UK: Human Capital (Employment) Insight - It’s Not What You Do, It’s The Why That You Do It

Last Updated: 30 November 2007
Article by Sue Nickson, David Beswick, Nick Jones, Mark Shrives and David Whincup

Section 188 Trade Union and Labour Relations (Consolidation) Act 1992 provides that where an employer is proposing to make 20 or more employees at one establishment redundant within a period of 90 days or less, it has to consult collectively about the dismissals, including as to ways of avoiding them. Traditionally this has been taken to allow employers to present the circumstances leading to the proposals pretty much as a given, and then to move straight on to the consequences of that decision for the jobs of its workforce. In effect, "I have decided to shut the plant – now let us consult about what that means for your jobs", rather than "I am thinking of shutting the plant and there are very likely to be job losses if I do – now let us consult about the possible closure".

In UK Coal Mining Ltd v (1) National Union of Mineworkers (Northumberland Area) and anor., the Employment Appeal Tribunal has now held that s188 may require the employer also to consult over the reasons behind the redundancy proposals and not just the proposed redundancies themselves.

Over recent years UCM had experienced financial difficulties that reached a head in January 2005 when output at its Ellington colliery was suddenly halted by flooding. Having considered the financial implications UCM management decided that it would be cheaper to close the pit than pump it out. UCM notified the DTI of its closure decision and the 100+ redundancies which this would cause on 21 January. On 27 January 2005 it told its unions that the reason for the proposed redundancies was "health and safety matters". Despite the 90 day consultation period applicable to that number of redundancies UCM pressed ahead with the first compulsory redundancies on 26 February 2006, scarcely a month into the process.

Not surprisingly, the trade unions brought a claim in the Employment Tribunal that UCM had failed to consult properly with them. UCM argued that the flooding counted as "special circumstances" under s188(7), so excusing them from the consultation obligation. The unions’ claim was successful and the Tribunal awarded the maximum protective award compensation of 90 days’ pay per affected employee. In its decision the Tribunal considered whether UCM had been under a duty to consult over the reason for the closure as well as the knock-on consequences of the closure decision for jobs. It accepted the traditional thinking that there was no such obligation. However, it also underlined the importance of ensuring that information provided for consultation purposes was true and supplied in good faith. This arose because it took the view that UCM had deliberately misrepresented the reasons for the closure by stating that it was for health and safety rather than economic reasons, a factor which weighed heavily in its making the maximum protective award.

UCM appealed against the maximum protective award on two grounds. The first, which even its own Counsel admitted to be unattractive (never a good start to a legal argument, but probably done to protect his own reputation!), was that since it was not obliged to consult about the reasons behind the closure decision, the fact that it had deliberately mis-described them to the unions did not matter and should not have been held against it in the assessment of the protective award. This received a predictably terse brush-off from the EAT – "we do not think that [it] erred in taking a grave view of the deliberate deception that was perpetrated by the employer in their dealings with the unions". Ouch. In any case, it is fairly well established that the protective award is assessed by reference to the seriousness of the employer’s failure to comply with the duty to consult (which was more or less total) and not by whether that failure made any difference to the end result.

Second, UCM said that the special circumstances defence had been overlooked by the Tribunal. This was also rejected on the grounds that UCM had provided no sufficient evidence showing either its financial problems or the flooding to be so cataclysmic as to constitute those circumstances, there being a heavy burden on the employer to prove this. Its evidence was "back of an envelope" stuff, said the Tribunal, and to the EAT’s scarcely veiled displeasure, neither of the two senior decision-makers from UCM appeared as witnesses. In any case that defence is only available where the employer still does what it can to consult, and the Tribunal did not feel that this had been the case either.

Perhaps sensing the chance to score points off an employer already on its knees, judicially-speaking, the unions also appealed, contending that the Tribunal had erred in finding that there was no obligation to consult also over the reasons for the closure of the colliery. They argued that if the obligation to consult under s188 arises only when the employer has already decided to close the establishment and that decision is not open to discussion, then the consultation required in relation to ways of "avoiding" redundancies must be a sham - the decision to dismiss the employees has effectively already been made as an automatic consequence of the initial closure decision. What would be the point of s188(4) requiring the employer to provide the reasons for its redundancy proposals if there is then no consultation about them?

The EAT agreed with the unions’ submissions. In its opinion, the duty to consult does not arise only when the employer has already made the decision which triggers its redundancy proposals (as the previous case law held) but at an earlier stage - when the employer formulates the intention to take a potential course of action that could lead to the dismissal of employees because of redundancy. As a result, UCM’s consultation over ways to avoid potential redundancies required by s188(2) should have included the reason for the closure of the site. UCM should therefore have consulted with the trade unions about the reason for the closure of the Ellington site, as this was the real reason for the dismissal.

This begs an immediate question – how clearly must there be a link between the commercial decision taken (not just a closure but, for example, a decision to merge, to discontinue a specific service or product, or to introduce new methods or machinery) and the consequent redundancies? The EAT’s decision offers some reassurance to employers here. It said in particular that "in a closure context where it is recognised that dismissals will inevitably or almost inevitably result from the closure, dismissals are proposed when the closure is proposed", and "Where closure and dismissals are inextricably linked, the duty to consult over the reason arises". In other words, that duty arises only where there is a very high degree of certainty that taking the commercial decision, whether a closure or not, will lead to redundancies in sufficiently large numbers and over a sufficiently short period of time to trigger the collective consultation obligations.

What does it mean for me?

In such cases (very likely to include most site closures as a minimum) employers will certainly have to consider engaging with trade unions and employee representatives at an earlier stage in the decision-making process than before. There are obvious concerns as to the confidentiality of some of the commercial information that would have to be disclosed in the process of such consultation if it is to be meaningful, but s188 offers no help here!

It does mean that employers will have to be clear in their commercial thinking behind such proposals, though that of itself may be no bad thing, and may make the pill easier for the affected staff to swallow.

It does also mean that they will have to be careful about the background paperwork to such decisions – incautious emails between management members showing the, say, closure decision to have been made for all intents and purposes pre-consultation will be fatal to their defence of a s188 claim. No amount of lip-service to the consultation process will then really assist.

But remember that in the end, while consultation must be with a view to agreement, there is ultimately no obligation actually to agree. If it is the employer’s considered opinion (whether objectively correct or not) that the site must close, the shift or product line must be abandoned or that the new machines are the right way to go, it can still make the redundancies which those decisions entail. UCM does not transfer decision-making powers to the staff representatives, however much it appears to the contrary.

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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