“Establishment” established – European Court makes landmark ruling on redundancy consultation

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Posted in:HR and Employment|May 7, 2015 | Join the mailing list

Where 20 or more people are being made redundant at a single establishment within a 90 day period, the law requires the employer to engage in a process of collective consultation with employee representatives, beginning at least 30 days (and sometimes
at least 45 days) before the first redundancy takes effect.

When Woolworths went into administration and closed down it stores, the administrators worked on the basis that “establishment” meant each individual store. This meant that where a store had less than 20 people working there, there would be no obligation to
engage in collective consultation with representatives of the employees working at that store. The trade union, USDAW, disagreed however and argued that “establishment” meant the business as a whole, and looked at this way there were more than 20 employees
being made redundant at a single establishment and so collective consultation was required with representatives of all of Woolworth’s employees.

This led to Employment Tribunal litigation, with USDAW arguing that the administrators had failed to comply with their collective consultation obligations and that compensation (known as a protective award) should therefore be paid to the affected employees.

Up to then, the law in the UK had seemed clear on this point, such that “establishment”, in this case, would mean the individual store and not the whole business. However, USDAW argued that European law required the UK law to be interpreted differently and
in line with USDAW’s position that “establishment” meant the business as a whole.
                                 
The case eventually progressed to the Court of Appeal, which then asked the Court of Justice of the European Union (“CJEU”) in February 2014 to clarify the meaning of “establishment” under the EU Collective Redundancies Directive. In February 2015, we reported
that EU Advocate General Wahl had delivered his formal opinion to the CJEU, stating that “establishment” within the EU Directive meant the “local employment unit” where workers “are assigned to carry out their duties” and saying that it would be up to the
EU member states’ national courts to decide how that unit should be identified in each case.

The CJEU does not necessarily have to rule in accordance with an Advocate General’s opinion, but it is usually the case that it does so and it has now done so here.

The full CJEU judgment can be read here and the effect of the judgment is that in determining whether collective consultation is required, an employer should look at whether there are 20 or more people being made redundant at a particular “employment unit”.
For example, if three stores are closing and each store only has 15 employees, then collective consultation will not be required. If three stores are closing and one has 25 employees and the other two each only have 15, then collective consultation will only
be required with representatives of the employees at the store with 25 employees.

The case now goes back to the UK Court of Appeal to apply the CJEU’s ruling on “establishment”, but this is likely to be a mere formality, with the Court ruling that there was no obligation to consult with representatives of Woolworth employees who worked at
a store employing less than 20 people.

The CJEU ruling will doubtless be welcomed by many employers and of course it’s an unwelcome outcome for USDAW and for other trade unions. However, even with this ruling there will still be cases in future where it’s not straightforward to determine what constitutes
an individual “employment unit” and consequently there will still be a need for careful consideration of the facts and for specialist advice.

For more information about any of the above or for practical commercial advice on this or any other aspect of employment law, please contact
Nigel Crebbin of the Berg Employment Team on 0161 833 9211 or email him at
nigelc@berg.co.uk.

Follow us on Twitter: @Berg_HR

(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice should
be obtained before taking, or refraining from taking, any action as a result of this article.)

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