Meaning of “establishment” clarified by the European Court

Tesco, Morrisons, Sainsbury’s, B&Q and Homebase have all announced plans to close a number of their stores, potentially resulting in significant job losses. These are uncertain times for the retail sector but some certainty has been provided by a decision today from the European Court of Justice (ECJ) which will be welcome news for many retailers and indeed employers of all sizes.

The issue in dispute is when does an employer have to engage in collective consultation about proposed large-scale redundancies and specifically, what is the meaning of “establishment” for collective consultation purposes? UK law requires that an employer is only obliged to consult collectively with staff representatives where they propose to make 20 or more employees redundant at “one establishment” within a period of 90 days or less (section 188 Trade Union and Labour Relations (Consolidation) Act 1992).

Background

The background to today’s judgment is the so-called Woolworths case (although other retailers, such as Ethel Austin Ltd were also involved).

Back in 2008 Woolworths went into administration. This resulted in almost 30,000  redundancies when stores, offices and distribution centres were closed and there was no collective consultation with the recognised trade union, USDAW about the proposed redundancies. This resulted in successful claims for “protective awards” to the vast majority  of the former Woolworths staff of £67 million. However, the Employment Tribunal held that a protective award should not be given to individuals who worked in stores with fewer than 20 staff because (in the Employment Tribunal’s view) the collective consultation obligations did not apply. This was because each store was treated as a separate “establishment” for collective consultation purposes. Around 3,200 Woolworths staff were affected by the Employment Tribunal decision.

On appeal, the Employment Appeal Tribunal (EAT) held that the words “at one establishment” should be disregarded, in order to give effect to the EU Directive which underlies UK law. The EAT effectively ruled that the reference to “establishment” was to be construed as referring to the whole of the relevant business, not merely any individual store or unit. This was a hugely significant decision because it widened the consultation requirements for employers with multiple sites, as well as leaving open the possibility of very large protective awards for thousands of Woolworths and Ethel Austin staff who had been employed in stores which had fewer than 20 employees. Not surprisingly, the Secretary of State for Business, who was liable to the pay the protective awards in light of the retailers’ administration appealed that decision to the Court of Appeal. The Court immediately stayed the proceedings and referred the matter to the ECJ for a preliminary ruling on the meaning of establishment.

Today’s ECJ judgment

USDAW argued that collective consultation encompasses a situation in which at least 20 employees of the same employer are made redundant over a period of 90 days whatever the number of workers at the establishments in question. In other words, the establishments where the redundancies are made. Further, it argued that establishment should be construed as consisting of the retail business as a whole. The ECJ disagreed and held today that:

• Where an “undertaking” comprises several entities the key factor in identifying the “establishment” where the individual works is the “unit” where the individual is assigned to carry out their duties, rather than the organisation as a whole.
• The dismissals effected in each establishment need to be considered separately and not aggregated across all of the establishments.
• UK law is not incompatible with the Directive on collective consultation.

Implications for employers

The judgment is good news for employers because in most cases, redundancies at a workplace with fewer than 20 employees won’t be caught by the collective consultation obligations even if the number of redundancies across the organisation as a whole exceeds that number. The starting point is to look at how many redundancies are proposed at the employee’s local workplace (like a local store or branch) rather than looking at the overall number of redundancies at the organisation as a whole.

Employers who have been concerned at the apparent widening of the cases where they needed to consult collectively on proposed redundancies will be relieved but if they are going through redundancy exercises, they will still need to consult their staff on an individual basis to ensure that a fair redundancy process is followed.

So is that the end of the matter? In theory, the case goes back to the Court of Appeal but a press release from USDAW today stated that the decision “marks the end of the road for our members from Woolworths and Ethel Austin”.

However, the apparent certainty provided by today’s ECJ decision could be short-lived. Back in September 2014 at the Labour Party’s National Conference, Labour stated that it would act on the EAT ruling that the threshold of 20 or more employees for collective redundancy purposes should be looked at across all of an employer’s establishments and not for each separate establishment. In fact, USDAW’s press release specifically states that the Labour Party “has pledged legislation” so that in large scale redundancy situations, workers from all workplaces affected will be treated as part of the same consultation.

There is no further information about how and when this pledge was made. There is nothing in the ECJ judgment that precludes a Member State from adopting a more generous interpretation of the European Directive, so it would be open to the government to do this. There could be interesting times ahead.