Judgment published on Woolworths decision

Significant changes to redundancy collective consultation

Relatively early on in our careers lawyers learn the maxim that “hard cases make bad law” and the recent USDAW / Woolworths decision is another unfortunate example of this maxim. The Employment Appeal Tribunal (EAT) have rewritten UK law around when collective redundancy consultation needs to occur changing the position that most in HR have been used to since 1992.

Collective redundancy consultation where the employer needs to consult with representatives of the potentially affected employees ought to happen where 20 or more employees are to be made redundant within a 90 day window. Employers had previously considered this could be dealt with on a relatively local level – e.g. dismissals from the Glasgow office were unlikely to count towards the 20 when considering redundancies in the London office. This approach was taken on the basis that UK law requires the 20 or more employees to be proposed to be dismissed at “one establishment”.

In this case, the administrator of the failed retailer Woolworths dismissed the entire workforce due to economic conditions. Staff in locations where there were 20 or more employees received payments in respect of the breach of collective redundancy consultation of 60 or 90 days pay. The hardship was that 4,400 employees, who in some cases were a short distance away from colleagues but had the misfortune to work in stores without 20 or more employees, received nothing.

In an attempt to lessen this hardship on the employees, the EAT ultimately rewrote an act of parliament to remove the restriction of the 20 or more needing to be in one “establishment”. Importantly it held the “establishment” was not a single store or even a group of stores organised on a regional basis, but an unlawful restriction that should be removed. In reaching this conclusion, the EAT based its decision in the European law roots of the collective redundancy consultation obligations and held these European roots gave the EAT the ability to re-write the wording of a UK statute.

The significance of this will be immediately obvious to those working in HR. Any dismissals across a national business now count towards triggering the threshold for consultation irrespective of where those dismissals occur. The practical issues are myriad and include:

  1. How will the employer even know what various local managers may be doing now that dismissals 800 miles away may count? How can this be tracked and controlled? Small scale redundancy decisions are often made on a local level within the same business and may now require careful central coordination.
  2. Will the desire of the employer be to hold collective consultation or engineer dismissals so that they fall outside the 90 day window? HR operations staff are likely to be assembling calendars with pin-pointed dismissal dates. Termination dates could be staggered with some employees working their notice or on garden leave with others leaving immediately with a payment in lieu of notice to engineer a dismissal pattern below 20 dismissals taking effect in 90 days.
  3. As the ability to bring the collective redundancy claim is usually with the employee representatives it gives trade unions or a vocal minority of troublemakers a potentially large lever to use against employers in other contexts. It also means any union seeking to increase its membership is more likely to use a collective redundancy exercise as a platform to launch a membership drive.
  4. Equally as it is only “representatives” who can bring the claim, an employer establishing a standing staff forum with an appropriate constitution would be the only group empowered to bring a claim. Clearly a democratic standing staff forum could readily be utilised without undue delay where an employer is making a series of redundancies by using established redundancy selection criteria and with an agreed enhanced redundancy payment.
  5. Employers who wish to comply with these now expanded obligations will potentially find compliance reduces their ability to respond efficiently to market conditions. For employers with a large number of sites across the UK, employers are more likely to have to communicate dismissals across its whole business potentially causing further disruption and employee concern. HR will need to find appropriate methods of communicating dismissals appropriately and to maintain morale.
  6. Employers may wish to give careful consideration as to whether different business lines amount to separate establishments to avoid the need to collectively consult. In some circumstances this will be easy to determine, in others separating out business divisions into different corporate entities may be a sensible approach ahead of any redundancy exercise.
  7. A greater focus inevitably falls on HR to audit the trail of business decisions that lead to dismissal exercises. Appropriate notes as to the business rationale behind different dismissals might be enough to break the link even if those dismissals fall within the same 90 day window.
  8. As the EAT reinterpreted UK law, it should be noted that this has retrospective effect. Employees previously dismissed not only count towards the 20 threshold, but it is possible that employers have recently breached the obligations to consult. Employee representatives have 3 months’ from the date of the last dismissal in any 90 day period to bring a claim. Potentially this means any dismissals within the last 6 months could be fertile ground for a claim.
  9. Filing an HR1 form is now an area racked with difficulty. Previously we are aware of forms being rejected where it included different offices, possibly to keep the numbers of reported redundancies down. The particular problem is that unlike compensation for failure to consult which is a civil payment of monetary compensation, failure to accurately submit a HR1 is a criminal offence. The removal of the need to restrict the threshold to an establishment also has the same effect on issuing an HR1.

It is worth noting that neither Woolworths nor the Secretary of State for Business, Innovation or Skills participated in the case before the EAT. The arguments of the union put by a leading employment law QC therefore went to all intents unopposed. This also suggests there will be little chance of a further appeal where the arguments could be fully put, explored and challenged. The position is therefore likely to remain for some time. In seeking to avoid hardship on the employees impacted by Woolworth’s demise the EAT has undoubtedly increased the hardship on businesses seeking to respond to market conditions.

While this decision is likely to be un-susceptible to further challenge, there are several cases which have been referred to the ECJ on a similar point. Both the Leeds Employment Tribunal and a Northern Ireland industrial tribunal (in the case of Lyttle and ors v Bluebird UK Bidco 2 Ltd), have referred questions as to the correct interpretation of the term ‘establishment’ and whether ‘at least 20’ referred to the number of redundancy dismissals across all of an employer’s establishments, or to the number of dismissals per establishment. It will most likely be at least 18 months before we get any substantive further information, but UK businesses could find themselves in the unusual position of hoping the ECJ will deliver an outcome to overturn the decision of a UK Court.

As a final point, we should note that as Woolworths does not have the funds to meet the 4,400 awards against it, the financial burden of this decision falls on the tax-payer. Although the quantum of this is to be decided, assuming a sector average level of remuneration for the employees, this amounts to a total additional cost of over £21million. All of this arises from how the UK has picked and chosen which parts of the EU Collective Redundancies Directive to apply. It appears therefore we are all now paying for the last and most expensive pic n’ mix from Woolworths ever.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.