In a significant recent decision, the High Court set aside an award of compensation made previously to a Debenhams employee by the Labour Court. The ruling also clarifies the statutory requirements for consultation under the Protection of Employment Act, 1977 in the context of collective redundancies during insolvency.
The former Debenhams employee was previously awarded the maximum four weeks' pay by the WRC, which was upheld by the Labour Court, for its failure to hold meaningful consultations in good time and/or at the earliest opportunity as required by the legislation. As this was a test case for up to 800 former employees who referred similar complaints to the WRC following the highly publicised Debenhams redundancies in 2020, the implications were potentially far-reaching.
This article explores the High Court's findings and offers practical tips for employers to ensure compliance with collective redundancy consultation obligations.
When Does the Obligation to Consult Begin?
When an employer proposes collective redundancies, the employer has an obligation to consult with employees' representatives "at the earliest opportunity" and "at least 30 days before the first notice" of termination of employment is given. This is set out in section 9 of the Protection of Employment Act 1977.
Until the Debenhams litigation, there were no court decisions in Ireland on what "at the earliest opportunity" actually means in practice, or what amounts to consultation under the collective redundancy legislation.
What does "at the earliest opportunity" mean?
The High Court held that "at the earliest opportunity" has to be considered within the practicalities of life on the ground at the time. The timing of the Debenhams redundancies was during both the first weeks of the global coronavirus pandemic and over the course of the Easter holiday period.
The timeline of events was as follows:
- Wednesday 8 April 2020 - letter emailed to the at 9.35pm from the UK parent company informing Irish Debenhams company that it would no longer provide financial support, which effectively meant that the Irish Debenhams company was insolvent.
- Thursday 9 April 2020 - Board of Directors met in the morning and resolved to recommend the winding up of the company and to comply with collective redundancy obligations. Administrators were appointed over the UK parent company.
- Friday 10 April 2020 – Monday 13 April 2020 – Good Friday and Easter Bank holiday weekend. There were informal communications between a trade union representative contact and the employer. The employer answered FAQs that had been submitted by the employees on the company portal and collated information for the purpose of sharing this with the union representatives.
- Tuesday 14 April 2020 – UK parent company passed a resolution to take steps to appoint provisional liquidators to the Irish Debenhams company. The employer sent a letter at 6.53pm to the trade union representative contact setting out detailed information.
- Thursday 16 April 2020 – Provisional liquidators appointed to the Irish Debenhams company.
- Friday 17 April 2020 – First consultation meeting held in the morning between the provisional liquidators, the Board of Directors and the union representatives.
April 2020
When does obligation to consult arise?
The Board issued several resolutions on Thursday 9 April, including that the Board would contact managers of each Irish Debenhams stores and relevant trade unions to advise them of the position.
On 9 April 2020 a letter was sent to all employees which informed them of the intention to apply for a provisional liquidator. The letter didn't specifically refer to redundancies, but the High Court stated that "it is clear from the tenor of that letter that redundancies would follow as a matter of course as part of the liquidation process".
The High Court held that the Labour Court was entitled to make the finding that the obligation to consult arose on Thursday 9 April, because the Board had resolved that the company was insolvent at that stage and the Board's resolutions indicated that they were aware of the need to consider collective redundancies.
What is consultation? And when did it begin?
Having determined when the obligation to consult was triggered, the next question was when did the consultations actually begin and what constitutes consultation.
Section 9 of the Protection of Employment Act 1977 sets out that consultations with employee representatives shall include
"the possibility of avoiding the proposed redundancies, reducing the number of employees affected by them or mitigating their consequences by recourse to accompanying social measures aimed, inter alia, at aid for redeploying or retraining employees made redundant" and "the basis on which it will be decided which particular employees will be made redundant."
Section 10 of the Protection of Employment Act 1977 sets out that for the purposes of consultations the employer shall provide "all relevant information" relating to the proposed redundancies to employee representatives, which includes reasons for the proposed redundancies, number of employees normally employed, information about agency workers and method of calculating redundancy payments.
This information was set out in the letter sent by the employer on Tuesday 14 April 2020.
The Labour Court had determined that the consultation began on Friday 17 April 2020, which was the first meeting between the provisional liquidators, the Board of Directors and the union representatives.
However, the High Court did not agree with this. It determined that while consultation cannot be delayed until all relevant information has been provided the employer, it is important that consultation is meaningful and that "the provision of basic information concerning the proposed redundancies is an essential part of the consultation process. It takes place in advance of the first consultative meeting so that that meeting may be productive." This allows employee representatives time to consider the extent of the proposed redundancies, and prepare proposals for measures, such as redeployment or retraining of employees, that might mitigate the effect of the proposed collective redundancies. The High Court noted that the legislation doesn't require a meeting to be held for consultation to begin.
Taking all of this into account, the High Court concluded that the consultation process in fact started when the letter was sent to the employees on Tuesday 14 April. While the word "consultation" wasn't used in the letter, the letter included all information required by section 10 of the Protection of Employment Act 1977 and clearly indicated that all roles were at risk of redundancy.
Consultation delayed, Consultation denied? All about the evidence
The Labour Court had determined that the delay of eight days from 9 April until 17 April 2020 had "limited the options available" in terms of coming to an agreement.
The High Court held the Labour Court had no evidence that options had been lost or otherwise unavailable due to any delay between 9 April and 17 April, and this finding of the Labour Court was therefore set aside.
Award of compensation
The High Court's position on the approach to be taken to an award of compensation in respect of breaches of the Protection of Employment Act is particularly significant.
The courts can award compensation for non-compliance with sections 9 and/or 10 of the Act "as is just and equitable having regard to all of the circumstances" of up to four weeks' pay for each breach. The High Court held that there wasn't any evidence that the employee had suffered any financial loss or additional distress because of any perceived delay and that, while compensation isn't limited to financial loss, it must be related to some form of loss or injury by the person being compensated.
The High Court looked at the reality of the situation – the company had to stop trading (or it would have been guilty of fraudulent or reckless trading), it couldn't make any agreements with employees until the appointment of a provisional liquidator (as that would be treated as unfair preferences and struck down by the High Court) and, while the news was devastating for employees, there was unfortunately nothing that the company could have done any sooner. In particular, the High Court noted that the power to award compensation under the Acts "is not the imposition of a penalty against the employer". The award of compensation made by the Labour Court was therefore set aside.
Tips for Employers
The decision is generally welcomed by employers insofar as it clarifies what is meant by "the earliest opportunity" and, in particular, that regard must be had to the "practicalities of life on the ground at that time' when determining this. The decision also makes it clear that awards of compensation under the 1977 Act must be linked to some form of loss or injury suffered by the person being compensated and should not simply be awarded as a penalty against the employer.
The Debenhams redundancies, however, were relatively clear-cut. The employer was effectively insolvent on Thursday 9 April and provisional liquidators were appointed a week later. In many collective redundancy situations, it is not always as easy to identify when the "earliest opportunity" arises.
We have the following practical tips for employers:
- Think about when the obligation to consult is triggered – once there is the potential for collective redundancies on the employer's agenda, carefully consider when is a decision made that collective redundancies are proposed.
- Share information as soon as possible – there were particular circumstances on the ground in this case, involving a backdrop of the Covid-19 lockdown and Easter bank holiday weekend, which justified the delay in commencing consultation and sharing information. However, it is unlikely to be as clear cut in most other circumstances and so it is important employers commence consultations as soon as possible.
- Mitigate the risk of employees suffering loss - even if an employer has missed the "earliest opportunity" deadline, share the required information as soon as possible to avoid employees suffering any loss because of the delay.
- Complete consultation before making decisions – remember that no decisions on redundancies can be made until after consultation. Redundancies are proposed and subject to consultation until then.
- Remember to notify the Minister for Enterprise Trade and Employment at the earliest opportunity – Since 2024, there is a third potential claim for employees in a collective redundancy situation. Employees can now bring a claim to the WRC where an employer/responsible person effects collective redundancies before the expiry of the period of 30 days beginning on the date of the notification to the Minister (section 14). The WRC can award up to four weeks remuneration for each breach, bringing the total potential compensation for breaches of the 1977 Act to 12 weeks per employee.
Debenhams Retail Ireland Limited (In Liquidation) (Appellant) and Jane Crowe (Respondent) – High Court judgment available here
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.
