

Last Updated: 7 November 2013
Article by Davenport Lyons

The Employment Appeal Tribunal (EAT) has reached a landmark decision in relation to collective consultation regarding the words "at one establishment" in section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA). The decision in the joined cases of (1) USDAW (2) Wilson v (1) Unite (2) WW Realisation 1 Ltd (3) Secretary of State for Business, Innovation and Skills adopts a bold, purposive construction of the legislation.

The cases concerned former employees of Woolworths and Ethel Austin who claimed protective awards following a failure to consult on collective redundancies. The tribunals in each case construed the legislation to mean that each store was a separate "establishment" so that the duty to consult was not engaged for the stores which employed less than 20 employees. In cases where awards were made the Secretary of State was liable to make the payments (as a guaranteed debt under Part XII Employment Rights Act 1996) as both companies were insolvent. The tribunal decisions deprived approximately 4,400 employees of a protective award, worth 60 days' pay for Woolworths' employees and 90 days' pay for those of Ethel Austin. Those employees appealed.

On the appeal the EAT carried out a detailed review of the domestic and European legislative provisions and case law. It noted that the purpose of the EU Directive on collective redundancies is to protect workers' rights. The Directive gives two choices as to implementation. The UK has opted for the second option which states that the information and consultation obligations shall be applicable where the number of redundancies is contemplated "over a period of 90 days, at least 20, whatever the number of workers normally employed in the establishments in question."

Section 188 of the TULRCA states that the consultation obligations apply where "an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less" (emphasis added). The EAT investigated where the words "at one establishment" had come from and found no reference to them in the relevant consultation documents, in the Hansard debates on the legislation or in the explanatory notes to the Act. In EAT's view the domestic provision in section 188 is more restrictive than the Directive, which simply refers to the dismissal of 20 or more employees. The restriction added by the reference to "one establishment" in section 188 means that very substantial numbers of employees are excluded from protection.

The problem at issue in this case had been recognised in the 2002 case MSF v Refuge Assurance but the EAT in that case had thought that they could not remedy the problem by construction. However, the EAT in the instant case felt that things had moved on and were particularly influenced by two later decisions relating to the construction of domestic statutes to accord with European law.

The first was the 2004 case of Ghaidan v Godin-Mendoza in which the House of Lords construed the words "husband and wife" to include same-sex partners, as such interpretation was necessary to give effect to rights under the European Convention on Human Rights.

The second case was the 2009 case of Attridge Law v Coleman in which the EAT added words to cover associative disability discrimination as it was obliged to interpret a domestic statute as far as possible to comply with EU law.

Having considered the case law, the EAT held that the words "at one establishment" should be deleted or "blue lined" from section 188 as a matter of construction pursuant to the obligations of a Member State to apply the Directive's purpose. The employees' appeal was allowed.


The implications of this decision are significant; once it is proposed that 20 or more employees in a single business are to be made redundant within a 90-day period, their place of work will become irrelevant for the purpose of triggering consultation obligations.

Although the Secretary of State was not represented at the initial hearing, he has been granted leave to appeal to the Court of Appeal.  This is on the basis that interpreting or reading words into a piece of domestic legislation to give effect to European law is significantly different to actually deleting words included in domestic legislation.  If the appeal is dismissed, this will significantly alter the current legal position on collective redundancy consultations (especially as the law not only applies to traditional redundancy situations but also to any dismissals where the reason is not related to the individual, such as dismissal and re-engagement on new terms of employment). Many more businesses may find themselves affected and have to organise the election of employee representatives, which may cause additional delay and cost. We report  on two cases where employers have been penalised for failures in the election process.

Although the decision (if it stands) will simplify the current predicament faced by multi-site companies when determining whether the collective consultation rules apply in the first place, the cost of failing to get it right will also be increased as all employees will be in line for a protective award. The penalties for failure to collectively consult are significant with a punitive award of up to 90 days' gross pay per affected employee available. Shopworkers' union, USDAW, estimates the total bill for the additional Woolworths and Ethel Austin employees to be in the region of £5 million. It is therefore hardly surprising that the Secretary of State has chosen to appeal.

We will keep readers updated as to the progress of the appeal. In the meantime, a reference has been made to the Court of Justice of the European Union (ECJ) concerning similar questions relating to the closure in Northern Ireland of the Bonmarché clothing store (Lyttle and others v Bluebird UK Bidco 2 Limited). However, the case was only published in the Official Journal in July 2013 and there is a long way to go before a judgment is given.

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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